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Unspent Transaction Output (UTXO)

Definition

The Unspent Transaction Output (UTXO) model is a method used in blockchain systems, such as Bitcoin, to manage and track ownership of digital assets. It represents the amount of cryptocurrency that remains after a transaction and is available for future spending. For example: if you have a $100 bill and need to pay $15, you spend the $20 bill and receive $5 as change.

Concept

Generally, in the UTXO model, a transaction consists of inputs and outputs. The TransactionInput references previous UTXOs that are being spent, and the TransactionOutput creates new UTXOs for the recipient and the sender’s change.

The flow can be visualized as follows:

graph TD
  A[Transaction] -->|Uses| B[TransactionInput]
  A -->|Generates| C[TransactionOutput]
  B -->|Check| D[UTXO1]
  B -->|Check| E[UTXO2]
  C --> F[NewUTXO1]
  C --> G[NewUTXO2]
  F --> H[Recipient's Wallet]
  G --> I[Change to Sender]

  D[UTXO1] -->|Spent| B
  E[UTXO2] -->|Spent| B
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Let's dive deep into each model, the following schema illustrates the relationships between the structs: Transaction, TransactionInput, and TransactionOutput.

classDiagram
    class Transaction {
        +TransactionInput[] inputs
        +TransactionOutput[] outputs
    }

    class TransactionInput {
        +H256 outpoint
        +H512 sigscript
    }

    class TransactionOutput {
        +Value value
        +H256 pubkey
    }


    class Recent_TransactionOutput {
        +Value value
        +H256 pubkey
    }

    Transaction --> TransactionInput : has
    Transaction --> TransactionOutput : generates

    TransactionInput --> Recent_TransactionOutput : references nearest
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Explanation:

  • Transaction: Contains vectors of TransactionInput and TransactionOutput, representing the inputs and outputs of the transaction.
  • TransactionInput:
    • outpoint: a unique identifier for a UTXO, point to the recent TransactionOutputs of Sender. i.e: Alice already has an UTXO $10 (0x1), now she wants to use it to "spend". So the outpoint points to the UTXO $10.
    • sigscript: a script to validate the transaction.
  • TransactionOutput:
    • value: the amount being transferred.
    • pubkey: the public key for the recipient.

Key Feature

  1. Transaction Process

    • Transactions consume one or more UTXOs as inputs and create new UTXOs as outputs.
    • Inputs are “spent” UTXOs, and outputs are newly created UTXOs, distributed to the recipient and possibly back to the sender as change.

  2. Validation and Security

    • UTXOs are verified by nodes to ensure the inputs are valid, unspent, and signed by the rightful owner.
    • Double-spending is prevented since each UTXO can only be used once.

  3. UTXO Set

    • The UTXO set is the collection of all unspent outputs currently recorded in the blockchain.
    • It defines the balance available for spending and is used during transaction validation.

  4. Advantages

    • High Security: The UTXO model is highly regarded for its security due to the use of digital signatures and encryption in transactions. Using UTXOs requires a valid private key, making it harder for fraudsters to impersonate or perform fraudulent actions compared to traditional accounting ledger models.
    • Controllable: Users have complete control over their UTXOs and can choose how to spend them. This provides high flexibility in managing cryptocurrency assets.
    • Transparency: All UTXOs are recorded on the blockchain, allowing anyone to check their balances and transaction history. This promotes transparency and security in the cryptocurrency ecosystem.

  5. Disadvantages

    • Complexity: The UTXO model can be harder to understand for users. Managing multiple UTXOs can become cumbersome and requires some technical knowledge.
    • Transaction Size: UTXO transactions can be larger than transactions in other models, leading to higher transaction fees. This can impact the efficiency of using cryptocurrency for small payments.
    • Usability: Using UTXOs may require more steps compared to other models, making it less convenient for new users.

Comparing Account based vs. UTXO

Feature Account-Based Model UTXO Model
Tracking System Tracks balances of accounts Tracks unspent transaction outputs (UTXOs)
Transaction Input Directly modifies account balance Consumes UTXOs as inputs and creates new UTXOs
Transaction Output Outputs go to the account balance Outputs create new UTXOs that can be spent later
Privacy Less private, as account balances are directly visible More privacy, as multiple UTXOs can be used for one transaction
Scalability Easier to scale, as the system handles fewer data structures More complex as each UTXO must be tracked and verified
Transaction Size Typically smaller, as it only requires updating balances Larger due to multiple UTXOs and change transactions
Flexibility Less flexible, as it works with account balances More flexible, as UTXOs can be mixed and matched
Security Security through account balances and signatures Security through digital signatures for each UTXO
Double-Spending Prevented by centralized ledger or smart contract logic Prevented by ensuring UTXOs are only used once
Complexity Simpler for users, with easier-to-understand balances More complex, especially for users managing multiple UTXOs