UTXO (Unspent Transaction Output) represents the remaining amount from a previous transaction that can be reused in subsequent transactions. It serves as the foundational model for many blockchain systems, most notably Bitcoin.
Other blockchains also utilize UTXO but customize it to leverage their unique advantages:
- Sui uses OwnedObject, similar to UTXO.
- Cardano employs extended UTXO (eUTXO).
- Fuel optimizes UTXO with custom components like witnesses.
UTXO translates to "Unspent Transaction Output" or "Unused Transaction Output."
How UTXO Is Created
The UTXO Operational Model
To illustrate UTXO's functionality, consider this analogy with a bank account and a piggy bank:
Real-World UTXO Example: Alice sends 2 BTC from a CEX to her wallet, then transfers 1 BTC each to Wallet A and Wallet B. However, the transaction count and values differ:
- Bank Account Model (similar to Ethereum’s account-based system): Tracks the final balance.
- Piggy Bank Model (UTXO-based): Tracks individual transaction outputs.
Key Components of UTXO:
- INPUT: References a previous transaction’s output.
- OUTPUT: Specifies the new recipient(s) and remaining value.
Example Transaction:
Input:
- Previous tx:
f5d8ee39a430901c91a5917b9f2dc19d6d1a0e9cea205b009ca73dd04470b9a6 - Index:
0 - scriptSig:
304502206e21798a42fae0e854281abd38bacd1aeed3ee3738d9e1446618c4571d1090db022100e2ac980643b0b82c0e88ffdfec6b64e3e6ba35e7ba5fdd7d5d6cc8d25c6b241501
Output:
- Value:
5000000000 - scriptPubKey:
OP_DUP OP_HASH160 404371705fa9bd789a2fcd52d2c580b65d35549d OP_EQUALVERIFY OP_CHECKSIG
Step-by-Step UTXO Flow:
Alice receives 2 BTC from a CEX:
INPUT(Tx1) = NULLOUTPUT(Tx1) = 2 BTC to Alice
Alice sends 1 BTC to Wallet A:
INPUT(Tx2) = OUTPUT(Tx1)OUTPUT(Tx2) = 1 BTC to Wallet AOUTPUT(Tx2)’ = 1 BTC returned to Alice
Alice sends 0.6 BTC to Wallet B:
INPUT(Tx3) = OUTPUT(Tx2)’OUTPUT(Tx3) = 0.6 BTC to Wallet BOUTPUT(Tx3)’ = 0.4 BTC returned to Alice
Alice sends 0.4 BTC to Wallet C:
INPUT(Tx4) = OUTPUT(Tx3)’OUTPUT(Tx4) = 0.4 BTC to Wallet C
This demonstrates UTXO’s granular tracking of transaction fragments.
Splitting UTXOs
When a user lacks a UTXO matching the exact amount needed (e.g., sending 0.8 BTC but holding 1 BTC or 0.6+0.4 BTC), splitting is required:
- Case 1: Split 1 BTC UTXO into 0.8 BTC and 0.2 BTC.
- Case 2: Send 0.6 BTC first, then the remaining 0.2 BTC.
👉 Learn how to optimize UTXO splits with Luminex, a platform simplifying UTXO management.
Drawback: High Bitcoin transaction fees make multiple splits costly.
UTXO vs. Account-Based Models (Ethereum)
| Feature | UTXO (Bitcoin) | Account-Based (Ethereum) |
|-------------------|----------------------------|-----------------------------|
| Tracking | Output-based | Balance-based |
| Privacy | Higher (pseudonymous) | Lower (address-linked) |
| Smart Contracts| Limited functionality | Native support |
| Transaction Cost | Higher (per input/output) | Lower |
Trade-offs:
- UTXO: Enhanced security but complex for frequent transactions.
- Account-Based: Convenient but reliant on smart contract security.
Pros and Cons of UTXO
Advantages
- Security: Isolated transactions reduce double-spending risks.
- Privacy: Pseudonymous outputs enhance anonymity.
- Parallel Processing: Independent UTXOs enable concurrent verification.
Disadvantages
- Complexity: Managing multiple UTXOs requires technical knowledge.
- Storage: Larger transaction sizes increase blockchain bloat.
- Cost: High fees for splitting/combining UTXOs.
FAQs
Q: Can UTXOs be merged?
A: Yes, combining smaller UTXOs into one reduces future transaction fees.
Q: Why does Bitcoin use UTXO?
A: It aligns with Bitcoin’s design for transparency and security, avoiding centralized balance tracking.
Q: Is UTXO better than account-based models?
A: Depends on use cases—UTXO excels in security, while account-based systems suit smart contracts.
👉 Explore UTXO-based platforms for secure transactions. UTXO remains pivotal for blockchain integrity, despite its trade-offs.