Lesson 7: UTXO Model (Bitcoin’s accounting)

Goal: understand how Bitcoin tracks ownership and why your “coins” act like discrete chunks.

Beginner

Bitcoin works less like a bank account and more like cash bills. You have “pieces” of bitcoin. When you pay someone, you use some pieces and get “change” back.

Intermediate

Bitcoin tracks spendable outputs called UTXOs. When you send a transaction, you select one or more UTXOs as inputs, then create new outputs: one to the recipient and usually one back to you as change.

• More inputs = bigger transaction = potentially higher fees.
• UTXO structure affects privacy (how outputs link across transactions).
• Wallets automate coin selection and change outputs.

Expert lens

The global “state” of Bitcoin is the current UTXO set. Validation consists of ensuring inputs reference existing unspent outputs, satisfy script conditions, and that total outputs do not exceed total inputs (the difference is the fee).