• Updated

What are UTXOs?

UTXO stands for Unspent Transaction Output. 

In cryptocurrencies, UTXOs refer to transaction outputs that can be used as inputs in a new transaction. They define where each transaction on the blockchain starts and finishes. The UTXO model, which is used by the Bitcoin blockchain and other cryptocurrencies, serves as a mechanism for keeping track of where coins re at any given time.

How to UTXOs work?

When a transaction is made, the user who'd like to make the transaction, takes one or more UTXOs to serve as the input(s). The user then provides their digital signature to confirm ownership of those inputs. The inputs then result in outputs. 

The unspent transaction outputs consumed are now "spent", and can no longer be used. This prevents issues such as double-spends. The outputs from the transaction that were not spent become new UTXOs, which can be spent in a new transaction. 

The UTXO model treats currency as objects. In a sense, UTXOs are similar to cheques: they're addressed to a specific user (through their public address), and cannot be spent in part. Instead, new cheques must be created from the old one and passed along.

The history of a UTXO is stored in the blocks only when it is transferred. To find to the total balance of an account, you'd need to scan each block to find the latest UTXO pointing to that account. Their ownership is only acknowledged when they're sent, and not in every block. 


Let's say you have 0.65 BTC in your wallet: this amount is a collection of UTXOs, which are outputs from past transactions. 

Now let's imagine you want to send 0.2 BTC to another user, your only solution is to break up your UTXOs: you'll send 0.2 BTC to the user, and send back 0.45 to yourself, but you'll reclaim a little less than than because of mining fees (also called network fees).

You'll create a transaction that tells the network to take your 0.65 as an input, break it up, send 0.2 to that user, and return the rest to your address. The 0.2 BTC is now a spent output and can't be reused, and two new outputs have been created: yours (0.45 BTC) and theirs (0.2 BTC). 

Was this article helpful?

0 out of 0 found this helpful

Have more questions? Submit a request



Please sign in to leave a comment.