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Ethereum: If Bitcoin is indivisible, where does change come from?

Published by Terlumun Aondover on February 5th, 2025.

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The Puzzle of Change: Understanding Ethereum’s Role in Reducing Unspent Inputs

When it comes to digital currencies like Bitcoin, the concept of “change” can be puzzling. If you want to give someone a certain amount of cryptocurrency, say 0.22 BTC, and they have an input of one Bitcoin (1BTC), how does the system resolve this issue?

The answer lies in Ethereum, a decentralized platform that enables smart contracts and programmable blockchain.

How Ethereum Reduces Unspent Inputs

In Bitcoin, when you want to send coins to someone, you need to create a new transaction with their public address. The recipient’s wallet will then verify the transaction and add it to its own chain of blocks. This process is known as “mining” or “proof-of-work.

However, when a sender has multiple inputs (in this case, 1BTC) that they want to combine into a single output (0.22 BTC), it’s not possible to simply split the transaction into smaller parts. This is where Ethereum comes in.

Ethereum’s consensus algorithm is based on a network of nodes that validate transactions and maintain the blockchain. When a node receives a new transaction, it checks its validity by verifying the sender’s identity, the recipient’s address, and the amount being sent.

To resolve this issue, Ethereum introduces a concept called “unspent inputs.” Unspent inputs are outputs from previous transactions that have not yet been spent. These unspent inputs are then combined with other inputs to create new outputs (e.g., 0.22 BTC) in a way that ensures each output is fully spent.

This process of combining unspent inputs into outputs is known as “spending” or “redeeming.” When you send coins from your wallet to someone else’s wallet, the recipient’s node checks if there are any unspent inputs on the sender’s account. Otherwise, they add those unspent inputs to their own chain of blocks and combine them with new inputs to create a single output.

How to Give Alice 0.22 BTC

Now that we understand how Ethereum resolves unspent inputs, let’s apply this concept to our example. Suppose you have 1BTC in your wallet and want to give 0.22BTC to Alice.

Here’s what happens:

You create a new transaction with the recipient address and specify the amount (0.22 BTC).

The node verifies the transaction, checks for unspent inputs on your account, and finds that none exist.

The node combines the unspent inputs from previous transactions with yours to create a single output: 0.22BTC.

The transaction is added to the blockchain, and Alice’s wallet receives her new balance of 0.22 BTC.

Conclusion

Ethereum: If bitcoin is indivisible, where does change come from?

In summary, Ethereum enables smart contracts to combine multiple unspent inputs into outputs using its “unspent input” concept. This reduces the need for each individual output to be fully spent, making it possible to send large amounts of cryptocurrency without creating a single transaction with all its components accounted for.

As we continue to explore the intricacies of digital currency and decentralized applications, understanding how these concepts work will become increasingly important.