Bitcoin doesn’t use a “balance on an account” like a bank. Instead, it works with the UTXO model (Unspent Transaction Output).
Imagine your bitcoins aren’t one big amount, but a bunch of separate banknotes of different values.
When you send BTC, your wallet takes the needed UTXOs, “breaks” them and creates new outputs (one for the recipient + change back to you).
Every UTXO is one-time use – once spent, it disappears.
Why is this brilliant?
The network doesn’t need to track any accounts, it only checks that each UTXO is spent only once → this solves the double-spending problem without any central authority.
Practical tip:
Lots of small UTXOs = more expensive transactions. That’s why it pays off to occasionally do a consolidation (send everything to yourself when fees are low).
Lightning Network
Lightning Network is a layer-2 solution built on top of Bitcoin that solves the main weaknesses of on-chain transactions (slowness and high fees).
How it works simply:
1. You open a payment channel with someone (a smart contract on Bitcoin where you lock some BTC).
2. Inside the channel you can send BTC instantly and almost for free – just between the two of you, without waiting for blocks.
3. When you want to close the channel, the final balance is written once to the main blockchain.
Advantages of Lightning:
- Transactions in milliseconds instead of 10–60 minutes
- Fees often just 1–5 satoshis (fractions of a cent)
- Perfect for micro-payments (coffee, streaming, tipping, games)
- Still fully secured by Bitcoin
Current state (February 2026):
Capacity over 6,000 BTC (~$420 million) and already used by millions of people.
Human summary:
On-chain Bitcoin = the most trustworthy and secure (like registered mail).
Lightning = the fastest and cheapest (like instant mobile payment).
Together they form the most secure and fastest payment network in the world.
Tap $BTC and Trade.