A transaction spends earlier outputs
Bitcoin does not update a central account balance. A transaction identifies one or more existing unspent transaction outputs, called UTXOs, and consumes them as inputs.
It then creates new outputs with precise amounts and spending conditions. Those outputs remain available until a later valid transaction spends them.
Signatures authorise the spend
Each input must satisfy the locking conditions attached to the output it spends. For a typical wallet payment, this means supplying a valid digital signature created with the appropriate private key.
Nodes verify the structure, signatures, input availability and value rules. A signature proves authorisation without revealing the private key.
Broadcast is not confirmation
After signing, a wallet broadcasts the transaction to a node. Valid transactions may enter that node's mempool and relay across the peer-to-peer network.
The transaction remains unconfirmed until a miner includes it in a valid block. Later blocks add confirmations and increase confidence in the payment.
Transaction lifecycle
From wallet intent to confirmed transaction
Follow a transaction as it is constructed, authorised, relayed, validated and finally included in a block.
Build
The wallet chooses spendable UTXOs, creates outputs and normally adds a change output plus a fee.
Key vocabulary
Terms worth knowing
- Input
- A reference to an earlier unspent output that a new transaction attempts to spend.
- Output
- A new amount and spending condition created by a transaction.
- Change
- Value returned to a wallet-controlled output when selected inputs exceed the payment and fee.
Worked example
Paying 60,000 sats from one larger UTXO
A wallet selects a 100,000-sat UTXO. It creates a 60,000-sat payment output and a change output, while the difference also covers the miner fee.
- 1Select the 100,000-sat input
- 2Create the receiver output
- 3Calculate the transaction fee from size and fee rate
- 4Return the remaining value as change
- 5Sign each required input and broadcast
Bitcoin does not subtract numbers from an account balance. It consumes whole UTXOs and creates new outputs.
Common misconceptions
What learners often get wrong
Misconception
The leftover input value stays inside the old UTXO.
More accurate
An input is spent in full; any intended remainder must be created as a new change output.
Misconception
A transaction ID proves that every input is valid.
More accurate
Nodes independently validate referenced outputs, signatures and all applicable rules before accepting it.
Try it yourself
Sketch a transaction using 120,000 sats of inputs to pay 70,000 sats.
- Choose one or more inputs
- Add the payment output
- Choose a hypothetical fee
- Calculate the change output
- Check that inputs equal outputs plus fee
Use fictional values and public information only. Never enter seed words, private keys or other wallet secrets into a learning exercise.
Key takeaways
- Inputs spend earlier UTXOs; outputs create new UTXOs.
- Selected input value must be assigned to outputs or paid as a fee.
- Nodes independently validate transactions before relaying them.
- Broadcasting and confirming are separate stages.
Lesson recap
Check what you learned
Reveal each model answer, then honestly mark whether you understood it or need another review.
1 of 3
Recall
Why does a normal transaction often include a change output?
References
