What is UTXO and why you need it in Bitcoin?

UTXO (Unspent Transaction Output) stands for the output of the unspent transactions. In simple words, is the remnants of a cryptocurrency that you get with each transaction. For a more detailed explanation is necessary to understand the principle of transfers of coins. For example, take the most common project Bitcoin.

Example UTXO

In your Bitcoin wallet, you can see the balance. For example, 100 BTC. Although the interface displays a single balance, it is actually made from several UTXO. You can have four for 25 UTXO bitcoin or ten UTXO for 10 bitcoins, made no difference.

At one point, you decide to spend 35 bitcoins is to buy a brand new car, for example. However, in your purse a few UTXO equivalents 15, 17, 28 and 40 bitcoins. What should I do?

Insights unspent transaction cannot be split immediately. With your wallet goes UTXO in the amount of 40 bitcoins. The network generates two new output: single $ 35 BTC (he goes to the dealer as part of payment for the car) and the second with 5 BTC (he sent you back to the purse).

You would also have to spend a UTXO in size 17 and 28 of bitcoins, then you would receive as “surrender” 10 bitcoins. A transaction can consist of a combination of different UTXO. However, the user cannot control what the conclusions will be sent.

What about commissions?

When transferring coins are also taken into account the cost of the fee to miners. Here’s how it looks as a formula:

New UTXO = sum of UTXO in a transaction — transaction size — Commission

Let us examine on this principle the last example. But for ease of calculation the Commission equate to one bitcoin:

New UTXO = (17 + 18) — 35 — 1 = 9 BTC

Potential problems

The application of the principle findings greatly simplifies the calculations on the blockchain. Instead of storing the blocks of information about each individual transaction, we just tracked the coins that were not spent (UTXO).

Source: Blockchain

Recall that each bitcoin can be spent only once. In other words, you can’t send one coin to multiple, different addresses, endlessly copying. A special role is played by UTXO, because according to the information on the findings of the network of cryptocurrency monitors the movement of all the coins.

However, the Bitcoin nodes store information about the UTXO in RAM, so its size should not exceed certain limits. Every year cost of service full BTC nodes increases and the amount of information about the UTXO is also increasing. All of this can lead to centralization of the network of cryptocurrencies for the foreseeable future, only the rich can afford to maintain one of the nodes of the system.

The workaround is simple — keep in memory only part of the UTXO, and the rest send to the SSD. Of course, this will affect the speed of transaction confirmation, but the developers of Bitcoin are constantly looking for new solutions to optimize the translation of coins. Finally, a huge role in the optimization played an integrating SegWit: with the help of programmers managed to reduce the cost of storing the UTXO 75 percent.

Even more interesting are looking for in our cryptodata of hontarov!

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