Understanding UTXO
The UTXO model was introduced in the Bitcoin whitepaper as a foundational component of Bitcoin's architecture.
UTXO stands for Unspent Transaction Outputs. Unlike the traditional account/balance model used in banking or Ethereum, the UTXO model tracks Bitcoin transactions by ensuring inputs equal outputs. This method is less intuitive but highly secure.
To check a Bitcoin wallet's balance, you must sum all its UTXOs (unspent outputs). Below is a practical breakdown of how UTXOs work.
How UTXO Works: An Example
Example 1: Miner Reward Distribution
- Scenario: Miner A receives a 12.5 BTC block reward.
Transaction:
- Miner A sends 7.5 BTC to Wallet B.
- The remaining 5 BTC stays in Miner A’s wallet.
UTXO Process:
- The original 12.5 BTC UTXO is destroyed.
Two new UTXOs are created:
- 7.5 BTC (sent to B).
- 5 BTC (returned to Miner A as "change").
Example 2: Multiple UTXOs in a Transaction
- Scenario: Seller A holds 10 UTXOs (each worth 1 BTC).
- Transaction: Buyer B purchases 5.2 BTC.
UTXO Process:
- Seller A destroys 6 UTXOs (6 BTC total).
- Buyer B receives 5.2 BTC.
- The remaining 0.8 BTC is returned to Seller A as a new UTXO.
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Why Is UTXO Important?
- Security: Prevents double-spending by tracking unspent outputs.
- Privacy: No direct balance visibility (requires UTXO summation).
- Scalability: Enables parallel transaction processing.
FAQs
1. Is UTXO only used in Bitcoin?
Yes, Bitcoin primarily uses UTXO, while Ethereum uses an account-based model.
2. Can UTXOs be merged?
Yes, wallets can consolidate smaller UTXOs into a single output for efficiency.
3. How do I find my UTXOs?
Use a block explorer or wallet software to scan your Bitcoin address.
👉 Learn more about blockchain analytics
Key Takeaways
- UTXOs are unspent transaction outputs.
- Every Bitcoin transaction destroys old UTXOs and creates new ones.
- This model enhances transparency and security.
For advanced metrics like SOPR or MVRV, refer to specialized glossaries.