You will trace a real bitcoin transaction on a public explorer and explain each part of it.
Darren finally opens a block explorer and clicks on a transaction. The page fills with long strings of letters and numbers, two columns of amounts that do not match, and a fee figure that seems to come from nowhere. He closes the tab. This exercise is for that moment. You will take one real transaction apart, piece by piece, until every number on the page makes sense.
Set aside about 20 minutes. You need a browser, any public bitcoin block explorer, and somewhere to take a screenshot and write notes. You do not need an account or any coins.
Open the explorer and click on a recent block, as you did for lesson 1.1, Bitcoin is a shared ledger that nobody runs. Choose a transaction inside it that has one or two inputs and two outputs. Those are the easiest to read, and they are very common because they are what an ordinary payment usually looks like.
Note the transaction ID, the block it was included in, and the time. Also note how many confirmations it has, which you met in lesson 1.2, Why proof of work makes the ledger hard to rewrite.
The left side, usually labelled inputs, shows where the money came from. Each input points to coins the sender received in an earlier transaction and has not spent yet. Bitcoin does not keep a running balance for each address the way your bank account does. It keeps a record of unspent pieces, and a payment uses up whole pieces.
The right side, labelled outputs, shows where the money went. One output is the payment itself. The other is usually the change output: the part of the input that is sent back to the sender, often to a fresh address the sender's wallet created. It works like paying for a S$7 meal with a S$10 note. The whole note leaves your hand, and S$3 comes back.
Telling which output is the change is not always certain, because nothing on the page labels it. A few clues help. The change often goes to an address that has never appeared before. The payment is often a round number in some currency, while the change is an odd leftover. And if the sender's wallet uses a particular address format, the change usually uses the same one. Write down which output you think is the change and why.
The fee is not listed as an output. It is whatever is left over: total inputs minus total outputs. Miners collect it as part of their reward for including the transaction.
Here is a worked example using made-up figures, so you can check your method before you try a real one.
Input: 0.0150 BTC Output to the recipient: 0.0100 BTC Change output back to the sender: 0.00498 BTC Fee: 0.0150 minus 0.0100 minus 0.00498, which is 0.00002 BTC
Now express the fee as a percentage of the amount sent. Divide the fee by the payment, not by the input: 0.00002 divided by 0.0100 is 0.002, or 0.2%. If you use the input instead, you understate the cost, because the change was never really being sent anywhere.
To make it concrete, suppose bitcoin were priced at S$90,000, another made-up figure. The payment would be worth S$900 and the fee S$1.80.
One thing will surprise you if you compare several transactions. Bitcoin fees depend on how much space a transaction takes up in a block and how busy the network is. They do not depend on the amount sent. A transfer worth S$50 and one worth S$50,000 can pay the same fee, which is why the percentage can look tiny on one and painful on the other.
Anyone in the world can see what you have just seen: the addresses, the amounts, the time and the chain of earlier transactions behind each input. You could click back through the inputs and follow the money for many steps.
What the ledger does not show is a name. Addresses are long strings with no identity attached. That is why bitcoin is described as pseudonymous rather than anonymous. The link between an address and a person can appear elsewhere. An exchange that verified your identity knows which addresses it sent coins to. Posting an address on social media ties it to your account. Analytics firms study patterns across the ledger to cluster addresses that probably belong together. Once one address is tied to you, everything that flows through it can be traced.
For Darren, the practical takeaway is simple. Treat every transaction you make as public and permanent, because it is.
Your finished piece is a single page. At the top sits a screenshot of the transaction with labels on the inputs, the payment output, the change output and the fee. Below it, half a page in your own words explains how the transaction was signed by the sender's private key, broadcast, picked up by a miner, included in a specific block and then buried under later blocks. It ends with one sentence on what a stranger could learn from this transaction and one on what they could not.
If you can explain your screenshot to a friend without looking at your notes, you have done the exercise properly. Choose your transaction now and start labelling.
Write a half-page explanation of one transaction you traced, including a labelled screenshot of its inputs, outputs and fee.
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