Bitcoin and Ethereum use two completely different methods to record “who owns how many coins”: Bitcoin tracks individual “unspent notes,” while Ethereum tracks each account’s balance. Understanding this difference makes many seemingly strange things make sense.

Relevant asset: $BTC Current price: 80,706 (24h +4.3%).

■ UTXO: Unspent notes

Bitcoin uses the UTXO (Unspent Transaction Output) model. Think of each UTXO as a note with no fixed denomination: each transaction spends several old notes and creates several new ones for the recipients.

The balance shown in your wallet is calculated by adding up all the UTXOs that belong to you. There is no number called a “balance” on the blockchain.

■ Change and fees

A UTXO can only be spent in its entirety. For example, if you have a “note” worth 1 coin and want to pay 0.3 coins, the transaction creates two outputs: 0.3 coins for the other party, and the remainder—minus the fee—as change sent back to your own address. Many wallets send the change to a new address, so in a block explorer you may see that “the money was sent back to yourself.”

Bitcoin transaction fees aren’t listed separately. They’re equal to the sum of all inputs minus the sum of all outputs, and this difference goes to the miner who includes the transaction in a block.

■ Account model: balances recorded directly

Ethereum uses the account model, which records each account’s balance directly on the blockchain. A transfer deducts funds from one account and adds them to another, much like a bank account. Ethereum has two types of accounts: externally owned accounts controlled by private keys, and contract accounts controlled by code.

To prevent the same transaction from being executed twice, each externally owned account has a nonce, which increases by 1 with every transaction. Transactions must be executed in nonce order. So if an earlier transaction gets stuck, later transactions will queue up behind it.

■ Trade-offs

In the UTXO model, unrelated transactions can be verified in parallel, and using new addresses to receive change can improve privacy, but writing complex contracts is less convenient. The account model makes balances easy to understand and contracts easier to write, but transactions from the same account must be processed in order. Cardano extends the UTXO model (eUTXO), allowing outputs to also carry script logic.

■ Summary

Next time you see Bitcoin “sending money back to yourself” in a block explorer, or an Ethereum transaction getting stuck and causing later ones to queue up, you’ll know these are features of the two different accounting methods—no need to panic. Try to invest only what you can afford to lose.

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