UTXO Model: How Bitcoin Transactions Really Work
Bitcoin Fundamentals · 60 seconds
Key takeaways
- Bitcoin uses UTXOs, not account balances like banks
- Each transaction consumes old UTXOs and creates new ones
- Change is returned to your wallet as a new UTXO
- Understanding UTXOs reveals how blockchain truly works
Full explainer
Why does your Bitcoin wallet work completely different from your bank account? Bitcoin doesn't track balances—it tracks unspent outputs called UTXOs. Think of them like dollar bills. When you receive Bitcoin, you get a UTXO. When you spend it, that UTXO is destroyed and new ones are created for the recipient and yourself as change. It's why wallets scan the entire blockchain to calculate your balance—they're adding up all your unspent outputs. This model makes Bitcoin transparent and secure, but it's wildly different from traditional banking. Understanding UTXOs means you actually understand how Bitcoin moves.