The UTXO Model

Bitcoin does not track balances the way a bank account does. Instead, it tracks spendable chunks of value called UTXOs, short for unspent transaction outputs.

When you pay someone, your wallet gathers enough existing outputs to fund the payment, creates new outputs for the recipient and for your change, and then marks the old outputs as spent.

This model matters because fees, privacy, and wallet design all depend on which outputs get combined. Many small UTXOs can make later transactions bulkier and more expensive to spend.

Once you see Bitcoin as a system of spendable outputs rather than account rows, transaction structure becomes much easier to read and block explorers start to make practical sense.