Hello everyone! Today for the 100-day challenge in the cryptocurrency world, let's talk about UTXO (Unspent Transaction Output), which is a core concept in transactions for Bitcoin and many other cryptocurrencies. UTXO not only defines how your 'balance' is calculated but also ensures the transparency and security of blockchain transactions. So, what is UTXO? How does it work? Let's explore together!
Cash change 💵
Imagine you are buying something at a convenience store, and the item costs $7. You pay with a $10 bill, and the clerk gives you $3 in change. This $3 is like your unspent transaction output (UTXO), which is the balance from the last transaction and can be used for your next purchase. In the UTXO model, each transaction is split into a payment part and a change part, forming new UTXOs.
What is UTXO?
UTXO represents the 'unused balance' in cryptocurrency transactions, which refers to the portion that has not been spent after a transaction and can be used for the next transaction.
Core Features of UTXO:
Indivisibility: Each UTXO is a whole; it must be used entirely or not at all, and cannot be partially used.
Uniqueness: Each UTXO has a unique identifier, ensuring traceability and transparency of transactions.
Distributed record: UTXOs are stored in a distributed ledger on the blockchain, ensuring data security.
How the UTXO model works
Inputs and Outputs
Each transaction consists of several inputs and outputs. Inputs are the UTXOs from the previous transaction, while outputs are the new UTXOs.
Transaction execution process
When a user sends Bitcoin, the wallet selects sufficient UTXOs as inputs and then generates outputs for payment and change.
For example: If you have two UTXOs (1 BTC and 2 BTC) and pay 2.5 BTC, the output would be 2.5 BTC to the recipient and 0.5 BTC as change returned.
Confirmation and update
Once the transaction is confirmed by the blockchain network, the old UTXOs are marked as 'spent', and new UTXOs take their place.
Advantages and challenges of UTXO
Advantages:
High transparency 🔍: All UTXOs are stored on the blockchain, publicly accessible, which increases system transparency.
Strong security 🔒: Each transaction can be traced back to specific UTXOs, helping to prevent double-spending attacks.
High flexibility ⚙️: Users can choose different combinations of UTXOs to optimize transaction fees and efficiency.
Challenge:
Transaction complexity 📉: The UTXO model requires wallets to filter and merge UTXOs, increasing computational costs.
High storage demand 📂: As the number of UTXOs increases, the amount of data nodes need to store also continues to grow.
UTXO application scenarios
Bitcoin transactions 📈: Bitcoin uses the UTXO model to verify the legitimacy of transactions, ensuring that each input corresponds to a valid UTXO.
Privacy-enhanced cryptocurrencies 🔐: Cryptocurrencies using the UTXO model (e.g., Zcash) can better support anonymous transactions, enhancing privacy.
Sharding technology and scaling solutions ⚡: The UTXO model can more easily achieve parallel transaction processing, helping to improve system scalability.
Summary
UTXO is the cornerstone of cryptocurrency transactions, building a decentralized trading system in a transparent and secure manner. Understanding how UTXO works not only helps us better utilize cryptocurrencies like Bitcoin but also allows us to gain deeper insight into the core logic of blockchain technology. [Accumulated 42/100]
