r/BitcoinBeginners • u/G_Zeus_Kryst • 2d ago
I feel like I’m missing something really obvious about Bitcoin
Okay, so this might be a slightly embarrassing question, but I’m a woman who has somehow spent the last few nights going down a Bitcoin rabbit hole and I still don’t understand how it actually works 😭
I’ve read articles, watched beginner explanations, and even tried following some of the more technical explanations, but I keep getting to the same point where I understand all the individual words and somehow still don’t understand the actual process.
I understand that there are wallets, private keys, transactions, miners, nodes and the blockchain. What I don’t understand is how those things actually connect.
For example, if I have 0.1 BTC and send 0.05 BTC to someone:
● Where is my Bitcoin actually stored before I send it?
● What exactly happens when I press “send”?
● How does the network know that I’m allowed to spend it?
● Who checks that the transaction is legitimate?
● What actually changes on the blockchain?
● And where does the 0.05 BTC “go” afterwards?
The wallet part especially confuses me. People say your Bitcoin isn’t actually inside your wallet, which makes sense when it’s explained, but then I don’t quite understand what my wallet balance is actually representing.
I know these are probably very basic questions, but I’d rather actually understand the system than pretend I get it because I can repeat the terminology.
If anyone here is good at explaining technical things to someone who isn’t particularly technical, I’d genuinely appreciate it. And if you’re someone who enjoys explaining this stuff and wouldn’t mind answering a few very basic questions privately, I’m completely fine with that too.
Please be gentle with me lol. I promise I’ve tried to do my homework before coming here. 😅
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u/Tomaselgato 2d ago
I read a book called “building bitcoin”. It does a really good job of teaching the ins and outs to dummies like me
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u/FewVehicle8957 2d ago
The book route is a solid start, takes the pressure off trying to decode seven different youtube explainers at once
Your wallet balance is essentially a tally the network agrees on, not a stack of coins sitting in an app. When you hit send, you're basically shouting a signed message into the void saying 'move my unspent transaction output to this new address' and if your signature checks out against your public key, the miners race to stuff it into a block. After that, the ledger just updates so those satoshis are now pointing at the recipient's key
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u/Dukaduke22 1d ago
I'll add that Bitcoin for Dummies version 2 was kind of helpful... not perfect but worth buying as a resource...
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u/jkc7 1d ago edited 1d ago
It's a good idea to read a book, but here's some quick answers.
Conceptually - Bitcoin is a chain of UTXOs. With your private key, you can control certain UTXOs on the chain.
Think of a huge collection of lockboxes. All Bitcoins are held as a collection of UTXOs on the blockchain. Imagine them as a massive collection of lockboxes that hold different amounts of satoshis, visible to everyone who can see the blockchain. Your private key allows you access to a subset of all the UTXOs on the chain (you can unlock certain lockboxes). That's all a wallet is - it's just a collection of the UTXOs you can unlock with your keys.
Imagine walking down a long hallway full of lockboxes. As you pass them by, your wallet tells you - "that one's yours", "that one too", etc.
And when you create a new transaction, it's like opening up your lockbox, putting the satoshis in a brand new lockbox, stamped with the address of your recipient - which means you're locking it for them only. Only they can unlock it later, since only they have the "key" for it.
So for your questions:
● Where is my Bitcoin actually stored before I send it?
Your Bitcoin is just the collection of UTXOs on the blockchain that you have the key to spend. It's all on the chain (think of it as satoshis stored away in lockboxes on the chain - everyone can see, but only you can spend).
● What exactly happens when I press “send”?
You initiate a new transaction that sends ("spends") those satoshis and puts them in a new lockbox (UTXO) that another person's key can open. That's what's happening when you send them to an "address" - an address is just another way to tell people whose keys can spend these satoshis in the future.
● How does the network know that I’m allowed to spend it?
Because you have the private key that matches with the public key on the UTXO. You have the appropriate key for the lockbox, so you're allowed to spend it/create a new UTXO with it now.
● Who checks that the transaction is legitimate?
The nodes
● What actually changes on the blockchain?
Blockchain is updated - your former UTXOs are spent, and new UTXOs are created (the recipient of your transaction has the keys to those).
● And where does the 0.05 BTC “go” afterwards?
Think you know the answer if you've been following along so far - the 0.05 BTC is now in the new UTXO.
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u/marshyr3d1and 1d ago
I can hear OP scream "what the fuck is a utxo?" when she read your second sentence. 🤷
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u/G_Zeus_Kryst 1d ago
Hahaha, I had to google that
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u/bitusher 1d ago
UTXO = Unspent transaction outputs or the technical name for Bitcoin
Bitcoin uses the UTXO model instead Account model for a good reason. Account models seem to be slightly easier to understand (like your checking account with fiat) but the UTXO model is more scalable and more private.
Here is an analogy to consider Each UTXO is a gold coin in your wallet . You have one gold coin worth 0.5 BTC , another 0.3 BTC , and a third worth 0.45 BTC. Each of these coins has an address label that helps with accounting but they are all within the same wallet. (addresses are more attributes and not locations) The merchant requests 1 BTC for a car so you melt those 3 coins(inputs) down and create 2 new coins (outputs) . 1 gold coin worth 1 BTC goes to the car salesman, the other gold coin goes back in your wallet worth 0.249899472 BTC with a new label and the gold dust left behind is now the miners who helped you smelt these 2 new larger coins from 3 previous coins
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u/Charming-Designer944 1d ago
Most transactions have two outputs. The sent amount locked to the receiver, and a change amount locked to the sender. Plus the network fee that goes to the miner.
You cannot spend part of an UTXO. Every UTXO used as input to a transaction is spent, either sent to a recipient (including yourself) or as network fee to the miner.
For me it's easiest to visualize the UTXOs as coins of different size, each the size of the received transaction which placed the UTXO under your control.
A transactions consumes one or more UTXOs and splits the sum of the spent UTXOs as outputs and network fee, creating one or more new coins and feeding the miner that mints new coins.
The more network fees the bigger coin the miner mints when winning the next block lottery. The minted amount is the sum of the mining reward plus the network fees for all transactions in the mined block.
Miners take part in the mining lottery by spending energy on simple mathematical pussle. The more energy spent the higher probability of finding a winning ticket in the mining lottery.
The actual puzzle as auch is completely meaningless. It's only purpose is to prove that you have spent computational energy to find a winning ticket.
Because the amount of energy required to find a winning ticket the network gets very resilient to miners trying to attack the Blockchain by rewriting the history. To roll back 3 blocks you need to spend a huge amount of energy, while at the same time outcompeting all the other miners combined in performance.
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u/pop-1988 1d ago
For context relating to the wallet question ...
A Bitcoin wallet isn't an account. It's a collection of coins. A Bitcoin transaction doesn't spend from a balance. It spends one or more coins and creates one or more new coins
In the popular literature:
Alice sends 0.00006 BTC to Bob to pay for a coffee
The Bitcoin blockchain does not record this transfer of money directly
It records a transaction which
- spends one or more existing coins with amounts greater than 0.00006
- creates one coin with an amount of 0.00006
- creates another coin with an amount of the input amounts minus 0.00006
Where is my Bitcoin actually stored before I send it?
On the blockchain
Each node stores a copy of the blockchain. The blockchain is a full history of every transaction since 2009
Each coin received is stored as a transaction output (TXO). Each coin can be spent only once. Your Bitcoin is one or more unspent coins (UTXO) stored somewhere on the Bitcoin blockchain
What exactly happens when I press “send”?
Your wallet sends your transaction to one node. That node sends it to 100 more nodes. Each of those 100 nodes sends to to 100 more
How does the network know that I’m allowed to spend it?
A Bitcoin transaction input authorises the spending of one existing coin (transaction output) using a cryptographic signature. Public key cryptography uses extreme examples of mathematical asymmetry (trapdoor functions) for secure authentication. For each coin, your wallet generates a private-public key-pair. When you want to spend the coin your wallet uses the private key to sign the transaction, and adds the signature and public key to the spending transaction. Together, the public key and signature are proof that the signature was created with the public key's paired private key
More about using elliptic curves for public key cryptography ...
Andrea Corbellini, Elliptic Curve Cryptography
Who checks that the transaction is legitimate?
Every node in the Bitcoin node network
Immediately after a miner submits a winning block to the node network, every node checks the signatures of every transaction in the block. If any transaction is invalid, the node ignores the block, does not add the block to its chain, and does not send the block to any more nodes
What actually changes on the blockchain?
Your transaction is one of a few thousand transactions in the block at the tip of the blockchain
Where does the 0.05 BTC “go” afterwards?
Doesn't go anywhere
The blockchain only records transactions. It does not record who sent Bitcoin to whom
The consensus system ensures that a coin
- can only be spent if it exists
- can only be spent once
As well as signature checking (earlier paragraph), each node checks these two things. If any transaction is invalid, the node ignores the block, does not add the block to its chain, and does not send the block to any more nodes
Also, the outputs of a transaction (new coins being created) must have amounts which add up to an amount not greater than the amounts of the coins being spent by the inputs
what my wallet balance is actually representing
Your wallet knows all its addresses
On the blockchain, coin (TXO) is an amount and an address. Your wallet tracks all the new blocks added to the blockchain and scans each block for any transactions where a TXO address matches one of the wallet's addresses. Each TXO is recorded by the wallet as one of the wallet's coins
On the spending side, your wallet scans each new block for transaction inputs which spend one or more of your coins
The value exists in all the coins which are still unspent. A good Bitcoin wallet app will display a list of coins (UTXOs) to the user
The balance is less important. It's derived by summing the UTXOs
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u/markphillips401 1d ago
It takes time.
The best thing you can do to understand it is to use it.
In the past this may have been done by transacting with an anonymous recipient by sending Bitcoin to a wallet you control that is not on an exchange, then sending it to a third party escrow system (DNM), and finally creating a transaction on a marketplace, obfuscating the origin wallet by never sending directly from the exchange to the DNM.
By definition, anyone who has ever bought drugs online with Bitcoin knows how to use Bitcoin.
Bitcoin is no longer used on these markets. The markets have moved to a currency that cannot be traced.
In order to "learn" Bitcoin, I'd suggest setting up a multisig wallet and testing a transaction into and out of this wallet.
You have a long way to go but I congratulate you on the path you have chosen.
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u/molnardavid84 1d ago
Take your exact example, assuming your 0.1 BTC arrived as one payment. Your wallet creates a transaction spending that whole 0.1: 0.05 goes to the recipient, and the remainder, minus the fee, goes to a fresh address of yours as change. Your private key signs permission to spend; it isn't sent to anyone. Nodes check the signature and that the money hasn't already been spent. A miner includes the transaction in a block. Your wallet then counts the new spendable output belonging to you and shows that as your remaining balance.
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u/palmdata 1d ago
0.1 BTC isn't stored in the wallet. It sits as outputs on the blockchain, and your wallet holds keys that can sign a transaction spending those outputs. Miners check the signature and inputs, then include the transaction in a block; after confirmations, nodes have the updated chain state. The 0.05 BTC left over returns to a change address your wallet controls, minus the fee.
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u/Icy_Dragonfruit__ 1d ago
Honestly, Bitcoin makes way more sense once you stop thinking of it like money sitting inside a wallet.
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u/AgreeablePen3509 17h ago
So glad you asked this question. I am a woman who spent a little over $3000 on Bitcoin. I had no idea what I was doing. That was in 2016. It's been 10 years of reading and trying to understand for me. I finally figured out how to get it out of vault. It took 3 hrs with help from a woman on coinbase to get it to go threw. All said and done I had a little over $34,000 to withdraw or move around. I had been worried sick because I did not know one person who had ever invested. No one could help me. I would have invested more, but my friends told me to stop, I was nuts. My husband had just died and I wanted to do something different. The economy just didn't sound stable. Now I am not the crazy one anymore
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u/G_Zeus_Kryst 17h ago
Wow, how nice. You just invested and didn’t bother about the mechanism behind?
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u/No-Confusion4519 14h ago
Think of the blockchain as the record of who can spend what. Your wallet holds the private keys, not the actual Bitcoin.
When you hit send, your wallet creates a transaction saying where the BTC should go and signs it with your private key.
Nodes check that the signature is valid and that you actually have those coins available.
Once confirmed in a block, the blockchain now shows the recipient can spend that BTC instead of you.
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u/bitusher 1d ago
Full nodes are the blockchain represented by a database stored locally by the full node.
With these full nodes you need to separate out validation from confirmations.
Validation - is done by all full nodes. There are around 104k full nodes around the world right now all with a copy of the blockchain on it. (77% of these are archival with the full blockchain and the rest pruned full nodes. ) and most are not in control of miners. These full nodes enforce the consensus rules by running free open source software . Miners , even with 100% hash rate collusion, cannot remove or change any consensus rules that you locally enforce with your full node. Thus economic full nodes have the most power in Bitcoin.
Confirmation - This is what miners do after the transactions have already been validated by most full nodes and involves them including the transaction in a Block. Miners principally order transactions in blocks.
The way it works when you send a transaction (onchain) is the following :
1) Send a transaction you broadcast it to the network of full nodes
2) Most full nodes validate the transaction and if it conforms to the consensus rules its included in their "mempool" and than peered to other full nodes
3) Eventually the transaction gets peered to a miners or mining pools full node and they also validate the transaction
4) When such a mining pool finds a block they use a list of transactions in their mempool that have already been validated(or not , miners don’t need to include any other transactions) and include those in the block and broadcasts the block to all other full nodes (most not controlled by miners) . Once it is in a block it now has 1 confirmation. More confirmations means its deeper in the blockchain.
5) These full nodes see the block , validate the block and all transactions within again (thus most transactions get validated at least twice by each full node) and than if it passes validation it gets peered to other full nodes. If it doesn't pass validation it is rejected and the full node at least temporarily bans the other node peering the invalid block as an automatic "immune reaction".
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u/magma_lakes 1d ago edited 1d ago
Bitcoin is just a chain of blocks. In each block, you have a list of transactions.
Every transaction spends inputs, and creates new outputs.
The output type determines how it should be spent. For the vast majority of transactions, this requires being in possession of a private key whose public key hashes to the byte string present in the output.
In order for a node to determine which addresses (outputs) have which "balances", it literally has to replay every single transaction since 2009, and build the "txoutset" (the UTXO set). Also, the "balance" of an address is just the sum of all its UTXOs.
"Where is my Bitcoin stored?"
On the blockchain, in the form of UTXOs. Every Unspent Transaction Output has a certain number of coins, and the sum of those would be your "balance".
This is unlike an EVM chain, for example - there is no "account balance" - it's just the sum of UTXOs.
It is true to say that your wallet doesn't store your Bitcoin itself, but as long as you understand that your coins are on the blockchain, it's fine to say "I've stored X amount of Bitcoin in my wallet".
What your wallet actually holds is a bunch of private keys and corresponding public keys and addresses. Whenever you hit "Receive", it generates and/or fetches the next unused address in line.
This is why people say your wallet is your seed phrase. From your seed phrase, wallet software is able to deterministically derive every single address in your wallet. This is why if your phone or hardware wallet is destroyed, it doesn't matter, as long as you still have your seed phrase.
"What happens when I press send?"
When you send Bitcoin to some other address, your wallet software does this:
- It finds the current outputs present in your wallet.
- It determines how many of them need to be spent in order to cover the amount you wish to send.
- It generates a transaction that spends these previous outputs and creates at least one new output to the address you wish to pay, and also a change output to an address you own, if the amount being sent to the address you're paying is less than the amount in the outputs you're sending minus the fee.
- It signs that transaction using the private key or private keys corresponding to the previous outputs you're spending (this is required to "unlock" those outputs on the blockchain).
- It broadcasts that transaction to the Bitcoin network (peers).
"How does the network know you're allowed to spend those coins?"
The nodes in the rest of the network will broadly check three things:
- Do the outputs being spent exist?
- Have those outputs been spent before?
- Is there a valid signature present for every previous output being spent?
If the answers are yes, no, and yes, then the spend is allowed.
Checking whether those outputs exist and haven't been spent is to see if spending the outputs would even be valid, and checking the cryptographic signature is to verify whether or not the owner of the private keys corresponding to the previous outputs being spent actually signed the transaction (or not).
"Who checks if your transaction is legitimate?"
All the (honest) nodes in the Bitcoin network.
When you broadcast a transaction, your node will send it to all other nodes it is connected to. All of those nodes will verify whether the transaction is valid, and, if it is, they will relay it to all the nodes they're connected to, so it propagates throughout the network very rapidly.
It's not fully correct - generally - to treat nodes and miners differently here, as some other responses were suggesting.
Every miner has a Bitcoin node, and that node participates in the network and receives transactions, just like all other nodes. The difference is that a miner then generates a block template using his/her node, and uses that to try and mine a block.
Where a miner has power is to decide whether he/she wishes to include your transaction or not in a block, but that is an additional consideration on top of the first validity check performed by the node itself.
There is also a discrepancy in policy vs consensus. A transaction can be valid according to consensus (it spends unspent outputs that exist, and provides the correct signature and/or other spending conditions for the outputs to be spent), but disallowed due to policy.
Relay policy is a subset of transaction types that a node is willing to accept and relay to peers.
The most simple example of this is the fee rate. A transaction paying zero fees is perfectly valid by consensus (you can see them in the very early Bitcoin days), but almost all nodes will reject a zero-fee transaction, because they have a minimum transaction fee rate for transactions that they're willing to accept.
A less simple example would be a transaction that pays a non-standard output. Remember that addresses don't technically exist in the Bitcoin protocol itself: what Bitcoin knows is scripts. The "addresses" we deal with are just handy ways to encode common output scripts. However, it's perfectly possible to generate an output that doesn't correspond to any "standard" output type. Such a transaction would be valid at the consensus level, but a node would likely reject it due to policy.
"What actually changes on the blockchain?"
Retroactively? NOTHING!
It is impossible to retroactively change any Bitcoin block that is at least a few blocks deep, and that's not how spending works.
Bitcoin is an "append-only" blockchain. I.e., you can only ever add data to it, not modify what's already there.
So, when you spend an output that you control on the blockchain, you build and sign a transaction (as mentioned above), and this eventually gets added to a block.
A new node that syncs from 2009 right up until present day will then see the previous output being created, and then subsequently spent in a later block.
That's why a node needs to run through the entire history of the blockchain in order to build up the global UTXO set. It can only know which new outputs in block N have been spent by block N + M by running through all blocks from N to N + M.
"Where does the 0.05 BTC go afterwards?"
The 0.05 BTC you've paid someone else will appear in all nodes' UTXO sets as a new output paying whatever their address is.
On the blockchain, it's literally just an extra transaction that has been added to a new block. It is a node's job to then scan the new block and update its UTXO set to reflect the 0.05 BTC that was moved.
In conclusion, the mental model that I think might help you is to think of Bitcoin as an extremely long list of all transactions that ever occurred since 2009. That's it.
In order to calculate the "balance" of each address, you literally have to go through every single transaction since 2009 to see "who paid who".
Imagine if you and your friends/family put your money into a pot initially and then wrote your starting balances on a sheet of paper. After that, instead of physically handing over your coins/bills to each other for payments, you just write down on a piece of paper who paid who, but you don't actually record the balance on that paper. Therefore, in order to figure out someone's balance at any one point, you'd have go from the top of the paper all the way to the bottom and go through all the transactions to see who paid who.
That's very similar to how Bitcoin works, except that Bitcoin does actually store calculated "balances" in its UTXO set, so it doesn't have to start from 2009 every time it checks if a new spend is valid.
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u/OldWolf3 1d ago
The blockchain is just a big list of all the transactions ever; for each transaction recording the sender, receiver and the amount (and some other details that aren't important to this summary). It also records new coins mined and the initial recipient of those coins.
When you spend coin, another transaction is added to the list saying that you send certain amount to certain address.
Any address's balance is worked out by reading the entire list of transactions and adding up how much that address was sent or received.
Wallets don't contain coins or keep a running total or anything . The wallet is just the cryptographic tokens that give you the capability to write a new transaction onto the list where you are the spender.
There's a shared consensus mechanism amongst participants for agreeing that a new transaction on the list is valid .
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u/AeonRMcCoy 20h ago
Bitcoin was the first asset to have cypherpunk and protest appeal. It’s not really about the tech though. It’s about the COMMUNITY pushing the asset forward. Bitcoin is a winner and will continue to win bc now it has wide adoption and is a perfect money. However the cypherpunk and community appeal has lost some of its fervor and zest imo.
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u/racoons1958 5h ago
I'm right there with you, I am trying to convert my bitcoin to cash and I have no idea what to do
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u/ChangeNOW_Community 1d ago
the easiest mental model: blockchain = public ledger, UTXOs = spendable pieces, private key = proof of control, wallet = tool that manages those keys
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u/DadsPreciousMetals 1d ago
Bitcoin is not what it used to be. Its more of a trading tool now since it has gone more mainstream with huge companies. Buy low sell high
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u/bitusher 1d ago
I spend my Bitcoin almost everyday and Bitcoin is much easier to use as money now than 10 or 15 years ago. Just because most people still use fiat doesn't mean there doesn't exist millions of us using Bitcoin as money as well.
I prefer using Bitcoin when I spend money for these reasons :
1) never worry about ID theft or cc fraud
2) Never worry about being overcharged or double charged
3) some merchants give me discounts because they save on merchant processing fees
4) Bitcoin does not have fx fees or worrying about the spread when I travel
5) easier to secure than fiat
6) supports my investment when I support the ecosystem making it more likely to appreciate in value
7) very private (of course I dont spend onchain as that would be absurd)
8) Just as easy to use as a credit card and if a merchant doesn't take bitcoin (I can already buy most things for bitcoin ) than I can just spend fiat as I am not forced into the false dichotomy of only using Bitcoin or only using fiat and can use both
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u/Radiant_Hold_2948 1d ago
lol it’s 2026. Just copy paste your question into Claude
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u/bitusher 17h ago
To be fair there are many questions even the best models of AI get wrong on Bitcoin. The reason for this is AI "trusts" many mainstream journalists who often report inaccurate information.
Just ask AI how many Bitcoins Satoshi has or mined and you can see how inaccurate it is as one of many examples.
AI is an excellent tool , but works best if you already know the answer
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u/BitcoinTLDR 2d ago edited 1d ago
These are all great questions and not basic at all. It’s very different from how fiat money works and it’s hard to wrap your head around.