What the *** are UTXOs
Introduction
In this short 4 article series we will go over:
- What are UTXOs (this article)
- How can UTXOs be analysed (part 2)
- How to distinguish between different market players using the UTXO set (part 3)
- And finally, how whalemap’s signature bubbles chart can be calculated (part 4)
UTXOs
UTXOs are the foundation of how transactions work on the Bitcoin blockchain. It is one of the main attributes of the Bitcoin blockchain, where you can call the Bitcoin blockchain a UTXO based blockchain. On the contrary, The Ethereum blockchain can be described as an Account based Blockchain.
UTXO — unspent transaction output
Now to the juicy part. A good analogy to describe what a UTXO is, is imagining it as a banknote in your wallet.
Imagine you have a wallet, that has a
- $50,
- $20,
- and a $1 note.
These are the notes you can spend and that belong to you (or your wallet). Each note would be a UTXO on the Bitcoin blockchain. The sum of UTXOs (notes) in your wallet is your balance. Each UTXO has a recorded date and time when it was received by your wallet.
Now. At the time of writing (1 Nov 2023) there are approximately 19,525,605 Bitcoins that were mined [1].
N.B. Each new block, 6.25 new bitcoins are mined. Bitcoin blockchain started off with 50BTC miner rewards per mined block but this number halves every 210,000 blocks. There will be exactly 21,000,000 bitcoins when the mining phase ends.
However, even though there are 19,525,605 bitcoins currently in existence [1], there are more UTXOs in existence ( currently ~125,337,000 [2]). That is because each bitcoin can be split into 10^8 little pieces (like there are 100cents in 1 dollar)
So the wallet with banknotes from the example above can look something like this
- $50.00030001,
- $20.14323495,
- and a $1 note.
One important thing about UTXOs is that they are indivisible. What does that mean?
Again, taking the banknote analogy; if you want to buy something for $40 and you have the banknotes like you do in the example above, you have to give your $50.00030001 “banknote” and get $10.00030001 “banknote” back as change.
Your wallet after the transaction will look something like this
- $10.00030001
- $20.14323495
- $1
The person that you sent the transaction TO will have the $40 banknote now. So you created 1 additional UTXO as a result of this transaction.
The sum of all UTXO in existence always equals the total number of circulating bitcoins.
