This article was first published on Stories by Monetha on Medium
Unspent Transaction Outputs or UTXOs serve as globally-accessible evidence that you have Bitcoin in your digital wallet.
A bitcoin transaction has both an input and an output. The input is the address where the bitcoin is sent from; the output is the address where it is sent to.
If an output has already been spent, it cannot be spent again. However, an Unspent Transaction Output can be used, or spent, as an input in another transaction. If you don’t have a UTXO, that means you don’t have any bitcoins in your wallet.
Before going further into how a UTXO works, we have to understand first how bitcoin transactions are designed.
Basically, to create a new transaction, you have to use the output of a previous transaction as input to the new one. The following example will illustrate this point.
Suppose John wants to send Jane 1 BTC and has to pay a transaction fee of 0.20 BTC. The input of that transaction would look like this:
- Input 1 — 0.20 BTC
- Input 2 — 0.20 BTC
- Input 3 — 0.20 BTC
- Input 4 — 0.20 BTC
- Input 5 — 0.20 BTC
- Input 6 — 0.20 BTC
Taking into account the 0....
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