How Crypto Transactions Actually Work | From Wallet to Block!

Oh, here we are running into the underground crypto moonbased research laboratory. >> It is time to raise your crypto IQ once again. Like and subscribe the video. Share and stay grateful, my friend. >> Find it. Anyways, I'm going to tell you a short story about what happens after you click send in the world of blockchain, right? So, here's a short story to make it really visual for you. You open your wallet, you enter an address, you type an amount, and you press send. It feels instantaneous, but nothing has actually moved yet. What you create was not a transfer. It was a proposal, right? It's not instant. Uh your wallet constructed a transaction, an instruction saying change the state of the system in this specific way. It included your address, the destination, the amount, and a fee. Then it cryptographically

sign the instructions with your private key. That signature is critical. It proves that you authorized the transaction without revealing your key. It's like a digital fingerprint tied to your identity on the network. The transaction leaves your wallet and spreads. It travels node to node, moving across the network's peer-to-peer architecture. Each node that receives it checks whether it is valid. Does the signature match. Is the balance sufficient? Is the nons correct? If it passes validation, the transaction enters the memp pool, not the meme pool. You see, you're missing an E there. It's the memp pool. The memp pool is a temporary holding area, a public waiting room, per se, of pending state changes, right? Things that are pending to change the state, which is like the memory. It's like the list of what is going on, right? Here, transactions compete

for inclusion to be included. Validators then select transactions from the memp pool. Here's where your MEV attacks come in. Often, they prioritize those offering higher fees, paytoplay. They assemble a block, a package of ordered transactions and propose it to the network. Once accepted, those transactions become part of official history. But even then, certainty increases gradually. Each new block built on top strengthens confirmation, reversing a deeply confirmed transaction becomes computationally impractical. When you press send, you begin a journey. A transaction moves through validation, competition, ordering, and confirmation before becoming part of a shared reality. Crypto doesn't move money. It updates agreed upon state through a coordinated process. Did that make any sense to you? Do you understand where we're going with this? Does this build day after day that you come to the stream? That's what I want to know.

Throw 111 in the chat if you can feel your crypto IQ raising stream after stream and feel like also it's all tying together. All right, let's let's get to our regular talking points for when we're ready for them because chatbt likes to freeze up on me and just be slow because my uh my conversation here is really really really long trying to order order order my notes and order what I want to talk about. So, we already told you a short story about what happens when you start initiate a transaction in your wallet or anywhere else but usually with a wallet. Now, let's get into it a little bit more deep, right? Let's get into the the the meat of the matter a little bit more. So what a transaction actually is, a crypto transaction is a signed instruction

that proposes a state change, a transfer of tokens, call a smart contract, update ownership, execute logic. Just some examples of the different types of transactions that go on. It does not move instantly. It proposes change, right? Right? So it proposes the change and then the change has to go through all the necessary steps of validation to finally be included in a block taken out of the memp pool included in a block and then you get what you consider finality wallet creation and signing. So wallets construction transaction data include sender recipient amount gas or fee if you will and not. So the wallet signs this transaction with the private key that's what you're signing with. The signature proves authority right without revealing the key. Signature equals permission to be permission to be initiating the transaction. Right? Trying to simplify this

as much as possible. Broadcasting to the network. Once signed, the transaction is broadcasted to peers, right? Nodes receive it and propagate it across the network. They send a copy of it all over the place to different nodes for validation. Transaction spreads through node communication. And a lot of blockchains could be slightly different, but this is the foundation, right? This is the basis of how things work. The meme. Again, I always think meme pool. It's not. It's the me pool, right? Valid transactions enter the memp pool. A waiting area where transactions remain until it's included in a block. Memph pools contain pending state changes. So, if you sent a transaction in, right, and I've seen people do this on Ethereum, MetaMask um was had this option for a long time. I don't know if they still do where you could

pick, you know, low, medium, or high, how fast you wanted the transaction to go. And what you're really choosing is how much money you want to pay in a fee. So, if you would put a very low amount, well, basically, you're going to sit in the mem pool until all the people who are willing to pay more money to the validators, cuz who's making the money, the validators, who's putting through and and putting your transactions into groups, blocks, and then putting them up to the network to be validated or to be finalized. Um, finality, that would be your validator, right? And they're there to make money. And no shade on them. It's not shady. They're there to make money. They also have probably invested a lot of money on tech. And you know, like with certain things, you got

to hold a certain amount of the crypto to even be a validator. Sometimes you got to even lock it up. And so they've spent a lot of money to be in that position. And so they're going to take the people who want to pay the most money. And then as the, you know, as the what do you want to call it? There's a better word than I'm trying to use. But as the amount of people who are trying to get things validated comes down, the congestion on the network, that's what I'm looking for, right? As the congestion on the network comes down, they'll start processing those with a lower payout. But as long as the congestion on the network is high, they're going to just process the high ones. And before yours can get processed, probably new higher fees

come in and you could sit there for a while trying to save some money on your transaction and being very unsure if it's ever going to go through. So validation rules before inclusion, nodes verify the signature validity, sufficient balance, correct nons, and compliance with protocol rules. Invalid transactions are rejected. Block inclusion validators select transactions from the mem pool, often prioritizing higher fees. That's what I was just saying. and packaging them into blocks. Ordering determines final state transition, right? So, how they order them, how they go through, that's going to be the final ledger or the final state or memory of what happened, right? And that's where you get into MEV and and maximum extractable value. But MEV also just very much is a natural course of things, right? If somebody can extract a little bit more value by ordering

the stuff up. Now, of course, not every single person has the ability to choose the order. It's very much in the validators or bots looking at the information, right? and then running to front run or after run or sandwich attack you in some shape or form. There's many different ways they do it. Block confirmation. Once a block is accepted by the network, transactions inside it become part of a canaconical um canle sorry state. Additional blocks deepen confirmation and reduce reversion probability. Right? So the probability that it's going to be reversed is lower and lower the more blocks that are confirmed. And then of course finality which I've hinted at many times. Some networks provide probab probabilistic finality, right? I got to do like some warm-ups before I read this stuff. Bitcoin, Ethereum, proofof work error. Others provide strong deterministic

finality POS system. So, there's different nuances to how these things operate. Like for for instance, a mempool is very transparent on a lot of blockchains and it's open to me attacks, right? Because it's transparent and everybody can see the mempool. Well, there's some people who are wanting to do encrypted mem pools. And I believe some blockchains have already done it in several different types of ways, but you can encrypt it so that people can't really see the memp pool um while it's waiting so they can't mev. And I think that's a good idea. Okay, so finality determines when reversal becomes unlikely or impossible. Core insight here, the big takeaway. A transaction moves through stages and here they are. First, it's signed by you, right? you proposed it and then you signed it and then that gets broadcasted to all

the validators that then goes to a memp pool. Then it's pulled from the mem pool into blocks confirmation and then you have finality when it's all done and you can have the fruit of whatever you were trying to do. All right, that was a lot of fun.