What is UTXO? UTXO stands for Unspent Transaction Output. How does it help you?

What is UTXO?

Unspent Transaction Output

Conversely, many words and idioms surrounding Bitcoin do not always make obvious sense.

On the other hand technical word sticks around in common lingo mainly, due to a lack of better alternatives to put it simply.

One such word is “UTXO”, which is almost as commonly used in the Bitcoin world.

The amount of crypto that remains after doing a cryptocurrency transaction. It is the remaining coins (output) that are not immediately spent and become a UTXO.

An unspent transaction output (UTXO) is the technical term for the amount of digital currency that remains after a cryptocurrency transaction.

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Now we will try to understand with a transaction example

Table Comparing Bank VS UTXO

In banks, it adds all your money received from other parties to buy something. However, on the contrary, It doesn’t add and pick specific output as the next input for another transaction.

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What are the Benefits?

1. Ownership Verification

It allows you to track ownership of all portions of cryptocurrency.

2. Tracks Coins

Yet still, like the last example, anybody can see how his portion of crypto was used.

3. Prevents Double Spending

It prevents double-spending because it essentially only allows unspent outputs as inputs in future transactions.

4. Scalability

It is possible to process multiples at the same time which encourages scalability innovation.

What Coins Use It?

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Is UTXO an address?

UTXOs and addresses are not the same thing. They are often conflated, and we will see why soon.

But it is important to think of them separately. While you can imagine it as an individual chunk of Bitcoin, you can think of an address as the location where it is stored.

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How does it Work?

In the model, individual units of cryptocurrency, termed unspent transaction outputs are transferred between users, analogous to the exchanges of physical cash.

This model impacts how transactions and ownership are recorded and verified within the blockchain network.

What is the minimum?

Transactions on Cardano have a minimum amount of 1ADA. This means that in your transaction unspent, you can not have any value less than 1.

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How it can help you avoid Double Spending?

First, a transaction is composed of inputs and outputs. The set of inputs and outputs, together with coins to be sent and cryptographic signatures result in a transaction hash, called HASH ID.

Second, the entries are the HASH ID of a transaction that received the purse and that has not been previously used, that is, they are.

Third, the output is the destination address, for which it will be created that can later be used in a transaction.

The same address can have infinite UTXO.

This is why these are defined as a set of transactions.

Transaction

Consequently, when a person needs to send a transaction, it has to feed on UTXO. That is, from transactions you have received that have not been spent.

This means that a person can use one or more for the same transaction. In fact, those that can be part of one or more addresses in your wallet.

Furthermore, a transaction could be created with addresses from different wallets. As long as each one is signed with its corresponding clear private key.

It can only be used once

Above all things lead to one place: it can only be used once.

And this is fundamental within the operation of blockchain technology. Since it is part of the set of tools that guarantees that some coins are not used more than once.

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What is the importance of UTXO in Bitcoin?

Specifically in Bitcoin, all transactions have this structure of inputs and outputs.

In the “inputs” of a Bitcoin transaction, we can see the origins of the balance that we are managing with our wallet or purse.

While in the “Outputs”, we can see where we send our money. In addition, we can see the remaining money that is returned.

All this is visible and traceable by anyone since the Bitcoin blockchain is public and transparent.

Model

Particularly this model allows you to have total control over the way money is used. And under what conditions it can be spent.

First, in order to use a Bitcoin balance, it must be considered as a UTXO in your wallet. That is, someone must make a payment (an output) so that this payment becomes your input and thus you have an available balance to spend.

How UTXOs are an Essential Part of Bitcoin Transactions?

A coin-based transaction is actually created by the miner to send that balance to an address under their control. Thus, the output transaction becomes an input of money for the miner. That he can later spend.

The same process is repeated for the rest of Bitcoin users. With this, we can see that these are an essential part of Bitcoin transactions and without them, their operation would be impossible.

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Conclusion

The scheme is so good that the rest of the cryptocurrencies have decided to use it for their systems.

Of course, each blockchain can adjust this concept differently. In this way, it can adapt to the additional functions that each blockchain protocol where they are executed may present.

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