What is a Transaction (Blockchain)

Life And Crypto
3 min readNov 11, 2023

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Photo by rupixen.com on Unsplash

Definition

  • In the blockchain world, transaction is a digital record for transfer of value between two or more entity and parties. Any record of transaction is stored in a distributed ledger called blockchain.
  • Blockchain transaction is usually initiated between two parties which is the sender and the recipient. Transaction information mostly include the amount of transfer, the sender and recipient address, and digital signature or private key of the sender.
  • The advantage of using a blockchain transaction is they are more secure, efficient and transparents than traditional transaction.

Type of Blockchain Transaction

  • There are two type of transaction in a blockchain which is on-chain transaction and off-chain transaction.

On-Chain Transaction

  • This is the kind of transaction that was recorded and visible inside a blockchain. Here are 3 examples of the most common on-chain transaction.
  1. Cryptocurrency Transfer
  • This is the most common type of blockchain transaction. It involves transferring a cryptocurrency from the sender wallet to recipient wallet.

Token Transfer

  • Token transfer involves transferring a token from one wallet to another. Token is a digital asset that mostly represent an ownership of physical asset, access of a service and many more. Most cryptocurrency that has utility in the decentralized network or real world is called a token.

Smart Contract Interaction

  • This one involves sending data or instructions to a smart contract. Smart contract is a self executing program inside a blockchain that was used to transfer asset automatically, execute an agreement, and managing token supply.

2. Off-Chain Transaction

  • Off-chain transaction usually is done by moving a certain transaction from a blockchain onto a secondary layer of payment channel. Even though the transaction is moved to a secondary layer, it still connected indirectly with the blockchain. Moving on, here are 3 example of off-chain transaction.

State Channel

  • This allow two or more parties to open a private communication channel to exchange certain data and asset without broadcasting it in a blockchain. But this channel must be opened and closed with an on-chain transaction.

Payment Channel

  • Payment channel is a type of state channel that is designed for micro payment which is a payment that is less than 1 USD. Most micro payment is not worth it to be broadcast inside a blockchain and a micro payment that was done inside a payment channel usually doesn’t have a transaction fee. Payment channel need to be funded and finalize using an on-chain transaction.

Sidechain

  • This is a separate blockchain that is linked with the main blockchain. It was used for processing transaction off of the main blockchain and settle the transaction back to the main blockchain.

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Feel free to read my other articles:

  1. What is Consensus Mechanism
  2. What is CBDC
  3. What is Stablecoin

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Life And Crypto
Life And Crypto

Written by Life And Crypto

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