Data Recorded in Bitcoin Transactions: The Fundamentals of Blockchain

Understanding Bitcoin Transaction Data

In our previous discussion, we explored Bitcoin transactions as transfer instructions and learned how they fundamentally differ from traditional bank transfers. Now, let's examine the specific data recorded in a Bitcoin transaction.

What Does It Mean to Own Bitcoin?

Imagine having money deposited in a bank account—your balance increases when someone transfers funds to you (e.g., a salary payment). Similarly, to "own" Bitcoin, someone must first transfer it to your wallet. While receiving Bitcoin as payment for services is possible, most users acquire it by purchasing through cryptocurrency exchanges using fiat currency.

Example: Transferring 0.1 BTC from User A to User B

Suppose User A receives 0.3 BTC from User Z, making them the transaction recipient on the blockchain. If this amount remains unspent, User A retains ownership.

Now, User A wants to send 0.1 BTC to User B. Here’s how the transaction works:

Input: The original transaction (TX 12345) from User Z (0.3 BTC).
Output: A new transaction (TX 45678) specifying:
- 0.1 BTC to User B.
- 0.2 BTC back to User A as "change."

Once TX 45678 is recorded in a block and linked to the blockchain, the transfer is complete. The original TX 12345 is marked as spent and cannot be reused.

Data Structure in Bitcoin Transactions

Bitcoin transactions record two primary components:

1. Input Data (UTXO)

References unspent transactions (UTXOs) by quantity and ID.
For large transfers, multiple UTXOs may be combined.

2. Output Data

Specifies recipient(s) and amount(s).
Uses Bitcoin addresses (public keys) tied to the recipient’s cryptographic key.
Enables encryption so only the intended recipient can claim the funds.

FAQ: Bitcoin Transactions Explained

Q1: Can a Bitcoin transaction have multiple recipients?
Yes. Outputs can specify multiple amounts and addresses (e.g., paying a recipient and returning change).

Q2: What happens to the original UTXO after a transaction?
It’s marked as spent and removed from the UTXO pool.

Q3: How are transaction fees determined?
Fees depend on data size and network demand, paid to miners for processing.

👉 Discover how Bitcoin's blockchain ensures secure transactions

Expanded Insights

Why UTXOs Matter

Bitcoin’s UTXO model ensures transparency by tracking unspent amounts like physical cash. Each transaction consumes existing UTXOs and creates new ones.

Advanced Use Cases

Smart Contracts: Scripts embedded in transactions enable conditional payments.
Privacy Coins: Alternatives like Monero obscure transaction details while borrowing Bitcoin’s UTXO concept.

Written by Dr. Hitoshi Ueno, adapted from OANDA Japan’s original article. Dr. Ueno is an engineer (Computer Science) and professor specializing in software research.