UTXO Model & Transactions

Bitcoin uses the UTXO (Unspent Transaction Output) model. Think of UTXOs like digital 'coins' of varying denominations. When you make a transaction, you consume one or more UTXOs as inputs and create new UTXOs as outputs. If you have a 1 BTC UTXO but want to send 0.3 BTC, the transaction creates two outputs: 0.3 BTC to the recipient and 0.7 BTC back to you as 'change.' The difference between inputs and outputs becomes the miner fee. This model enables parallel transaction verification and provides natural privacy (each UTXO is independent).