The Bitcoin transaction model is called the UTXO model (Unspent Transaction Output model).

Here’s how it works step by step:

Transactions consume outputs, not balances

Unlike an account model (like Ethereum), Bitcoin doesn’t track “balances.”

Instead, each transaction consumes unspent outputs (UTXOs) from previous transactions and creates new outputs.

Transaction inputs

Each input points to a previous transaction’s output that hasn’t been spent yet (a UTXO).

To spend it, the input must provide a valid unlocking script (often a digital signature proving ownership of the private key controlling that UTXO).

Transaction outputs

Each output has:

• Value: an amount of BTC.
• Locking script (scriptPubKey): conditions under which it can be spent (e.g. "only the owner of this public key can spend it").

Outputs become UTXOs once the transaction is confirmed.

A UTXO can only be spent once.

Change

Since inputs must be spent in full, if you want to pay less than the value of an input, you send the difference back to yourself as “change.”

Example:

You have a UTXO worth 1 BTC. You want to pay someone 0.3 BTC.

You create a transaction with:

• Input: 1 BTC UTXO.
• Outputs:
  • 0.3 BTC to the recipient.
  • 0.7 BTC back to yourself (minus transaction fee).

Transaction fees

Fees aren’t explicit. They’re implied:

fee = sum(inputs) – sum(outputs)

Miners collect this difference as an incentive.

Chaining

Every transaction output can later become someone else’s input.

This creates a chain of transactions, where all coins can be traced back to the block reward outputs (coinbase transactions) of mined blocks.

In summary: Bitcoin doesn’t have balances. It has UTXOs. Transactions consume UTXOs as inputs and create new UTXOs as outputs. This ensures coins aren’t double spent and ownership can be cryptographically proven.