UTXO

Definaiton

UTXO = Unspent Transaction Output

These are the transactions that are left unspent after someone completes a transaction, similar to the change someone receives after conducting a cash transaction at the store.

Transaction

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The last structure is Lock Time, which specifies whether a transaction can be included in the blockchain right away or after some specified time.

Outputs = locked value

Input = a key to unlock

The value is simply the amount in satoshis (sats) that is locked inside the output.

Transaction input = a pointer + anunlocking key

The pointer points back to a previous transaction output.

The key is used to unlock the previous output it points to.

Transaction = unlocking some previous outputs + creating new outputs.

UTXO or “Unspent Transaction Output” = outputs which are yet to be unlocked by an input

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The above transaction consumes some past UTXOs and spits out new UTXOs. The following is an example.

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The missing fee is the transaction fee, which is paid to miners in Bitcoin.

The one with 10K and 20K values are the UTXOs.

For example, a purchase worth 1 bitcoin may retrieve 0.6 BTC from one byte and 0.4 BTC from another. Change from each of these fractions is then sent to the UTXO database to be spent at a later date.

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For example, if Alice wants to pay Bob 1 BTC and she has 2 UTXOs worth 0.5 BTC and 0.7 BTC, she can use both UTXOs as inputs and send an output worth 1 BTC to Bob.

In order to claim the leftover value as change, Alice creates another output worth 0.199 BTC, which she sends to herself. She is not able to send 0.2 BTC to herself because she must pay a transaction fee.

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Pro

Better for scalability and privacy

Transaction logic is simplified as each UTXO can only be consumed once and as a whole

Con

Bad usability

UTXOs are limited in terms of more exotic smart contracts that executes based on the user’s total account balance

Bulletpoints

UTXOs are locked up box full of coins.

The lock can be opened by providing the right key.

When you spend some bitcoin, you create a transaction (or the wallet does it for you) that consumes some old UTXOs and creates a bunch of new UTXOs.

UTXOs are always consumed as a whole, and change UTXO is created automatically by your wallet to get back the balance.

Every UTXO is associated with an address. Different types of address denotes different types of UTXOs.

You should always be aware of your keys to open up the lock in your UTXO. Not Your Keys, Not Your Coins.

Bibliography:

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https://medium.com/bitbees/what-the-heck-is-utxo-ca68f2651819⁠

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https://www.investopedia.com/terms/u/utxo.asp⁠

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https://river.com/learn/bitcoins-utxo-model/⁠

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