What is UTXO?

Definition of UTXO

UTXO stands for Unspent Transaction Output. Unlike the traditional account-based model, when a transaction is broadcast to the Bitcoin network, the outputs of the transaction are considered unspent UTXOs until they are consumed by another transaction. Each UTXO includes an address and a value, and this information is stored on the Bitcoin blockchain.

How UTXO Works

When a user sends Bitcoin, they must select some unspent UTXOs as inputs and create new UTXOs as outputs. Every transaction consumes unspent UTXOs and generates new ones, which are then recorded on the blockchain to prevent double-spending. Each transaction in the Bitcoin network must reference previous transactions, ensuring the total value of the input UTXOs exceeds the transfer amount plus the miner fee. Otherwise, the transaction is invalid.

For example:

• Case 1: At block height 77,963, Alice receives two UTXOs containing 1 BTC and 2 BTC, respectively.
  
  
  • If Alice wants to send 0.5 BTC to Bob at block height 78,001, she can use the 1 BTC UTXO to meet the transaction requirement. The remaining balance will be transferred to a new change address as a new UTXO.
  • Note: A change address is used to store the remaining balance after a UTXO is consumed. It is managed by the main address. When transferring Bitcoin with imKey, the device automatically generates a new change address for the user. This approach enhances privacy and reduces miner fees.
• Case 2: If Alice wants to send 2.5 BTC to Bob at block height 78,001, she will need to consume both UTXOs to meet the transaction requirement. The remaining balance will also be transferred to a new change address as a UTXO.