Unspent Transaction Output (UTXO)

In the crypto space, Unspent Transaction Output (UTXO) is referred to an output produced during the blockchain transaction that has not yet been used as an input to the new transaction. Bitcoin (BTC) is one of the most famous examples of crypto assets using this model.

For such transactions, every input has an output. Input is referred to that address from where the crypto token says Bitcoin is sent, while the output address is referred to the address to which it has been sent. The user is the owner of the output transaction and is able to spend it later in other transactions. This is different from what is usually done in traditional banking systems. The traditional financial institutions first register the debits as well as the credits and later send the statement along with a running balance to the account holder at the end of the month.

In this UTXO model of the transaction, the total balance within the wallet is the sum of all unspent transaction outputs. It’s the crypto equivalent of receiving change after a purchase has been made that can later be used for another purchase.

In the UTXO model, the total number of inputs should be equal to or more than the total outputs. This is one of the primary checks that must be run by the validators to verify the validity of the transactions. This model is best for decentralized systems because it automatically checks the double spending in a computational yet simple manner.