What is Coinbase Transaction?
All transactions that take place on the cryptocurrency network are not the result of payment between two people. Some transactions are a little bit different. The first transaction that took place was in Bitcoin. It was a special transaction that formatted reward transactions for miners inside the genesis block (the very first block of a blockchain). Such reward transactions are specially allocated to the miner for their work. This type of transaction is known as a Coinbase transaction. These type of transactions generates new currencies that have never been spent (Like the printing of fiat currencies).
A bitcoin transaction is just the data that shows the movement of bitcoins from one wallet to another. In the case of coinbase transactions, it generates new currencies that have never been spent so the input remains blank in such transactions. The single blank input of a coinbase transaction is called ‘The Coinbase’.
A demo example of a coinbase transaction is taken here. The different credentials of a coinbase transaction are visible. The data given here does not refer to any original transaction.
Explanation of the different parts of the raw data:
Version 01000000 Number of Inputs 01 Transaction ID c0ece12b8657b19d8cce9506decf62f1c582894528756853b255f717b6768c94 Vector Output(VOUT) ffffffff ScriptSig Size 45 ScriptSig 03ec59062f48616f4254432f53756e204368756e2059753a205a6875616e67205975616e2c2077696c6c20796f75206d61727279206d653f2f06fcc9cacc19c5f278560300 Sequence ffffffff Output Count 01 Output 12dRugNcdxK39288NjcDV4GX7rMsKCGn6 Locktime 00000000
Characteristics of Coinbase Transactions
1. The first transaction in a new block: In most cases, the coinbase transaction is the first transaction in a new block. The reward generated by this transaction can be sent to a single or multiple wallet addresses like a normal cryptocurrency transaction.
2. Spending the Cryptocurrency from a Coinbase Transaction: The rewards earned by a coinbase transaction cannot be spent until they receive a certain number of confirmations in the blockchain. For bitcoin, the number is 100. Bitcoins earned from coinbase transactions cannot be spent until it reaches 100 confirmation in the blockchain.
3. Halving: After a certain number of successful blocks being added to the blockchain the reward generated for adding each successful block becomes reduced by 50%. This phenomenon is known as halving. This event occurs in bitcoin after every 210000 successful blocks are mined. For bitcoin the rewards for every successful block were 50BTC per block initially then it went to 25BTC currently came down to 12.5 BTC. The reward for each coinbase transaction is determined by this value.
What is Its Content?
These transactions have an entry, unlike the other cryptocurrency transactions the entry is not linked with the address of any other holder or sender. This entry is called the coinbase and this is responsible for the generation of new currencies as a reward to the miner within the blockchain. And to output the newly generated currencies this special type of transaction named coinbase transaction happens. This transaction points to the cryptocurrency wallet address of the miner and as per the choice of the miner, it can point to more than one wallet address. The block reward is collected including the fees charged by the user for every transaction.
Example of a real coinbase transaction from the official Bitcoin website:
How to Get the Value of Coinbase Transactions?
- The value of each and every input and output of the transactions are validated by the specific block are included.
- The height of the block or in a broader sense the number of transactions in the block are taken into account. The more transaction the more commission and fees.
- The halving relative to that block.
- Finally, the miner creates the coinbase transaction including the total reward and the fees. The reward is almost equal to the halving relative.
After all these the miner has to wait for a certain number of confirmations to generate and fulfill the value of the coinbase transaction.
Curiosities of Coinbase Transactions
1. The First Coinbase Transaction: While mining the first genesis block of bitcoin, back in 2009 Satoshi Nakamoto generated a coinbase that was paid to the bitcoin address ‘1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa’, the value of this transaction was 50BTC as per the halving factor of that time. But till then in this address has 50BTC and that cannot be spent. And surprisingly that block never got confirmed in the blockchain. According to many blockchain developers and scientists, the reason for this incident remains unrevealed. But there is a counter perspective. They confirm that the first coinbase transaction is encoded in the source code of the genesis block of bitcoin on which the entire blockchain is built so the concept of confirmation was not applied for this block as if the block gets unconfirmed a different blockchain will be built which does not make any sense.
2. Coinbase Maturity: A coinbase transaction can only be spent after a certain number of confirmations. For bitcoin, this number is 100. This rule is created in order to protect the blockchain from an event named fork. In this method, the miner can create as much BTC as they want if the rule of confirmations is not applied. So a coinbase transaction is mature if and only if it gets greater than or equal transactions of that certain number. And only after that, it can be spent.