UTXO

A UTXO, or unspent transaction output, is a fundamental element of UTXO-based blockchains such as Bitcoin. An output from a previous transaction becomes a UTXO when it has not yet been spent. Each UTXO encodes a value and a locking script that specifies the conditions required to spend it, typically a requirement to provide a valid signature associated with a public key or address.

In a new transaction, inputs reference existing UTXOs as the sources of funds. To spend them, the spender provides an unlocking script that satisfies the locking conditions. When a transaction is confirmed, its referenced UTXOs are considered spent and are removed from the UTXO set, while the transaction’s new outputs are added as fresh UTXOs. The current collection of all unspent outputs is known as the UTXO set, which nodes use to validate transactions and determine the spendable balance of addresses.

UTXO-based systems differ from account-based models in that value is not tracked per account but rather through spendable outputs. This model enables certain privacy and validation properties and allows some forms of parallel processing during validation. However, it imposes storage and indexing demands on full nodes and can lead to UTXO fragmentation and dust management challenges for wallets.

Overall, the UTXO concept is central to how many cryptocurrencies verify spending rights, perform coin selection, and maintain the integrity of the transaction history without relying on per-account balances.