What Is the UTXO Model?

An unspent transaction output (UTXO) is the amount of digital currency that remains after a cryptocurrency transactionꦏ. You can think of it as the change you receive after buying an item, but it is not a lower denomination of the currency—it is a transaction output in the database generated by the network to allow for non-exact change transactions.

Understanding the UTXO Model

UTXO is a protocol for distributing the bits of data that cryptocurrency is made from and can be difficult to understand initially. A cryptocurrency network or developer sees UTXO much differently than a day-to-day cryptocurrency use🌊r does.

For example, imagine that 1 BTC is a bucket full of coins. Each coin represents a UTXO. If you purchase something from Bob for .5 BTC, the network will give Bob the entire bucket of coins and send back the .5 BTC you're owed in "change." You now have a UTXO worth .5 BTC that cannot be divided into smaller amounts.

What the Network Sees

Nearly all transactions create UTXOs because the network must "gather" a user's unspent outputs and send them to the recipient. Thus, it's rare for a user to have the exact amount of UTXO needed. This is similar to looking under the car seat for loose change to pay for the burger at the drive-through and finding a quarter when you only needed a dime—the restaurant must give you back $.15.

When you initiate a transaction through your wallet, UTXOs with your information are located and unlocked. The new owner's information is associated with the UTXO you tra🔴nsferred to them. They are locked once again, and the user can use them in transactions via the same process.

As transactions continue, the database becomes populated 💞with records of ownership changes. The outputs assigned to you are fractions of the cryptocurrency you sent to someone that were 𒊎sent back.

What a User Sees

When you decide to spend your Bitcoin, you only see the amount you've spent deducted and the amount left over in your wallet. For you, it's similar to using a $1 bill on a $.50 item—you're given change, you put it in your pocket, and go about your day.

Goals of the UTXO Model

The UTXO model is used in many cryptocurrencies because it allows users to track ownership of all portions of that cryptocurrency. Because cryptocurrencies were created with anonymity in m🦄in𒐪d, UTXOs are associated with the public addresses visible to the entire network.

Users cannot be identified from their ownership—unless they advertise their address—but the model allows for transparency throug♋h the ad🧸dresses.

Advantages and Disadvantages of the UTXO Model

澳洲幸运5ܫ官方开奖结果体彩网: There are several advantages to the UTXO modeꦦl:

• More privacy if used with multiple addresses
• UTXO consolidation reduces future fees
• Traceable back to the time the bitcoin was given as a block reward

Some of the disadvantages of the model are:

• It's more difficult to code than accounts
• There is less 澳洲幸运5官方开奖结果体彩网:fungibility than in accounts
• Requires a user to occasionally consolidate their UTXO (transaction fees involved)
• Takes up more digital space
• Difficult to understand

The Bottom Line

The unsigned transaction output model is used in some blockchains to keep track of token ownership. A cryptocurrency is designed with a certain number of smaller increments so smaller units can be used in transactions. UTXOs, not account balances, are what are tracked on these blockchains.

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