Bitcoin's transaction model differs significantly from Ethereum's account-based system. At the heart of this distinction lies the UTXO (Unspent Transaction Output) model, which ensures security and prevents double-spending. Let's explore how it works with practical examples.
How the UTXO Model Works
Receiving Bitcoin
Imagine your BTC wallet receives two separate transfers:- 3 BTC
- 5 BTC
Your wallet now holds two UTXOs (3 BTC and 5 BTC), totaling 8 BTC.
Sending Bitcoin
When you send 6 BTC to Recipient A:- The miner pools your transaction into the mempool (pending transactions).
- Both UTXOs (3 BTC + 5 BTC) serve as inputs for this transaction.
- Your wallet balance remains 8 BTC until the transaction is confirmed.
- Double-Spending Prevention
Attempting to send another 1 BTC before the initial transaction confirms triggers a Double Spend error. Bitcoin’s protocol invalidates such conflicting transactions to protect against fraud. Change Addresses
After the 6 BTC transfer confirms:- You receive 2 BTC as "change," creating a new UTXO.
- This change typically routes to a change address (different from your primary receiving addresses).
Key Concepts in UTXO Management
Change Addresses vs. Sub-addresses
- Sub-addresses: Used for receiving funds (public-facing).
- Change addresses: Dedicated to receiving transaction leftovers.
Both derive from the same mnemonic phrase but follow different paths in the wallet’s hierarchy. Tools like imToken consolidate assets across all addresses linked to your mnemonic.
👉 Learn more about Bitcoin wallet security
Limitations of Imported Private Keys
Wallets imported via raw private keys (non-mnemonic) cannot generate sub-addresses. Here, change reverts to the original sending address.
FAQs
Why does Bitcoin use UTXOs instead of balances?
UTXOs enhance privacy and security by treating each transaction output as independent. This design prevents tampering and simplifies auditing.
Can I spend a UTXO before it’s confirmed?
No. Unconfirmed UTXOs are "locked" until miners include them in a block. Any attempt to reuse them triggers a Double Spend.
Is my change address visible to recipients?
No. Change addresses are internal to your wallet, shielding your total funds from external viewers.
Practical Considerations
- Miner Fees: Omitted in our example, but vital for real transactions. Fees incentivize miners to prioritize your transfer.
- Scripts & Mnemonics: Each UTXO is secured by a cryptographic script. Your mnemonic unlocks all associated private keys, regardless of derivation path.
For advanced users:
👉 Explore Bitcoin’s scripting capabilities
By mastering UTXOs, you gain deeper insight into Bitcoin’s resilience against fraud and its efficient handling of decentralized transactions. Always prioritize secure key management—your mnemonic is the gateway to your digital assets.