It’s #DecodingBitcoin time! Let’s go over the basic elements of a transaction.
Alice wants to send 5 BTC to Bob. She needs to create a bitcoin transaction using the unspent outputs (UTXOs) in her wallet.
UTXOs are unspent transaction outputs. They can be used as inputs for new transactions.
Think of them as "coins" in a wallet, waiting to be spent.
Alice checks her wallet and finds two UTXOs:
To create a transaction, Alice has to specify exactly which UTXOs to spend.
A UTXO is identified by the transaction it came from, specifically
- the transaction ID and
- an index that says where the UTXO is in the list of transaction outputs
Wallets usually store this information for you but you can also look it up on the blockchain.
Alice's wallet shows these available UTXOs:
- UTXO #1: 4 BTC (from Transaction 1, Output Index 1)
- UTXO #2: 2 BTC (from Transaction 2, Output Index 0)
Together, they provide enough funds (4 BTC + 2 BTC = 6 BTC) for the payment and any transaction fees.
Now Alice has everything she needs to identify her UTXOs. As she adds them to the transaction, she saves space for the signatures she will make later. These signatures authorize the spending of the UTXOs.
Now that the transaction inputs have been taken care of, it’s time to look at the outputs!
Alice needs to create two outputs:
- 5 BTC to Bob (the payment amount)
- 0.99 BTC back to Alice as change (there is a 0.01 BTC transaction fee)
Why do we have to make a separate output for change?
UTXOs must be spent in their entirety. You cannot partially spend a UTXO. Instead, you create a new output that sends the excess amount back to yourself as change.
Looks good! The transaction structure is now complete, but it’s not yet valid. Alice must sign it to prove she owns the inputs. We’ll cover that in a future lesson 🙂
Follow us @Bitcoin Dev Project to stay updated!
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UTXOs are unspent transaction outputs. They can be used as inputs for new transactions.
Think of them as "coins" in a wallet, waiting to be spent.
Alice checks her wallet and finds two UTXOs:
To create a transaction, Alice has to specify exactly which UTXOs to spend.
A UTXO is identified by the transaction it came from, specifically
- the transaction ID and
- an index that says where the UTXO is in the list of transaction outputs
Wallets usually store this information for you but you can also look it up on the blockchain.
Alice's wallet shows these available UTXOs:
- UTXO #1: 4 BTC (from Transaction 1, Output Index 1)
- UTXO #2: 2 BTC (from Transaction 2, Output Index 0)
Together, they provide enough funds (4 BTC + 2 BTC = 6 BTC) for the payment and any transaction fees.
Now Alice has everything she needs to identify her UTXOs. As she adds them to the transaction, she saves space for the signatures she will make later. These signatures authorize the spending of the UTXOs.
Now that the transaction inputs have been taken care of, it’s time to look at the outputs!
Alice needs to create two outputs:
- 5 BTC to Bob (the payment amount)
- 0.99 BTC back to Alice as change (there is a 0.01 BTC transaction fee)
Why do we have to make a separate output for change?
UTXOs must be spent in their entirety. You cannot partially spend a UTXO. Instead, you create a new output that sends the excess amount back to yourself as change.
Looks good! The transaction structure is now complete, but it’s not yet valid. Alice must sign it to prove she owns the inputs. We’ll cover that in a future lesson 🙂
Follow us @Bitcoin Dev Project to stay updated!
This material is from Decoding Bitcoin, your go-to resource for understanding #bitcoin, privacy, and decentralization.
If you enjoyed it, visit Decoding Bitcoin
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