What is a UTXO

In the Bitcoin system, a UTXO stands for "Unspent Transaction Output." Here's what it means in basic terms:

  1. Transaction Outputs: When a Bitcoin transaction occurs, it creates "outputs." These outputs are amounts of Bitcoin that are designated for specific addresses. Essentially, they represent how the Bitcoin is divided up and where it's sent.

  2. Unspent: When we say an output is "unspent," it means that the Bitcoin assigned to that output has not been used in a new transaction yet. It's still available to be used by the owner of the associated address.

  3. The UTXO Model: Bitcoin uses the UTXO model to track ownership and transaction states. Every time you receive Bitcoin, a new UTXO is created, associating that amount with your address. When you send Bitcoin, you are consuming one or more UTXOs and creating new ones. The Bitcoin network checks only the UTXOs (and not any account balance) to validate that you have enough Bitcoin to send in a transaction.

  4. Record Keeping: Think of UTXOs as individual line entries in Bitcoin's ledger. Instead of each user having a singular balance, Bitcoin's history consists of these UTXOs which, when totaled up, give the balance of an address.

In essence, the UTXO model is Bitcoin's way of keeping track of who has how much Bitcoin by maintaining a record of all individual transaction outputs that have not been spent yet.

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