MASTERING-BITCOIN · Unit 2 · Video 3 · Interactive Practice

From Wallet to World: How Your Bitcoin Transaction Reaches the Network

IKey Formulas

Formula	Name	Description
$\text{Balance} = \sum \text{UTXOs}$	Wallet Balance	Sum of all unspent transaction outputs
$\text{Fee} = \sum \text{Inputs} - \sum \text{Outputs}$	Implied Fee	No explicit fee field; miners collect the gap
$\text{Change} = \text{Input Total} - \text{Payment} - \text{Fee}$	Change Output	Remainder returned to the sender

IIVisualization 1: UTXO Selection

Your Bitcoin wallet doesn't store a single "balance" number — it holds a collection of UTXOs (Unspent Transaction Outputs), like discrete coins in a digital purse. When you make a payment, the wallet selects enough UTXOs to cover the amount.

Explore: Adjust the payment amount and watch which UTXOs the wallet selects. How does the selection strategy change as the payment grows?

💡 Notice: When the payment is small (e.g., 0.015), the wallet uses a single large UTXO. But when no single UTXO is big enough, multiple smaller ones must be combined — just like paying with several coins from your pocket. Try setting the payment above 0.100 to see what happens when there aren't enough coins.

IIIVisualization 2: Transaction Anatomy — Inputs, Outputs, and the Implied Fee

A Bitcoin transaction has no explicit fee field. The fee is simply the gap between total inputs and total outputs:

$$\text{Fee} = \sum\text{Inputs} - \sum\text{Outputs}$$

Miners collect whatever is left over.

Explore: Adjust the payment and fee amounts. Watch how the change output shrinks as the fee grows — and what happens when the total exceeds the input.

💡 Notice: As you increase the fee, the change output shrinks — because the fee eats into Alice's remainder. There is no "fee field" in the transaction data; miners simply collect the mathematical difference between inputs and outputs.

IVVisualization 3: Gossip Protocol — Network Propagation

Once a transaction reaches any single node, the gossip protocol kicks in. Each node forwards valid transactions to all its peers, creating an exponential cascade that saturates the network in 2–4 seconds.

Explore: Step through time and watch the transaction ripple outward from Alice's entry node. How many hops does it take to reach Bob?

💡 Reflection: Notice how the number of newly reached nodes grows with each hop — this is exponential spread in action. No central relay coordinates the propagation. Every node that receives a valid transaction forwards it to all its peers, saturating thousands of nodes worldwide in just 2–4 seconds.

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