Transactions & the UTXO Model

Why this module exists

Bitcoin does not track balances; it tracks unspent outputs. Transactions consume UTXOs and create new UTXOs. Understanding this model is essential for validation, fees, and double-spend prevention.

1) Transaction structure

A legacy tx is:

• Version
• Inputs (outpoints + scripts)
• Outputs (value + locking script)
• Locktime

The txid is the double SHA-256 of the serialized bytes.

2) UTXO set

The UTXO set is the authoritative ledger state. Validation rules include:

• Every input must exist in UTXO
• Inputs are unique within a tx
• sum(inputs) >= sum(outputs)
• Outputs become new UTXOs

3) Fees and coinbase

• Fee = inputs minus outputs
• Coinbase creates new coins (no inputs)
• Coinbase outputs become spendable after maturity (ignored in this toy)

4) Serialization pitfalls

• CompactSize counts are part of consensus
• Non-canonical encodings are invalid
• Endianness is easy to get wrong

What you will build

1. Transaction serialization + txid
2. UTXO validation and updates

Key takeaways

• State = UTXO set, not balances.
• Fees come from conservation of value.
• Serialization correctness is consensus-critical.