Clear DefinitionsUTXO
1 min read
Pronunciation
[yoo-tee-eks-oh]
Analogy
Think of a UTXO like an indivisible cash bill in your wallet. When you spend it, you must use the entire bill, and if it's more than you need to pay, you receive new bills as change. You can't tear off part of the bill—you always use the whole UTXO and get new ones back if needed.
Definition
Acronym for Unspent Transaction Output, representing a discrete amount of cryptocurrency that has been received but not yet spent, serving as an input for future transactions in Bitcoin and similar cryptocurrencies.
Key Points Intro
UTXOs form the foundational model for tracking ownership in many cryptocurrency systems.
Key Points
Represents discrete units of cryptocurrency owned by whoever can satisfy its spending conditions.
Must be consumed entirely in a transaction, with excess value returned as new UTXOs.
Collectively, the set of all UTXOs represents the current state of ownership on the blockchain.
Provides greater privacy potential than account-based models through address rotation.
Example
If you receive 0.1 BTC, 0.2 BTC, and 0.3 BTC in three separate transactions, your wallet contains three UTXOs totaling 0.6 BTC. To send 0.5 BTC, your wallet might consume the 0.2 and 0.3 UTXOs, sending 0.5 to the recipient and creating a new 0.0 BTC UTXO as change (minus transaction fees).
Technical Deep Dive
The UTXO model implements a state transition system where transactions consume existing UTXOs as inputs and generate new UTXOs as outputs. Each UTXO includes a value and a locking script (scriptPubKey) defining spending conditions. In Bitcoin, these scripts evolved from simple public key verification (P2PK) to more advanced patterns like Pay-to-Public-Key-Hash (P2PKH), Pay-to-Script-Hash (P2SH), and Segregated Witness addresses (P2WPKH, P2WSH). The UTXO set—the collection of all UTXOs at a given point—represents the blockchain's current state and is maintained by full nodes for transaction validation. This approach differs fundamentally from account-based models used in Ethereum, where balances are tracked as state entries rather than discrete outputs.
Caveat
The UTXO model creates unique challenges including 'dust' (very small UTXOs that cost more in fees to spend than they're worth), privacy correlation attacks connecting multiple UTXOs to the same owner, and more complex fee estimation than account-based models.
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