Bitcoin and Ethereum record “who has how many coins” in two completely different ways: Bitcoin tracks individual “unspent notes,” while Ethereum tracks each account’s balance. Understanding this difference makes many otherwise puzzling things make sense.
Related coin: $BTC quoted at 83,007.46 (24h +0.5%).
■ UTXO: Unspent notes
Bitcoin uses the UTXO (Unspent Transaction Output) model. You can think of each UTXO as a note with no fixed denomination: each transaction spends several old notes and creates several new notes for the recipients.
The balance shown in your wallet is calculated by adding up all the UTXOs that belong to you. There is no on-chain number called a “balance.”
■ Change and transaction fees
A UTXO can only be spent in its entirety. For example, if you have a “bill” worth 1 coin and need to pay 0.3 coins, the transaction will create two outputs: 0.3 coins for the other person, and the remainder after deducting the transaction fee, returned to your own address as change. Many wallets send 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.
■ The account model: balances recorded directly
Ethereum uses the account model, which records each account’s balance directly on-chain. 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, every externally owned account has a nonce that increases by 1 with each transaction. Transactions must be processed in nonce order, so if an earlier transaction gets stuck, later transactions will queue up behind it.
■ Each has its trade-offs
In the UTXO model, unrelated transactions can be validated in parallel, and using a new address to receive change can also help protect privacy. However, 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 include script logic.
■ In conclusion
Next time you see Bitcoin “sent back to yourself” in a block explorer, or an Ethereum transaction get stuck and cause all the later ones to queue up, you’ll know these are just features of two different accounting models—no need to panic. And when you see claims of high, stable returns, take them with a grain of salt.
When did you figure this out?
Just my personal observations; this is not investment advice.