Change

Understanding the Concept of Change

The concept of change plays a crucial role in Bitcoin (BTC) and other cryptocurrencies that follow the unspent transaction outputs (UTXO) model.

In the UTXO model, transactions are made up of inputs and outputs. When a user wants to send coins to another user, they provide inputs to the network. The network processes the transaction and generates outputs, which can then be used as inputs for future transactions.

What’s interesting is that the balance of a Bitcoin address doesn’t represent a specific number of stored coins. Instead, it consists of a collection of unspent outputs from previous transactions. When sending Bitcoin, only whole outputs can be sent, and any remaining amount is returned as change.

Let’s take an example to understand this better. User A has a Bitcoin address with a single unspent output of 0.5 BTC. User A wants to send 0.3 BTC to user B. However, they can’t divide their UTXO of 0.5 coins. Therefore, they have to send the entire amount as the sole input for the new transaction.

As a result, the network takes this input and generates three new outputs with the same total value: 0.3 BTC to be transferred to user B, a small fee for the miner who processes the transaction, and approximately 0.2 BTC (minus the miner fee) to be returned to user A.

In this example, the final output of around 0.2 BTC represents the change received by user A. This change becomes a new UTXO that can be used as an input for future transactions.