Coinbase Transaction

A coinbase transaction is the initial transaction in a new block. In this transaction, the miner is rewarded with Bitcoins and mining fees.

What Is a Coinbase Transaction?

All transactions on the blockchain are not the result of an exchange of coins between two people. For example, the very first transaction on a block, called a coinbase transaction, is different from the rest. Taking the Bitcoin network as an example, BTC was used for the very first transaction on the network. Inside the genesis block, it was a special transaction that structured reward. Similarly, every new block mined contains two or more transactions, the first of which is called the coinbase transaction. These reward transactions are given to the miner as a token of appreciation for their efforts. These result in the creation of new currencies that have never been spent before.

Rather than UTXOs, such transactions only have one input (the coinbase) and the reward in these transactions cannot be spent without receiving 100 block confirmations. The block reward and total transaction fees within the block are the outputs, which can be transferred to one or more addresses.

Surprisingly, Satoshi Nakamoto’s genesis block transaction, which was the first-ever coinbase transaction, cannot be spent. This is because, while being viewable on the blockchain, the transaction was not registered with a transaction database and hence cannot be spent. 

What Is the Genesis Block?

The genesis block, also known as block zero, was generated using Bitcoin, the first cryptocurrency. The block’s role was critical in getting Bitcoin up and running. On the 3rd of January, 2009, this block was built. It was distinct from the rest of the blockchain since it was the first to be created. As a result, the parameters for its production were different as well.

The genesis block of Bitcoin has a peculiar feature: Satoshi Nakamoto put a message in the block code that reads: “The Times 03/Jan/ 2009 Chancellor on the brink of second bailout for banks.”

This is the title of a story published in The Times on January 3, 2009, in which it was said that the British government was assisting and rescuing the banks.

As a result, the newspaper headline has been subjected to several examinations, resulting in the physical copy of the newspaper becoming a collector’s item. The fundamental reason for this is that the title is credited to Satoshi Nakamoto’s concept of producing a cryptocurrency without the need for bank interference.

The purpose for the message on the block is unknown because the Bitcoin’s creator, Satoshi Nakamoto, never said anything about it.

Characteristics of a Coinbase Transaction

When a new block on the blockchain is created, it contains a list of validated transactions. Each of these transactions is initiated by the blockchain’s users. Despite this, the first of these transactions is called the coinbase transaction. This transaction’s base amount is equal to the current active reward for mining that block.

This signifies that the value of this transaction is connected to the current block’s reward and is influenced by the current halving of the coin. Let’s not forget that halving is an event that occurs after every 210,000 blocks are mined in the Bitcoin network (or roughly after four years). Moreover, cryptocurrencies that operate like Bitcoin have their own halving and reward systems. The purpose of this halving is to cut the miner’s incentives in half and therefore keep inflation under control. The incentives in Bitcoin, for example, began with a value of 50 BTC every block. After that, they dropped to 25 BTC, then 12.5 BTC, and now it’s at 6.25 BTC. A coinbase transaction now has a value of 6.25 BTC, which is paid to the legitimate block miner or miners.

Miners are the ones who produce coinbase transactions, which gives it an odd quirk. Because the miner is the one who creates the transaction, he may be able to influence it. To circumvent this, the transaction reward may only be utilized after 100 confirmations. This guarantees that the block satisfies all of the criteria for being completely valid. This hedging feature is especially useful in the case of a blockchain fork since it protects the network’s coins.