Transaction

💡 The Plain-English Definition

A Bitcoin transaction is how ownership of bitcoin is transferred — a digitally signed instruction that destroys existing chunks of bitcoin and creates new ones under different ownership conditions. Sending bitcoin doesn’t move coins around; it reassigns them.

⤢ Enlarge

🤔 But Why Though?

Bitcoin doesn’t work like a bank account, where a balance ticks up or down when you transfer money. It uses the UTXO model — Unspent Transaction Outputs, a way of tracking ownership as discrete chunks of bitcoin rather than as account balances. Every transaction consumes one or more existing UTXOs as inputs and creates one or more new UTXOs as outputs. The consumed UTXOs are destroyed; the new ones belong to whoever the transaction names.

A transaction has three key parts.

Inputs point to the UTXOs being spent. Each input names a specific previous output and carries a digital signature — cryptographic proof that the holder of the right private key authorised this spend.

Outputs define the new UTXOs. Each sets an amount and a locking condition, usually “whoever holds the private key for this address can spend it.”

The fee is implicit: it’s simply the difference between the total value going in and the total going out. That leftover goes to the miner who includes the transaction in a block.

So when you “send 0.01 BTC to Alice,” here’s what your wallet actually does. It finds UTXOs you own worth at least 0.01 BTC and spends them as inputs. It creates one output of 0.01 BTC locked to Alice’s address, and — if your inputs came to more than 0.01 BTC — another output returning the change to you. It signs the inputs with your private keys and broadcasts the transaction. Miners pick it up from the mempool, Bitcoin’s waiting room for unconfirmed transactions, and include it in a block. Once confirmed, Alice’s new UTXO exists, locked to her key alone.

🌍 The Real-World Analogy

Think of a Bitcoin transaction like paying with physical banknotes — except the notes are destroyed and reissued with each payment. You have a £50 note (a UTXO) and want to pay Alice £30. You hand the £50 note to a trusted minting authority (the miners), who destroy it and instantly issue a new £30 note for Alice and a new £20 note for you (the change). The original note no longer exists. Two new notes exist in its place, each with clear ownership. Nobody “moved” money — the old form was destroyed and the new forms created.