On-chain transactions explained - Web3 for beginners

📚 Web3 Academy · Cluster 4

How do on-chain transactions work?

What really happens when you send cryptocurrency - explained step by step. From the first click to the immutable entry in the network.

When someone sends money by bank transfer, it goes through a bank - a central authority that checks, books and confirms. On-chain transactions work in a fundamentally different way: there is no bank. The network itself takes on this task.

In a nutshell: An on-chain transaction is a transaction that is executed, checked and permanently stored directly on the blockchain - not by a central office, but by the network itself.

The land register on the marketplace

Imagine the blockchain as a huge, public land register in the middle of a city's marketplace.

👁️ Anyone can look inside

All entries are publicly visible. Who sent what to whom - transparent for every participant in the network.

✏️ No one can delete

No page can be torn out. No entry can be overwritten with Tipp-Ex. What is written once remains.

📋 Every transaction is an entry

An on-chain transaction is the process by which a new entry is officially and permanently written into this book.

🎯 The bottom line: an on-chain transaction is like a notarized entry in a book that never burns, never gets lost and that anyone can read.

From the first click to the entry - step by step

You want to send 5 coins to someone. What really happens? Here is the complete process - explained pictorially.

1

✉ ️

The order - the letter with a seal

You write a letter: "I, [your wallet address], am sending 5 coins to [recipient address]." To ensure that no one writes letters in your name, you seal it with your private key - your digital signature.

Important: The private key is not disclosed. It only serves as digital proof that you really are the owner of the wallet.
2

📬 The waiting room - the mempool

Your letter first lands in the mempool - a digital waiting room. Imagine a post office with thousands of letters lying on the tables.

The validators look at the letters and decide which ones to process first. Whoever gives a higher "tip" - i.e. pays higher gas fees - has their letter given priority.
3
🔍 The check - validation

The network checks every letter carefully:
- Do you really have 5 coins on your wallet?
- Is your digital signature genuine?
- Does the transaction comply with all network rules?
If everything is correct, it continues. If not, the transaction is rejected.
4

📦 Bundling - the block

Confirmed transactions are packed together with many others in a box - this is a block. This means that your letter is not in it alone, but together with hundreds of other confirmed transactions.
5

🔗 The seal and the chain - consensus

Now comes the decisive moment: the block is given a cryptographic seal - and is firmly linked to the previous block.

In the case of proof-of-stake networks, a validator is drawn by lot to apply this seal. As soon as the block is in the chain, it is part of the unchangeable history of the network.
✓
🏁 The confirmation - on-chain

As soon as the block is firmly established in the chain, the transaction is on-chain.

This means:
- Immutable: You would have to destroy the entire chain to delete this entry.
- Public: Everyone in the network can see that the 5 coins now belong to the recipient.
- Final: No company, no bank, no authority can reverse this transaction.

What is visible in an on-chain transaction?

All on-chain transactions can be publicly tracked via a blockchain explorer. You can typically see them there:

📊 The transaction data

Wallet address of the sender
Wallet address of the recipient
Amount sent
Time and date

🔎 The network data

Unique transaction ID
Paid network fees
Confirmation status
In which block it is contained

Why do on-chain transactions cost anything?

On-chain transactions almost always incur network fees - often called gas fees or network fees. Why?

⚙️ Processing

The network needs resources to read, check and forward each transaction.

💾 Storage

Each entry is permanently stored on the blockchain - this costs storage space in the decentralized network.

🛡️ Security

The fees remunerate validators for their work - and thus ensure the integrity of the entire system.

⚠️ Practical tip: Gas fees can rise sharply when the network is heavily utilized. If you do not need to send urgently, you can often save considerably by waiting for quieter times.

The most common mistake made by beginners

❌ Incorrect: "Sent" automatically means "finally arrived".

A transaction passes through several states - and only the last one is really final:

Status	What this means
📝 Created	The transaction exists in your wallet but has not yet been sent
📤 Sent	The transaction has been transmitted to the network and is in the mempool
⏳ Pending	The network has received them, but has not yet included them in a block
✅ Confirmed	The transaction is contained in a block and is on-chain
🏁 Final	After sufficient confirmations, the transaction is practically unchangeable

On-chain vs. off-chain - what's the difference?

Not every movement of crypto assets takes place directly on the blockchain. There are also off-chain solutions - for example, internal bookings on exchanges or layer 2 networks.

⛓️ On-chain

Stored directly on the blockchain
Checkable by all participants
Unchangeable and permanent
Causes network charges
Slightly slower at high utilization

🔄 Off-chain

Outside the blockchain - e.g. internally on an exchange
Faster and often cheaper
Less transparency, more trust needed
Can be collected on-chain later
Examples: Lightning Network, Layer 2 systems

Figuratively speaking: off-chain is like paying with a coffee card in a café - not every purchase is immediately entered in the bank's general ledger. On-chain is the real, direct entry in the ledger itself.

The stress test: What on-chain really means

The nice theory is: blockchain = instant, secure, transparent. The reality is more nuanced.

1

Not every transaction is finalized immediately. Depending on the network, the confirmation takes seconds to minutes - sometimes even longer if there is a high load.
2

Fees can fluctuate greatly. Gas fees increase considerably when there is a high demand for the network. This can make small transactions uneconomical.
3

Errors are usually irreversible. If you send to the wrong address, in most cases there is no way of correcting it. Diligence is a must.
4

Transparency does not automatically mean simplicity. The blockchain is openly visible - but often difficult for beginners to read without the right tools.
5

On-chain is secure, but not always convenient. Especially for small amounts or a large number of microtransactions, on-chain can be too slow or too expensive.

The mnemonic

On-chain transaction = Decentrally checked + Included in block + Permanently stored on the blockchain

🎯 The most important thing for beginners: an on-chain transaction is not just a click in an app. It is a real entry in a decentralized network that is checked and permanently documented by many participants - without central control.