Bitcoin is first and foremost a currency, but do you actually know how BTC is represented on the protocol?

The Bitcoin protocol is based on the UTXO model, which stands for "Unspent Transaction Output".

This model differs profoundly from traditional banking systems, which rely on a mechanism of accounts and balances to track financial flows. Indeed, in the banking system, individual balances are maintained in accounts associated with a specific identity. For example, when you buy bread from a baker, your bank simply debits the purchase amount from your account, reducing your balance, while the baker's account is credited with the same amount, increasing its balance. In this system, there is no notion of a link between the money entering your account and the money leaving it, apart from transaction records.

Bitcoin works differently. The concept of an account does not exist, and monetary units are not managed through balances, but rather via UTXOs. A UTXO represents a specific quantity of bitcoins that has not yet been spent, thus forming a "piece of bitcoin", which can be large or small. For example, one UTXO could be worth 500 BTC or simply 700 SATS.

Reminder: The satoshi, often abbreviated to sat, is Bitcoin's smallest unit, comparable to the centime in fiat currencies.

1 BTC = 100 000 000 SATS

Theoretically, one UTXO can represent any value in bitcoins, ranging from a sat to a theoretical maximum of around 21 million BTC. However, it is logically impossible to own all 21 million bitcoins, and there is a lower economic threshold called "dust", below which a UTXO is considered economically unprofitable to spend.

Did you know? The largest UTXO ever created on Bitcoin had a value of 500,000 BTC. It was created by the MtGox platform during a consolidation operation in November 2011: 29a3efd3ef04f9153d47a990bd7b048a4b2d213daaa5fb8ed670fb85f13bdbcf

UTXOs are the instruments of exchange on Bitcoin. Each transaction results in the consumption of UTXOs as inputs and the creation of new UTXOs as outputs. When a transaction is completed, the UTXOs used as inputs are considered "spent", and new UTXOs are generated and allocated to the recipients indicated in the transaction outputs. Thus, a UTXO simply represents an unspent transaction output, and therefore a quantity of bitcoins belonging to a user at a given time.

All UTXOs are secured by scripts that define the conditions under which they can be spent. To consume a UTXO, a user must demonstrate to the network that they satisfy the conditions stipulated by the script securing that UTXO. Typically, UTXOs are protected by a public key (or a receiving address that represents this public key). To spend a UTXO associated with this public key, the user must prove that they hold the corresponding private key by providing a digital signature made with this key. This is why we say that your Bitcoin wallet doesn't actually contain bitcoins, but stores your private keys, which in turn give you access to your UTXOs and, by extension, to the bitcoins they represent.

Since there's no concept of an account in Bitcoin, a wallet's balance is simply the sum of the values of all the UTXOs it can spend. For example, if your Bitcoin wallet can spend the following 4 UTXOs:

- 2 BTC
- 8 BTC
- 5 BTC
- 2 BTC

The total balance of your wallet would be 17 BTC.