UTXOs

UTXOs are the building blocks of transactions on the Bitcoin blockchain. Each UTXO represents an amount of bitcoin that has been received but not yet spent by its owner. When a Bitcoin transaction occurs, it uses UTXOs as inputs and creates new UTXOs as outputs. This process ensures that all bitcoin is accounted for and prevents double-spending.

Each UTXO has a unique combination of a transaction ID and an output index number. These are referenced in future transactions to indicate which bitcoin are being spent in a transaction. The sum of the UTXOs that a user controls determines their total bitcoin balance.

Bitcoin does not have an account balance model. Instead, it operates on this UTXO model, where each UTXO is "spent" when used as an input to a transaction. If the total value of the UTXOs used as inputs to a transaction exceeds the amount needed for a transaction, the difference is returned to the sender as a "change output," forming a new UTXO.