What is a Bitcoin UTXO?

A Bitcoin Unspent Transaction Output (UTXO) is an essential concept in the Bitcoin blockchain protocol. It represents the unspent balance of a Bitcoin transaction output. In simpler terms, a UTXO is an output of a Bitcoin transaction that has not yet been used as input in a subsequent transaction.

Here's how UTXOs work:

1. **Transaction Outputs**: When someone sends Bitcoin to another person, they create a transaction that includes one or more outputs. Each output contains a specific amount of Bitcoin and specifies the conditions under which that Bitcoin can be spent. These conditions are typically defined by cryptographic locking scripts that require the presentation of a corresponding unlocking script to spend the funds.

2. **Unspent Outputs**: Once a transaction output is created, it becomes part of the UTXO set, representing Bitcoin that has not yet been spent. These UTXOs are stored on the blockchain and are available for spending by the recipient of the funds.

3. **Spending UTXOs**: When someone wants to spend Bitcoin, they create a new transaction that includes inputs, which reference specific UTXOs from previous transactions, and outputs, which define where the Bitcoin will be sent and under what conditions it can be spent. When a transaction is included in a block and confirmed by the network, the referenced UTXOs become spent, and new UTXOs are created as outputs of the transaction.

4. **UTXO Model**: Bitcoin uses a UTXO-based model rather than an account-based model like traditional banking systems. In an account-based system, users have account balances, and transactions involve debiting and crediting these balances. In contrast, in the UTXO model, transactions involve spending specific outputs (UTXOs) and creating new outputs (UTXOs). This model provides more privacy, scalability, and flexibility than an account-based system.

5. **UTXO Set**: The UTXO set represents all unspent transaction outputs on the Bitcoin blockchain. It is maintained by all full nodes on the network and is used to validate new transactions and prevent double spending.

Overall, UTXOs are a fundamental building block of the Bitcoin protocol and are essential for ensuring the security, integrity, and efficiency of the network. They enable the decentralized management of ownership and spending of Bitcoin without the need for trusted intermediaries.