What is Coinbase Transaction?

The term Coinbase Transaction is used to describe a special kind of transaction that can be created by a miner. What makes a coinbase transaction special is the fact that it’s the initial transaction on a block. Moreover, it’s a type of reward transaction since miners are able to use it as a means to collect coins and any other benefits. 

Let’s take the first-ever cryptocurrency transaction as an example. Bitcoin created its initial transaction within the genesis block. It’s offered up to miners to give out their rewards.

Coinbase transactions have a special requirement. There must be a number of 100 blocks that have confirmed the transaction. Furthermore, the coinbase acts as their one and only input while the reward and transaction fees of the block are the output. This output can be transferred through multiple addresses. 

Coinbase Transaction Features

Coinbase transactions hold a variety of characteristics that differentiate them from regular transactions on the blockchain.

First of all, miners don’t just create the blocks of a blockchain, they’re also responsible for creating the coinbase transactions. This raised some concerns in regards to the miners influencing these transactions for their own gain. Therefore, the developers took the necessary actions to eliminate this possibility. They did this by creating a system to guarantee that all of the criteria of a valid block have been met. Once the transaction has been confirmed by 100 blocks, the reward can be accessed. It also acts as a second layer of security in the case of blockchain forks. 

When a miner creates a new block, a list of blockchain users’ transactions that have been validated can be found. However, only the first transaction is considered to be the coinbase transaction. The value of this transaction links to the current reward of a block since the base amount is the same as the current active mining reward.

The halving event which happens every 210,000 mined blocks, or every 4 years, influences the value of the block reward. This halved value is what the miners receive for successfully mining a block. For instance, Bitcoin’s rewards started at 50 BTC per block, after the first halving, they dropped to 25 BTC, then to 12.5 BTC. Currently, the block reward stands at 6.25 BTC.

What is a Genesis Block?

The term Genesis Block defines the very first block of a specific cryptocurrency. Although, it’s often used in regards to the first-ever block built for the cryptocurrency that originated them all - Bitcoin. 

It’s no secret to anyone that Bitcoin was the company that introduced cryptocurrencies. Their first block was built in 2009. It’s known as the genesis block or block zero. 

The very first coinbase transaction happened within the genesis block. Since it did not reach the transaction database, the transaction has a unique feature. This feature makes sure that the transaction will never be spent. 

Satoshi Nakamoto took pride in the fact that Bitcoin, the first cryptocurrency, had completely eliminated the necessity for banks or other financial institutions. Therefore, he left a special message within the code of the BTC genesis block - “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”.

This is a headline taken from the daily British national newspaper “The Times”. The article was published on the 3rd of January, 2009 which is the exact same date that Bitcoin was launched. This article discussed how the British government is taking action to financially help banks. 

The founder of Bitcoin never explicitly stated what exactly this message is supposed to symbolize. However, many crypto enthusiasts believe that it’s a testament to the removal of a middleman such as a bank within transactions.

Moreover, the physical copy of this specific newspaper is now considered to be a collector’s item.