Bitcoin UTXO (Unspent Transaction Output) – The Basics

UTXO stands for an Unspent Transaction Output which results from a blockchain transaction. Nearly all blockchain transactions generate unspent outputs as part of the mechanism that ensures integrity and traceability within blockchain networks. The resulting UTXOs are passed on to recipients, which in turn can use them as input to pay for the execution of new transactions. New UTXOs are likely to result from these new transactions.

UTXO management

The recipient of the UTXO demonstrates ownership through the public key they are associated with on the blockchain. The recipient (owner) can only use the UTXOs as input in a new transaction by providing the valid signature linked to this public key.

UTXOs cannot be subdivided, just like your coins or banknotes. When spent, the UTXO’s public key is first verified by validation nodes, and then removed from circulation if valid. This removes the risk of double spending attacks.

Bitcoin's UTXO model

Bitcoin uses a UTXO-based accounting model, contrary to Ethereum that uses an account-based model. Most of us are used to the latter model, where transactions are updated in our accounts’ balances.

The UTXO model refers to, as its name states, the tracking of UTXOs. When Bitcoin transactions are initiated, the ownership changes of the Bitcoin UTXOs (or any other cryptocurrency using this accounting model) are tracked on its blockchain. Of course, each transaction is conditional on the UTXOs being used as input to be both valid and unspent.

Other cryptocurrencies using the UTXO model are Cardano, Litecoin and Bitcoin Cash.

In short, UTXOs represent all Bitcoins in circulation as well as their respective owners.