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Sikh Bitcoin · Advanced · Lesson 3 of 21

UTXOs, change and accounting

Read a transaction as a set of consumed and created outputs.

About 14 minutes with practice. You only need something to take notes with. No real wallet details or payments are part of this lesson.

Course contents · Lesson 3 of 21
  1. Read the whitepaper as an argument
  2. Hashes and Merkle commitments
  3. UTXOs, change and accounting
  4. Scripts describe spending conditions
  5. Signatures and what they authorize
  6. Block headers and the chain of work
  7. Difficulty, hashrate and noisy observations
  8. Issuance, fees and incentives
  9. Mempools and policy are not consensus
  10. Fee changes: RBF and CPFP
  11. SegWit and transaction weight
  12. Taproot and Schnorr: useful, not magical
  13. HD wallets and derivation paths
  14. PSBT: separate construction from signing
  15. Descriptors make a wallet policy portable
  16. Full nodes, pruning and verification
  17. Reorganizations and lightweight evidence
  18. Lightning channels and HTLCs
  19. Lightning liquidity has direction
  20. Soft forks, proposals and human coordination
  21. Capstone: trace a payment end to end

What you will learn

  • Balance inputs, outputs and fees.
  • Explain why change is a new output.

Outputs are the units of spendability

A UTXO is an unspent transaction output. An input references a previous transaction and an output index, and supplies what is needed to satisfy that output’s spending conditions. Spending consumes the referenced output as a whole. A wallet balance summarizes many such outputs rather than representing one account row in a central database.

Change preserves the difference

Imagine a wallet spends a 100,000-sat output, pays 30,000 sats to a recipient and leaves 1,000 sats as a fee. It can create a 69,000-sat change output under its own control. That change is a newly created output, not a reduction of the original one in place. A recipient and change output can look similar to an outside observer; labels require context.

Do not mistake visible totals for economic activity

Adding every output in a transaction can overstate the amount paid to someone else because change is included. Multiple inputs may also link previously separate histories. A donation report needs wallet accounting and purpose records, not simply an explorer’s displayed transaction total. For practice, use synthetic amounts and labels so no real wallet graph is exposed. Later coin-control decisions must consider both fees and privacy.

Practice on paper

Two fictional inputs contain 40,000 and 70,000 sats. A recipient receives 65,000 and the fee is 2,000. What change remains?

Reveal the worked answer

The inputs total 110,000 sats. Subtracting 65,000 and 2,000 leaves 43,000 sats of change. The original inputs are consumed; the remaining value exists in a new output.

Check your understanding

Choose an answer in your head or on paper, then reveal the explanation. Retry whenever you like. Answers are not submitted or scored; completion marks are your own learning notes.

1. Is change the unspent remainder inside the original consumed output?

  • Yes
  • No
Reveal answer 1

No. It is a newly created output.

2. Does the sum of all outputs necessarily equal a merchant sale?

  • Yes
  • No
Reveal answer 2

No. Some outputs can return change or serve other recipients.

Take this with you

Reconcile value while keeping ownership labels separate from chain data.

Your learning, at your pace

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