Change
The change in blockchain is when the client generates a new Bitcoin address, and sends the difference back to this address. When the output of a transaction is used as the input of another transaction, it must be spent in its entirety. Sometimes the coin value of the output is higher than what the user wishes to pay.
Contents
Description
The blockchain is a big file that keeps track of all Bitcoin transactions ever made. So if you own some Bitcoins, all it means is that the blockchain has references to transactions that were made to your Bitcoin address. The term for these references is “Inputs”[1]
Now let’s say you enter a store to buy a watch for 1 Bitcoin. instead of taking out actual cash from your pocket and paying for something you just tell the seller – “here are the references that I have this money” or “here are my inputs”.
What you mean is – here are previous transactions sent to me that add up to 1 Bitcoin or more. This is called an output, so each output is compiled out of 1 or more previous inputs. Once you use an input to pay for something it is considered “spent” and you can’t use it again for other outputs. So in this case once your output is confirmed it will become an input for the seller to use in future transactions.
Bitcoin rules state that you can’t use just a part of an input. So if for example I wanted to send the seller 1 Bitcoin and the only input or reference I have is from someone who previously sent me 1.5 Bitcoins I will have to use all of this input and return the “change” back to my original address as a new input. So I will use my 1.5 Bitcoins input, pay 1 Bitcoin to the seller, pay a miner’s fee and return the rest to my original address. Now for a real live example – if you examine the inputs closely you will see that the output consists of an input of 0.142 Bitcoins. 0.005 Bitcoins were sent to someone else, a miner’s fee of 0.0001 Bitcoins was deducted and the rest of the money was sent back to the original address. That’s why you’ll sometimes see additional coins sent with your transactions. These coins will be sent back to your change address which you can configure manually inside your wallet.[2]
Example
For example: Say you want to buy a candy bar ($1) from a store. You open your wallet (fiat wallet) and inside there is a single $20 bill. What is the min amount you can pay? It isn’t $1; you can’t rip up 1/20th of the bill and give it to the cashier. You need to pay $20 and since you only owe $1, the cashier gives you back $19. Now in fiat nobody except the central bank can make new bills so bills are in fixed denominations and thus your fiat transaction may look something like the following[3].
- Inputs:
- $20 bill
- Outputs:
- $1 bill to cashier
- $10 bill to you
- $5 bill to you
- $1 bill to you
- $1 bill to you
- $1 bill to you
- $1 bill to you
We do it everyday so it becomes instinctive but if you break it down that is what is happening. Now lets imagine for a second that some system existed which allowed the cashier (or anyone) to securely destroy any authentic fiat money (bills) and print replacements in arbitrary amounts (not just $10s and $20s but $18.94537208 if you wanted to), while preventing double spending, counterfeiting, and ensuring that at all times the amount of money created is exactly the same as the amount of money destroyed. In that case your transaction may look like this:
- Inputs:
- $20 bill – destroyed
- Outputs:
- $1 newly created bill to cashier
- $19 newly created bill to you
That is exactly how bitcoin works. Except instead of bills we call the elements inputs and outputs. When you “spend” bitcoins (create a transaction) you must use the entire value of an unspent output (of a prior transaction) and make it the input for a new transaction. Your wallet hides this somewhat by continually looking for unspent outputs and adding up their total value. So when your wallet says you have 130 BTC it simply means the sum of all your unspent outputs total 130 BTC. Just like a fiat wallet the value comes from one or more discrete bills/outputs.
Take the case of the transaction 0a1c0b1ec0ac55a45b1555202daf2e08419648096f5bcc4267898d420dffef87, a 10.89 BTC previously unspent output was spent by the client. 10 BTC was the payment amount, and 0.89 BTC was the amount of change returned. The client can’t spend just 10.00 BTC out of a 10.89 BTC payment anymore than a person can spend $1 out of a $20 bill. The entire 10.89 BTC unspent output became the input of this new transaction and in the process produced are two new unspent outputs which have a combined value of 10.89 BTC. The 10.89 BTC is now “spent” and effectively destroyed because the network will prevent it from ever being spent again. Those unspent outputs can now become inputs for future transactions.
In this transaction, the fee is 0 but if there was a tx fee paid it would be the difference between the inputs and the outputs. (i.e. 10.89 BTC input and a 10.88 BTC output = 0.01 BTC fee).
The wallet file contains the private keys for change addresses, and they can receive and send coins normally. However, the GUI in the default client does not display them in the address book, therefore a recommendation is to backup wallet.dat every 50 transactions.
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