A bank transfer can be a time consuming operation, particularly on the back-end. The process requires banks to communicate with one another using banking infrastructure that was designed decades ago, and involves a lot of back and forth before the transfer reaches final settlement. These banks are often totally distinct from each other, sometimes located in different countries. Although a purely electronic movement of funds, it is a movement nonetheless, with money leaving the sending account and entering the recipient account.

Crypto transactions can be viewed in another way. Let us imagine instead a network incorporating every single account from every single bank on the planet, forming an all-encompassing ledger that tracks every transaction ever made. A crypto transaction is not so much a movement of funds, but a modification of the entire network, updating it to a newer state.

 A crypto transaction can be fully summarised by a transaction ID:

1. 0xefa7ccd7798b6893a3643c1b52dce8ec41f2eb0104db596227bd7e32d56edcdf
   
   

The above can be looked up, and the entire world can know the sender, the recipient, the amount, and a slew of other data.

Initiating a bank transfer requires entering information relating to the recipient’s account, including items such as an account number, bank code, branch code, bank address, etc. What about a crypto transaction? How do things work on a practical level?

In order to perform a transaction, the user needs three things:

1.   1. A wallet under their control
   
   

This first item is fairly straightforward. The user needs to be in possession of some cryptocurrency, contained within a crypto wallet. There are two situations here.

The first situation is that the user operates a wallet to which they own the private key. This allows them to send crypto using the wallet software of their choice and requires signing the transaction. Signing a transaction is a cryptographically secure process that ensures that the funds cannot be moved without the user’s key.

The second situation is that the user is using a wallet under a third party, for example a Coinbase or Binance account. Here, the wallet is not under the user’s direct control. The specifics of initiating a transaction depend on the platform they are using, but typically require a one-time authentication code instead of the private key.

1.   2. A sufficient balance (including for the transaction fee)
   
   

The second item is where things start to get a little more complex. The user obviously needs enough money in their wallet to cover the amount they wish to send, but they also need enough to cover the transaction fee. The transaction fee can vary greatly from one transaction to the next, even when using the same cryptocurrency. This is because fees are dependent on network congestion. The more people using the network, the busier it becomes, meaning people are willing to pay more to get their transactions finalised. On the Ethereum blockchain, transaction costs are known as gas fees, a naming convention that has since spread to other cryptocurrencies as well.

When sending funds from a third-party account, such as Coinbase or other platforms, the user will not typically have a say in choosing the transaction fee they are willing to pay. The rate is set by the platform and is included in a more general processing fee. However, if the user is sending funds from their own wallet, then they have the freedom to set whatever gas fee they please. Gas fees can be checked beforehand on various websites in order to estimate the cost of completing a transaction. The user may opt for a lower or higher fee depending on how urgent their transaction is.

1.   3. A destination wallet address
   
   

The third and final item is the one that can really cause problems. Unlike the case of a wire transfer, there are very few safeguards in place when making a crypto transaction. Self-custody is one of the defining aspects of the crypto industry. There is no one in the background to check all the details, no one to reverse the transaction if the information is incorrect. Once the funds have been sent, they are gone forever. Crypto transactions are completely irreversible. All this to say the user better get the address right.

This presents a problem, because crypto addresses are almost comically obtuse. Using the transaction ID above, we get the following address for the sender:

0x974CaA59e49682CdA0AD2bbe82983419A2ECC400

One wrong letter, one wrong number, one missing character and the funds are irretrievably lost.

In some ways, sending crypto from one user to another is much simpler than doing so between bank accounts. In others, it is much more complicated. Those new to the crypto sphere would do well to stick to some general good practices. Copy-paste the recipient’s address instead of typing it out; use QR codes whenever possible; start with a small test transaction first; check the destination address on a block explorer.

That last point is worth developing. Acquainting oneself with blockchain explorers is crucial to becoming a savvier crypto user. Returning once more to the transaction above, a block explorer unveils a lot of information:

Tx:                        0xefa7ccd7798b6893a3643c1b52dce8ec41f2eb0104db596227bd7e32d56edcdf

Date:                    2024-07-18 05:36:59 (GMT+1)

Block:                  20331065 (confirmations: 159)

From:                   0x974CaA59e49682CdA0AD2bbe82983419A2ECC400

To:                        0xfaCe3ba8E7064d6a2E8216601D305020926DF924

Gas Limit:           1,050,000

Gas Used:          46,097

Gas Price:           0.000000004935933289  ETH (4.936 Gwei)

Tx Cost:              0.000227531716823033  ETH ($ 0.78)

The transaction ID, or hash, is not merely a unique identifier. It is generated by hashing transaction data and therefore encodes the information relevant to the transaction within it. The above is only a fraction of the information available.

A block explorer will reveal all the transactions of the wallets above, all the transactions of the wallets they have ever interacted with, and so on. As we mentioned at the start of this article, a cryptocurrency is not simply a unit of transaction but instead an entire network. Blockchain explorers are therefore analogous to browsers, and they excel as such.

One may notice that both the addresses above begin with “0x”. This identifies them as Ethereum addresses. Bitcoin addresses always start with “1”, “3” or “bc1”. Other blockchains have their own standards. Becoming familiar with the different prefixes will undoubtedly help users navigate the crypto landscape. There are ongoing attempts to simplify the process of transacting cryptocurrencies, particularly with regards to addresses and making them more human-readable. Even should such tools become commonplace, being able to interact with the underlying technology in a more fundamental way is a noble goal that should be encouraged.

The double-edged sword of cryptocurrencies is that when people have full autonomy over their assets, they become solely responsible for them. One acquires more freedom, but more accountability along with it. To quote Spider-Man: with great power comes great responsibility.

Double-check that address.