Bitcoin Does Not Involve Actual ‘Coins’

A persistent misunderstanding is that Bitcoin involves physical or digital ‘coins’ stored in wallets or accounts. This is not how Bitcoin operates.

The UTXO Model

Bitcoin uses a system called Unspent Transaction Outputs (UTXOs). Instead of ‘coins’, Bitcoin transactions create outputs that can be spent in future transactions. These UTXOs are tracked on the blockchain, and a user’s Bitcoin balance is the sum of their unspent transaction outputs.

Wallet Functions

Wallets help users manage their UTXOs by summarizing them into a single balance and allowing users to create transactions. When someone sends Bitcoin, they are transferring the right to spend specific UTXOs to the recipient.

Conclusion

There are no physical or digital ‘coins’ in Bitcoin. The system operates on UTXOs, and wallets facilitate the management and transfer of these outputs.

To understand more about the UTXO model and how Bitcoin transactions work, visit the Bitcoin Developer Guide.