UTXO vs Account Model

There are two different bookkeeping systems underneath the major blockchains, and they answer the question "who owns what" in fundamentally different ways.

Bitcoin uses the UTXO model (Unspent Transaction Output). There are no account balances stored anywhere — instead, every coin you own is a specific, indivisible output from some past transaction, like a stack of paper bills of odd denominations. To spend, you consume one or more of those outputs entirely and create new ones: some paid to the recipient, the leftover "change" paid back to yourself as a brand-new output. Your "balance" is simply the sum of every unspent output the network can trace to your keys.

Ethereum uses the account model, closer to a bank ledger: each address has a single running balance, and a transaction just decrements the sender's balance and increments the receiver's.

Worked example. A wallet has three UTXOs worth 0.5, 0.3, and 0.2 BTC. To pay someone 0.6 BTC, the wallet must consume the 0.5 and 0.3 outputs entirely (0.8 BTC total, since UTXOs can't be split without spending them), send 0.6 BTC to the recipient, and create a new 0.2 BTC change output back to itself. Under the account model, the same payment would simply subtract 0.6 from a single running balance — no need to select and combine fragments.

The UTXO model's fragmentation is also why "coin control" and privacy analysis are bigger topics in Bitcoin than in Ethereum, where a single address's history is just one linear balance trail.