You’ve decided it makes sense to own some Bitcoin, congrats! You took an important step but you might be wondering…
What do I really own?
Where and what exactly are the coins?
I’ve been working on Bitcoin for years, let me help explain it in simple terms 👇
What do I really own?
Where and what exactly are the coins?
I’ve been working on Bitcoin for years, let me help explain it in simple terms 👇
First things first, if your Bitcoin is still on an exchange or some other custodial service then you don’t really own any Bitcoin. You own a promise or an IOU that will hopefully be redeemable for Bitcoin some day.
Not your keys, not your coins. A thread for another day.
Not your keys, not your coins. A thread for another day.
Ok so you have your keys but what coins do you actually have?
There’s not some record in a database that says “Alice owns X Bitcoins”.
Technically, you have keys that can sign a transaction that spends an unspent transaction output (UTXO).
Let’s further break that down:
There’s not some record in a database that says “Alice owns X Bitcoins”.
Technically, you have keys that can sign a transaction that spends an unspent transaction output (UTXO).
Let’s further break that down:
Transaction outputs are created as part of every tx.
They are typically thought of as receiving addresses, but they are actually defined by a locking script and an amount.
This locking script defines exactly what is required to later spend the specified amount of Bitcoin.
They are typically thought of as receiving addresses, but they are actually defined by a locking script and an amount.
This locking script defines exactly what is required to later spend the specified amount of Bitcoin.
So owning Bitcoin means you have the keys needed to unlock the locking script of at least one UTXO.
Instead of looking up your balance as a single field in some database, your balance is defined as the sum of the amount fields of all the UTXO’s that you can unlock (spend).
Instead of looking up your balance as a single field in some database, your balance is defined as the sum of the amount fields of all the UTXO’s that you can unlock (spend).
Your wallet doesn’t really hold coins, it holds your keys.
Using your keys, your wallet is able to scan the blockchain and determine which UTXO’s you are able to unlock (and thus spend).
This is how it can show you your balance and help you construct transactions.
Using your keys, your wallet is able to scan the blockchain and determine which UTXO’s you are able to unlock (and thus spend).
This is how it can show you your balance and help you construct transactions.
When you send someone else Bitcoin what you are really doing is using your keys to unlock some of your Bitcoin (by proving to the network you have the keys) and then locking it again in a new output that only the recipient knows how to unlock.
I hope this helped you understand what you really own when you own Bitcoin.
Be sure to follow me for tomorrow’s thread where I will dive deeper into why it’s important to understand what UTXOs are and how to manage them intelligently to save money and preserve your privacy.
Be sure to follow me for tomorrow’s thread where I will dive deeper into why it’s important to understand what UTXOs are and how to manage them intelligently to save money and preserve your privacy.
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