What is Change?
In the context of cryptocurrency, "change" typically refers to the difference between the amount of cryptocurrency that a user sends in a transaction and the amount of cryptocurrency that is actually received by the recipient.
Unlike traditional financial systems, cryptocurrency transactions are not processed by banks or other financial intermediaries, but are instead validated and recorded on a decentralized public ledger known as a blockchain. This means that when a user sends cryptocurrency to another user, the transaction is broadcast to the network and validated by a network of nodes or miners, who add the transaction to the blockchain.
Because cryptocurrency transactions are validated through a complex cryptographic process, they can take some time to be confirmed by the network. During this time, the value of the cryptocurrency being transacted may fluctuate, and the amount of cryptocurrency received by the recipient may be slightly different than the amount that was sent.
For example, if a user sends 1 Bitcoin (BTC) to another user, but the value of Bitcoin decreases slightly before the transaction is confirmed, the recipient may receive slightly less than 1 BTC. This difference between the amount sent and the amount received is known as “change.”
Change can also occur when a user sends cryptocurrency from a wallet that contains more cryptocurrency than is needed to complete the transaction. In this case, the excess cryptocurrency will be sent back to the user's wallet as “change.”
Change can be a confusing and potentially frustrating aspect of cryptocurrency transactions, as it can be difficult to predict exactly how much cryptocurrency will be received by the recipient. To help mitigate this issue, many cryptocurrency wallets and exchanges will display the estimated value of the transaction in real time, as well as the estimated amount of change that will be generated.
Simplified Example
In cryptocurrency, "change" refers to the difference between the amount of cryptocurrency that you send and the actual cost of the transaction, which includes the network fees.
For example, let's say you want to buy a cup of coffee using cryptocurrency, and the cost of the coffee is 0.01 BTC. You only have 0.05 BTC in your wallet, so you send 0.05 BTC to the coffee shop's wallet. However, the network fees for the transaction end up being 0.002 BTC, which means the total cost of the transaction is 0.052 BTC. In this case, the change would be 0.048 BTC, which is the remaining amount of BTC that was not spent on the coffee.
To put it in another way, imagine you're at a store to buy an item worth $5, but you only have a $10 bill. You give the cashier the $10 bill and you will receive $5 in change back. Similarly, when you send cryptocurrency, you may send more than the exact amount needed to pay for an item or service, and you will receive the difference back as "change".
History of the Term Change
The term "change" in cryptocurrency finds its roots in the fundamental concept of digital transactions and accounting for differences in value. Its origins trace back to the emergence of cryptocurrencies in the early 21st century, where digital assets represented fractions of a whole unit, allowing for precise calculations in transactions. However, the specific term "change" within the cryptocurrency context didn't become widely used until digital wallets and exchanges started displaying fractional values of cryptocurrencies, such as Bitcoin and Ethereum, around the mid-2010s. This term gained prevalence as a way to denote the residual amounts of cryptocurrency left over from a transaction, akin to the "change" received in traditional fiat transactions, highlighting the adaptability of digital currencies in mirroring conventional monetary transactions while catering to the unique nature of cryptocurrency denominations.
Examples
Change in Transaction Records: Blockchain technology allows for a tamper-proof ledger that records all transactions on the network. When a new transaction is initiated, it is added to the blockchain, which creates a new block of information. Once a block is added to the chain, it cannot be altered, creating a permanent and immutable record of the transaction.
Change in Consensus Mechanism: Consensus mechanisms are the processes by which blockchain networks validate transactions and add them to the blockchain. There are several different consensus mechanisms, including Proof of Work (PoW), Proof of Stake (PoS), and Delegated Proof of Stake (DPoS). As the technology evolves, new consensus mechanisms are developed and implemented to improve the security and scalability of blockchain networks.
Change in Smart Contract Functionality: Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. They are executed on the blockchain, eliminating the need for intermediaries and reducing transaction costs. As the technology evolves, new capabilities are added to smart contracts, allowing for more complex and sophisticated applications to be built on top of blockchain networks.