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What is an Unspent Transaction Output (UTXO)?

What is an Unspent Transaction Output (UTXO)?

UTXO's are transactions that have been sent to a user, which are themselves, unspent by that user. UTXO's are checks, written to a destination, that are ...

Transcription

What's up, party people? Chris DeRose here, Community Director of the Counterparty Foundation, and in this video I wanted to address the question, "What is a UTXO?" So, let's get started. A UTXO is an unspent transaction output, and to know what that is, it helps to know a little bit about how bitcoin works. Bitcoin is a triple-entry accounting system. When you own bitcoin, what you own are checks that are addressed to you. And when you spend bitcoin, you write a check, and in that check you reference the old checks that you've received, and allocate some portion of one or more of those to a recipient. So when I make a spend, I create this transaction, and in this transaction, I reference the inputs, and the inputs are prior receipts that I have, prior transaction IDs.

And I write this check, and I denominate some number of satoshis to an output that is another person, that's that person's public key. And the output goes to that person when I've entered it into the ledger, and now that person holds himself a check, and that check is useful for spending. These checks that have been unspent are, in fact, UTXOs, they are unspent transaction outputs, and they're used all over the place in bitcoin, and they're used all over the place in Counterparty as well. If you're developing on the Counterparty system, it's particularly important to note that these UTXOs are in part what is referenced in a Counterparty transaction. Counterparty data sits on top of the bitcoin network and sits on top of the bitcoin transactions, and to compose a Counterparty transaction, you need these UTXOs in order to write a check that would be entered into the Counterparty ledger. So that's the gist, that's what UTXOs are.

They are, in some senses, the bitcoin that you actually own. These are the outputs from previous transactions that have been made to you, that are ready for spending. They are your bitcoin. A lot of people think that bitcoin is a computed value where you receive it and it's a number that you hold, and that's not really true. What you have in bitcoin is an address on the ledger and inputs or outputs, depending what side you're on, into that address. That's it.

If you like this video, subscribe to my channel, check out some other answers I have, and if you want to ask me a question, I'm available on Twitter, derosetech is my handle, and I'd love to have you around. Later, party people!