UTXO

UTXO (unspent transaction output) is the output of unspent transactions.

Let's look at what UTXO is using ruble bills as an example. For example, you have 3750 rubles. There is no banknote of this denomination, but there are a varying number of combinations of other bills and coins that make up this amount:

• 3750 pieces of 1-ruble coins - this will require more space and time to count,
• 3 paper bills of a thousand, 7 banknotes of hundreds and 5 ten-ruble coins,
• a bill of 2 thousand, 1 thousand, 500 rubles, 200 rubles and 50 rubles is the optimal way, which takes up less space in your wallet.

And so on, the number of combinations is considerable.

Likewise, in your Bitcoin wallet, the final amount will be made up of different UTXOs. Their number depends on the combination, on how you received the money in your wallet.

In the fiat world there is such a thing as change. You buy a package of juice for 26 rubles, but the smallest bill you have is 50 rubles. You will have to be given change of 24 rubles.

It turns out that you overpay at one moment, but then you get the difference. As you understand, change also varies and depends on the bill and the amount on the account.

Absolutely the same thing is happening in the world of cryptocurrencies. Your balance can be presented like this:

20 mBTC +14 mBTC + 231 mBTC. Total 265 mBTC and 3 UTXO (according to the number of terms).

You want to pay for your purchase with 16 mBTC. This number is less than each of your UTXOs. Your wallet sends an entire UTXO, in our case 20 mBTC, to another address to complete the transaction, and then receives 4 mBTC back.

If the amount is greater than one unspent output, several of them will be combined.

However, there is a big difference in the analogy with fiat money:

When receiving change in fiat bills, we do not pay a transaction fee, and on the blockchain, the amount of fees for miners is deducted from the original UTXO. The resulting formula is: New UTXO = (amount of original UTXO) - (amount sent to another address) - (transaction fees). Fees may vary depending on the blockchain and transfer time. In the fiat world, commissions are usually more clear and included in the price (VAT percentage, intermediary fee, etc.).

The denomination of banknotes has restrictions. So, in Russia there are banknotes in denominations of 5000, 2000, 1000, 500 rubles, etc. The number of combinations of these denominations is limited.

UTXO can have different meanings. This allows the cryptocurrency to be more flexible. UTXOs can be repackaged and their number in the wallet reduced to make the transaction weight smaller and pay lower fees.