Quote from: Dulen007 on Today at 04:32:06 PM

That makes sense, thanks for clearing that up! So basically, instead of thinking of it like breaking a coin in half, it's more like just moving numbers around on a digital record.

Yeah, pretty much. There arent any real coins jingling in your pocket or anything. Bitcoin is all digital, just lines of code tracking Unspent Transaction Outputs, or UTXOs. But whenever I try to break this down for someone, I always end up using the wallet analogy. Picture this: UTXOs are kinda like the random bills youve got stuffed in your wallet - say, a €10, a €50, and a €5. Together you get €65, but its not one single bill. Its a handful of separate notes, all mashed together to make up your actual balance.

Quote from: Dulen007 on Today at 04:32:06 PM

But when you make multiple small transactions over time, does that clutter your wallet with too many inputs, or does it affect the transaction fees later on? Just trying to understand how it all adds up in the background.

Yes, it does clutter your wallet in a way. If you receive lots of small amounts of bitcoin over time, then you will end up with a lot of small UTXOs in your wallet (like having a wallet full of €1 coins instead of one €100 bill). When you want to send some larger amount, your wallet has to gather all of these small UTXOs to equal the amount you want to send. And, since Bitcoin transaction fees are mostly based on the size of your transaction in kilobytes (KB), not the amount of Bitcoin you are sending, this absolutely affects the amount of transaction fees. Each small UTXO your wallet has to use adds data to your transaction, making it larger in size. So, if your wallet has to combine 100 small UTXOs to send 1 BTC, that transaction will be much larger (and thus more expensive) than if it only needed to use 1 large UTXO to send the same 1 BTC.

This is the reason some people choose to "consolidate" their UTXOs when fees are very low. They send a single transaction to themselves that combines several small UTXOs together which will make any future transactions much cheaper.