UTXOs, Transaction Lifecycle, and Proof of Work

Bitcoin does not work like a bank account where your balance is a single number. Bitcoin tracks spendable pieces called UTXOs (Unspent Transaction Outputs). A UTXO is a piece of Bitcoin you received that has not been spent yet. Think of it as receiving sealed envelopes with amounts inside. Spending Bitcoin means using one or more envelopes as inputs. The transaction creates new envelopes (outputs), including change back to you. Example: you receive 0.01 BTC (one UTXO), you spend 0.006 BTC. Your wallet may create 0.006 BTC to the other person and 0.004 BTC back to you as change (a new UTXO). This explains why transactions can have multiple inputs and outputs and why you sometimes see change even when you did not ask for it.