Unspent Transaction Output (UTXO)

An unspent transaction output (UTXO) represents a crucial component of blockchain transactions, defining the starting and ending points of each transaction within the blockchain network. This concept is integral to Bitcoin and numerous other cryptocurrencies, functioning as a cornerstone of the UTXO model.

In cryptocurrency transactions, inputs and outputs form the basic structure. When a user initiates a transaction, they utilize one or more UTXOs as inputs. By providing a digital signature to validate their ownership of the inputs, the transaction generates new outputs while consuming the UTXOs, rendering them "spent" and ineligible for further use. These newly generated outputs subsequently become UTXOs that can be used in subsequent transactions.

A practical example can illustrate this process. Consider Alice, who possesses 0.45 BTC in her wallet, consisting of two UTXOs valued at 0.4 BTC and 0.05 BTC from prior transactions. If Alice needs to make a payment of 0.3 BTC to Bob, she must utilize her 0.4 BTC UTXO as input. Subsequently, she constructs a transaction instructing the network to split the 0.4 BTC UTXO, sending 0.3 BTC to Bob's address and the remaining 0.1 BTC back to her address. Following this transaction, the initial 0.4 BTC UTXO is spent and cannot be reused, while two new UTXOs worth 0.3 BTC and 0.1 BTC are created.

In a different scenario, if Alice needed to pay 0.42 BTC, she could aggregate her 0.4 BTC UTXO with another 0.05 BTC UTXO to create a single UTXO valued at 0.42 BTC, thereby returning 0.03 BTC to herself.

Fundamentally, the UTXO model serves as the protocol's mechanism for tracking the whereabouts of coins in the network. Analogous to checks, UTXOs are directed to specific users' public addresses and cannot be partially spent. Instead, new checks must be created from existing ones and transferred accordingly.