Coinbase transactions are the first transaction in a block and are also a unique type of Bitcoin transaction that can be generated by a miner. Miners use it to collect the block reward for their work, and any other transaction fees collected by the miner are also sent in this transaction.
What is a Coinbase Transaction?
Not to be confused with cryptocurrency exchange Coinbase, the term “coinbase transaction” refers to a specific type of transaction that takes place in each new block of a blockchain.
Coinbase transactions are an important part of the system that blockchains use to introduce new currencies that have never been sent into circulation. The first coin base transaction was created by Bitcoin founder Satoshi Nakamoto while mining the first genesis block. It has been reported that 50 BTC worth of payments were made to Coinbase’s Bitcoin address “1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa”.
One of the biggest curiosities of the Bitcoin blockchain is that the block in question is never confirmed on the blockchain. This situation surprised many blockchain scientists and developers.
One theory is that this occurred because the initial coin base transaction was encoded in the source code of the genesis block. And since the entire blockchain is built on this formation block, the concept of confirmation has not been applied to it.
Another theory suggests that Nakamoto designed it this way because if the genesis block is not approved for some reason, it will cause a new blockchain to be built, invalidating the original blockchain.
The coinbase transaction is also used to reward miners for maintaining the blockchain. A certain amount of tokens is paid for each block they mine. This reward system creates an incentive for miners and helps keep the blockchain secure by deterring malicious behavior that could destabilize the network.
How Does a Coinbase Transaction Work?
Coinbase transactions have unique features such as maturity, fork prevention, and customizable texts. They also carry a different structure from other processes.
In the Bitcoin blockchain, all transactions performed on the chain are combined to form a single block. Once a block is created, it will be added to the blockchain immediately. These blocks are immutable and hack-proof thanks to the near-perfect code of the Bitcoin network. Each block must contain one or more transactions, the first of which is always called a coin base transaction.
Here’s how the Coinbase transaction works:
- Creating a block:To earn the block reward after creating a new block, a miner must first generate a coinbase transaction.
- Inputs: A Coinbase transaction has no inputs unlike a typical transaction that uses inputs from previous transactions. Instead, a coinbase transaction generates brand new coins out of nothing.
- Outputs: The Coinbase transaction has one or more outputs listing the addresses to which the block reward will be sent. Miners have the option to distribute the block reward to other addresses.
- Block reward: The block reward is currently BTC and halves approximately every 210,000 blocks. This reward is paid to the miner who validates the transactions and adds them to the blockchain.
- Mining fee:Miners can also add to the coinbase transaction a mining fee paid by the transaction creators to encourage miners to include their transactions in the next block.
The miner can include a coinbase transaction in the block he is mining, along with other transactions, and publish this block to the network after creating it. If the block is then reviewed and approved by other miners, it is uploaded to the blockchain and paid with the block reward plus associated mining fees.
How to Configure Coinbase Transactions?
Coinbase transactions are structured as the first transaction in a block, where the miner includes the amount of newly minted BTC as a reward for solving a complex math problem to verify transactions and create a new block on the blockchain.
Coinbase transactions have a special format. Compared to a normal transaction input, the base coin transaction has a different set of values that do not represent the unspent transaction output (UTXO).
