How Bitcoin Uses UTXOs Instead of Balances

[I_Anime]

I know many here think that in their bitcoin wallet the  balance showing are bitcoin. But nah is not bitcoin rather is UTXOs which stand for ( Unspent transaction Output ) . I am going to use this post to break it down for folk here (I know shey some of nah Dey aware already)on how it works , for those that don’t this is how it works .

Let me say Mr A received BTC from three separate transactions,

1st 0.5 BTC

2nd 0.3 BTC

3rd 0.2BTC
 
So those BTC above shows that Mr A has three UTXOs , totaling will be 1 BTC . So Aslong he never spend anything Mr A is still holding his UTXO until sending to another wallet as coin if am not mistaken.

So for instance Mr A want to do any transactions , like for instance 0.85 BTC . He go need to choose enough UTXO wey go fit cover that exact transaction of  0.85 BTC so e got use the three UTXO wey Dey he wallet  as his new input inorder to coverup the 0.85 transactions . Then create 2 new outputs , one to the person his sending 0.85 BTC to while the other to himself as change of 0.15 BTC (the remaining digit wey go Dey show for the balance after the transaction).

[Charles-Tim]

Yes, you are correct. The 0.15 BTC will remain as 1 UTXO and it would be on the change address.

[Mia Chloe]

~snip

The reason we don't say we are hodling UTXOs is because it's kinda vague since we are hodling the coins in a wallet. It's a little bit similar to having a property and tying it to your company which you are legally seen as a trustee instead of an owner ( especially to avoid taxes) when you intend addressing yourself you would say you are the owner which is true although technically speaking you are a trustee.

They remain your coins because they haven't been spent and that's factual but the concept of UTXOs usually comes in when we go quite technical so you still have a valid point.

[Amphenomenon]

UTXO na one way to know how much person fit spend from their bitcoin. Dis one join how miners tel dey know of double spending, you nor fit spending watin you nor get or watin dey more dangerous your account.

I dey like see dis bitcoin change like say person go buy something and make we just say e hold our biggest currency 1k naira and den as e go where e go for get drink e pay 7h, the seller go give m 3h change and dis kind scenario na bitcoin dey use.

[Obim34]

Let me explain in a more lay man term using fiat description.

If given 1,000 Naira from five different persons - five UTXO (1 of 1,000 = 1 UTXO)

Now, since the 1,000 Naira is received in five places, total amount is 5,000 - 5 UTXO

When spending:

For instance trying to send out 3,500 that means adding up 3 of 1,000 Naira and half of 1 side of the 1 of 1,000 Naira in order to complete the 3,500 Naira.

1,000 + 1,000 + 1,0000 = 1 UTXO + 1 UTXO + 1 UTXO

1,000 into half = 500 Naira

1 UTXO into half = 0.5 UTXO

3 UTXO + 0.5 UTXO = 3.5 UTXO spent

The left over

500 + 1,000 = 1,500 Naira

But you now have 2 UTXO left

500/ 0.5 UTXO as change which is 1 UTXO on its own and the other 1 UTXO which was untouched.

[Antotena]

:
For instance trying to send out 3,500 that means adding up 3 of 1,000 Naira and half of 1 side of the 1 of 1,000 Naira in order to complete the 3,500 Naira.

1,000 + 1,000 + 1,0000 = 1 UTXO + 1 UTXO + 1 UTXO

1,000 into half = 500 Naira

1 UTXO into half = 0.5 UTXO

3 UTXO + 0.5 UTXO = 3.5 UTXO spent

The left over

500 + 1,000 = 1,500 Naira

But you now have 2 UTXO left

500/ 0.5 UTXO as change which is 1 UTXO on its own and the other 1 UTXO which was untouched.

If you have ₦5k in your Bitcoin wallet and you want to spend ₦3.5k but you have ₦1k each as UTXO. You will have to spend ₦4k as you are going to be combining 4 UTXO and whatever left is your change. In your scenario, you are spending ₦4k and then you will receive ₦500 as another UTXO.

Your wallet is going to be left 2 UTXO of ₦500 and ₦1k which is ₦1500 as balance. Don't forget you are going to be paying for the fees, so you are likely getting less amount maybe ₦100 as change depending on how large your transaction weigh in Vbytes. If you are using legacy, you will pay more, if you are using segwit(v1 and v2), you will pay less and if you are using nested segwit, you will pay lesser fees than legacy.

[Ambatman]

Some clarification on your calculation.

one to the person his sending 0.85 BTC to while the other to himself as change of 0.15 BTC (the remaining digit wey go Dey show for the balance after the transaction).

You didn't account for fee
So the change (UTXO of Mr A) should be lower.



The case of UTXO came to my head when I heard about some wallet branding some coins as tainted.
They don't brand the wallet address but the UTXO of the received tainted coin.


Say Mr A has 0.1 Btc and received 0.05Btc that is considered tainted
As long as he spent only from the 0.1BTC is transactions remains clean (can be selected manually via coin control, electrum does it)
But if it collects any from 0.05btc no matter how small
It becomes tainted since the new UTXO now has a relationship with the clean one.

[igebotz]

The case of UTXO came to my head when I heard about some wallet branding some coins as tainted.
They don't brand the wallet address but the UTXO of the received tainted coin.


Say Mr A has 0.1 Btc and received 0.05Btc that is considered tainted
As long as he spent only from the 0.1BTC is transactions remains clean (can be selected manually via coin control, electrum does it)
But if it collects any from 0.05btc no matter how small
It becomes tainted since the new UTXO now has a relationship with the clean one.

This is enough reason for people who care about privacy to avoid using wallets without coin control features. Imagine having your 10BTC Non-KYC coins wrecked by 0.000001 KYC coins in a dusting attack with no coin control to freeze the dust coins.

Many still don't understand how Dangerous dusting attack could be.

[Zaguru12]

This is enough reason for people who care about privacy to avoid using wallets without coin control features. Imagine having your 10BTC Non-KYC coins wrecked by 0.000001 KYC coins in a dusting attack with no coin control to freeze the dust coins.

Many still don't understand how Dangerous dusting attack could be.

I think this shouldn’t even be about coin control alone, people should also prioritize the use of different addresses for a different transaction. Aside the usual dust attacks that one isn’t aware off. For someone having 10 bitcoin or even 1 bitcoin giving out same address to actually receive more bitcoin will only expose one privacy. For me to avoid all this tainted transactions been infected. It is advisable to mostly use different address for new transactions most especially coins from total strangers.

Using a total different address wouldn’t expose the holdings of the address. Most at times if a tainted UTXO is sent to an address it is not always this tainted UXTO that’s flagged but the entire address and coins coming from the address whether a tainted UTXO or not the address is flagged, but with a different address you can avoid mixing the coins better when on different addresses

[Dulen007]

I know many here think that in their bitcoin wallet the  balance showing are bitcoin. But nah is not bitcoin rather is UTXOs which stand for ( Unspent transaction Output ) . I am going to use this post to break it down for folk here (I know shey some of nah Dey aware already)on how it works , for those that don’t this is how it works .

Let me say Mr A received BTC from three separate transactions,

1st 0.5 BTC

2nd 0.3 BTC

3rd 0.2BTC
 
So those BTC above shows that Mr A has three UTXOs , totaling will be 1 BTC . So Aslong he never spend anything Mr A is still holding his UTXO until sending to another wallet as coin if am not mistaken.

So for instance Mr A want to do any transactions , like for instance 0.85 BTC . He go need to choose enough UTXO wey go fit cover that exact transaction of  0.85 BTC so e got use the three UTXO wey Dey he wallet  as his new input inorder to coverup the 0.85 transactions . Then create 2 new outputs , one to the person his sending 0.85 BTC to while the other to himself as change of 0.15 BTC (the remaining digit wey go Dey show for the balance after the transaction).

Nice explanation OP, But I have a question sha...
If someone has many small UTXOs (tiny amounts), does it affect the transaction fee when sending BTC?
Like, will using many small inputs make the fee higher?
Just want to know if it’s better to combine them sometimes to save on fees later.

[I_Anime]

I know many here think that in their bitcoin wallet the  balance showing are bitcoin. But nah is not bitcoin rather is UTXOs which stand for ( Unspent transaction Output ) . I am going to use this post to break it down for folk here (I know shey some of nah Dey aware already)on how it works , for those that don’t this is how it works .

Let me say Mr A received BTC from three separate transactions,

1st 0.5 BTC

2nd 0.3 BTC

3rd 0.2BTC
 
So those BTC above shows that Mr A has three UTXOs , totaling will be 1 BTC . So Aslong he never spend anything Mr A is still holding his UTXO until sending to another wallet as coin if am not mistaken.

So for instance Mr A want to do any transactions , like for instance 0.85 BTC . He go need to choose enough UTXO wey go fit cover that exact transaction of  0.85 BTC so e got use the three UTXO wey Dey he wallet  as his new input inorder to coverup the 0.85 transactions . Then create 2 new outputs , one to the person his sending 0.85 BTC to while the other to himself as change of 0.15 BTC (the remaining digit wey go Dey show for the balance after the transaction).

Nice explanation OP, But I have a question sha...
If someone has many small UTXOs (tiny amounts), does it affect the transaction fee when sending BTC?
Like, will using many small inputs make the fee higher?
Just want to know if it’s better to combine them sometimes to save on fees later.

Bitcoin transaction fees are base on size in bytes, not the amount of BTC you are spending, so the reason why your fees tend to increase is that each input (UTXO you are spending) takes space . So the more inputs you use the larger your transaction becomes and the more space it will takes, and more bytes equal to more fees (because we are paying sat per byte ) , this is why most time before I make any transaction I will first observe the mempool to see the bytes it does fluctuate depending on network congestion.

So let me break it down with some example:

So for instance you want to spend 0.1 BTC ,

And you have one UTXO of 0.1 BTC = 1 input = small transaction fee (because it won’t take much space )

But when you have 10 UTXO of 0.01 each = 10 input = large transaction = higher fee ( though you are sending same amount of 0.1 BTC) but this time you are using much space due to the number of inputs.

So yeah using many small UTXO will definitely increase your fee and I hope you know how your UTXO usually increases.

[Antotena]

Bitcoin transaction fees are base on size in bytes, not the amount of BTC you are spending, so the reason why your fees tend to increase is that each input (UTXO you are spending) takes space . So the more inputs you use the larger your transaction becomes and the more space it will takes, and more bytes equal to more fees (because we are paying sat per byte ) , this is why most time before I make any transaction I will first observe the mempool to see the bytes it does fluctuate depending on network congestion.

You are right but there is more to the way you describe it.

Bitcoin transaction fee is based on Vbyte and not byte. You are going to be paying sat for every vbytes in your transactions. If you have a single input and a single output and your cumulative transaction size is worth 130vbytes for instance, you are going to be paying for every vbytes in that transaction and the fee depends on how much sat you are willing to spend and how congested the mempool is in that moment.

If you are paying an Xsat/vbytes for your transaction, you are going to be having x total sats for your transaction fee.
If you are paying 1 sat/vbytes, you will be paying 130 sats for your transaction fee. If you are spending 2 sats/vbytes, you will be spending total 260 sats as transaction fee.

So let me break it down with some example:

So for instance you want to spend 0.1 BTC ,

And you have one UTXO of 0.1 BTC = 1 input = small transaction fee (because it won’t take much space )

But when you have 10 UTXO of 0.01 each = 10 input = large transaction = higher fee ( though you are sending same amount of 0.1 BTC) but this time you are using much space due to the number of inputs.

So yeah using many small UTXO will definitely increase your fee and I hope you know how your UTXO usually increases.

Spending a single input and output doesn't mean you are going to be paying low transaction fee in some cases. The type of wallet address and  the number of inputs and output can change the fees you are going to be spending.

If you are using a single input and output with a legacy address that start with 1Lur..... You are going to be paying less fees than when you are paying for 2 or more inputs and output on the same legacy wallet address. However, this changes when you are using segwit addresses.

If you are using segwit v0 which is bc1q....,  a single input output transaction is going to be less fee than when you are sending same input and output on legacy address.

If you are sending Bitcoin on segwit v0 referred to taproot bc1p...., you are going to be paying less fee compared to legacy. But the interesting thing here between v0 and v1 segwit is if you are spending more input and less output, you are going to be saving fees on v1 (bc1p) than if you are doing the transaction on v0(bc1q) and similarly when you are spending less input and more output, you at going to be saving more fees on v0(bc1q) than v1(bc1p).

[Ambatman]

Many still don't understand how Dangerous dusting attack could be.

Or how UTXOs work. Sadly One can't limit what comes into their wallet
The best is to either use different address or keep your address private.
Coin control is underrated, many are not even aware of it's benefits. 
It's so easy to taint a coin but no exchange will hear your plea. Free money for them.

Bitcoin transaction fee is based on Vbyte and not byte. You are going to be paying sat for every vbytes in your transactions.

  I recall then when I usually read some post then That uses bytes including satoshi whitepaper
While mempool uses vbytes
Well turns out it was changed in 2017 during the introduction of Segwit.
Now in legacy address
1byte = 1 vbyte (since there's no witness data)
Segwit
total raw bytes > total vbytes ( since there's witness data)
Hence like you said why fee is cheaper.

you are going to be saving fees on v2 (bc1p) than if you are doing the transaction on v1(bc1q)

There's no Segwit v2. It's 0 and 1, which you missed Up as 1 and 2 respectively.

[highalch]

We don't say we hold UTXOs because they do not individually matter - in other words, we handle bitcoins as fungible.

That said, certain UTXOs may leak information regarding who you are, who were you in contact with, and there are a lot of implications on fees, network congestion, privacy, etc. But for general value-value transactions (send me X bitcoin for this cup of coffee), none of this matters.

[Antotena]

There's no Segwit v2. It's 0 and 1, which you missed Up as 1 and 2 respectively.

Mixed it them up. 
Edited them.