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Bitcoin does not keep a protocol-level balance for each wallet or account. It records unspent transaction outputs, or UTXOs, and a wallet calculates its displayed balance by adding up the spendable outputs it recognizes. The phrase “Bitcoin account model” can therefore be misleading: Bitcoin is generally described as UTXO-based, even though wallet software may organize keys into accounts or show an account-like balance.
What is Bitcoin’s UTXO model?
A UTXO is an output created by an earlier Bitcoin transaction that has not yet been spent. Each output holds a value and specifies the conditions that must be met to spend it. A later transaction refers to one or more unspent outputs as inputs, consumes them, and creates new outputs. An output can be spent only once.
Bitcoin’s ledger tracks these transaction outputs rather than updating a stored balance for each user. The Bitcoin Developer Guide describes the wallet display this way: “When your Bitcoin wallet tells you that you have a 10,000 satoshi balance, it really means that you have 10,000 satoshis waiting in one or more UTXOs.” Bitcoin Developer Guide: Transactions explains wallet balances, inputs, outputs, and change; its mechanics remain useful for this conceptual explanation.
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How does a Bitcoin payment work?
To make a payment, a wallet selects UTXOs it can spend and uses them as transaction inputs. The transaction creates outputs for the recipient and, when necessary, for change returning to the sender. The total value of the inputs must cover the outputs and any fee; the difference between total input and total output values is the transaction fee. The Bitcoin Developer Guide: Block Chain describes valid inputs, output uniqueness, and this fee arithmetic.
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Illustrative example
Suppose a wallet selects a single 1 BTC UTXO to make a 0.6 BTC payment. It could create a 0.6 BTC recipient output and a 0.39 BTC change output. The remaining 0.01 BTC is the fee in this illustration. These amounts are an example only, not a typical fee or a claim about current transaction costs.
The original 1 BTC output is consumed by the transaction; it does not remain partly unspent. The newly created outputs are separate UTXOs and can be used as inputs in later transactions.
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What does a Bitcoin wallet balance mean?
A wallet can identify outputs associated with keys or scripts it controls, determine which are spendable, and add their values together for a balance display. That total is a useful interface abstraction, not a bank-style balance stored by the Bitcoin protocol. A displayed wallet balance may represent several UTXOs, one UTXO, or no spendable outputs, depending on what the wallet recognizes and how it reports funds.
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The word “account” can also refer to a wallet organization convention. BIP 44 defines an account level in a deterministic wallet’s key hierarchy, allowing key space to be divided into separate identities—for example, for savings and common expenses. This is how wallet keys and funds can be organized; it does not mean Bitcoin’s transaction ledger records a mutable balance for each account. See BIP 44: Multi-Account Hierarchy for Deterministic Wallets.
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UTXO model vs. account-balance model
| Aspect | Bitcoin’s UTXO model | Account-balance model |
|---|---|---|
| Ledger state | Tracks individual unspent outputs. | Tracks a balance associated with an account. |
| Payment construction | Selects outputs to spend as inputs. | Debits an amount from an account balance. |
| Surplus | Can be returned to the sender in a new change output. | Remains as part of the account’s balance after the debit. |
| Wallet responsibility | Identifies and manages relevant outputs, then may sum them for display. | Presents an aggregate account balance. |
This comparison describes different ways of representing ledger state and constructing payments; it does not establish that one model is categorically better. For a high-level comparison, see BitGo Developer Portal: UTXO vs Account Based.
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