How much credibility should we give to UTXO analysis?

[Jet Cash]

Here is another topic to provoke discussion about Bitcoin amongst newer members ( mods - please don't move this thread, and allow beginners to discuss the topic ).

The UTXO pool is a database of all of the transactions that are currently unspent. I'm seeing some analysis of this, and there is an assumption that the coins are held by HODLers  if the entries are more than a year old. Of course this needs to exclude lost coins, and those of Satoshi. My feeling is that it is not really representative, as we have seen large blocks of coins moved by whales, and we don't know if those are genuine sales, or just movements to reduce the size of the UTXO pool.

So what do you guys think, should we ignore the UTXO when we are trying to work out how much Bitcoin is in circulation? Another consideration is the increase in Bitcoin use in Venezuela. It's use for daily transactions seems to have increased exponentially over the last few months, and many of those transactions will be peer to peer. Should we try to analyse those to assess a current market value for Bitcoin?

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[Crypto-DesignService]

I read komodo's article on what is UTXO https://komodoplatform.com/whats-utxo/ and what I understand is it's like a different denomination of money($1, $5, $10, etc.). UTXO is like a pocket wallet with different money denomination but provides the same total balance of what funds you currently have.

i.e. I have a $500 in my wallet, It is either denominated as
five $100
ten $50
twenty-five $20

Some terms are too technical that I can't understand so if someone explains it in a more lighter way that would be great. I want to know these 2 important things the article talked about.
"it makes Bitcoin-protocol coins capable of supporting Turing complete smart contracts and decentralized applications. These UTXO-based smart contracts are language agnostic and allow every UTXO to have a unique consensus mechanism."
"UTXOs are important for Komodo’s atomic-swap-powered decentralized exchange. Komodo is the world leader in atomic swap technology."

[Heisenberg_Hunter]

UTXO is like a pocket wallet with different money denomination but provides the same total balance of what funds you currently have.

Yes, exactly right. Let me try to explain this more in a easier way on how bitcoin and the fiat money works.

How inputs and outputs work in fiat money?

Situation 1 :

Suppose consider that you are buying a coffee in a lounge for $10. But when you check your wallet, you have $15. This $15 is your input i.e you don't exactly $10 to pay to the cashier hence you are giving your $15 as input. These inputs are the sum of previously collected money by you i.e they can be brought by you from your home or they could have been given to you by your friend etc. In return to the $15, the cashier takes $10 as the bill and pays you $5 back as a change. You have kept this $5 in your wallet and you haven't spent them. These are called as Unspent Transaction Outputs i.e you pay your input to the cashier and in return to that he has given you output.

Situation 2:

When you are leaving for your home with this $5 which is your UTXO, you are spending $3 for buying a book. Here the $3 comes from the Unspent Outputs by you which is $5. Suppose assume that the cashier of the coffee lounge has paid you $5 as a single note. So, to pay the $3 you cannot split the note into two. Hence the $5 act as an input to this transaction which in return the cashier pays you $2 which is your UTXO now.

How inputs and outputs work in bitcoin?

Bitcoin is a digital money. There is a long standing quote that Anything produced digitally can be copied and reproduced. For instance consider the above situations where the you are a fraud and you can print your own money. You may fool him by giving away duplicate outputs. By this way, the money is created twice and such a situation is called as Double Spending in cryptocurrency. When the UTXO are spent twice, this creates your money twice and by this way he can be fooled. Hence when you pay a cashier, they wait for the confirmations since after certain confirmations it would be impossible to spend the coins twice.

For example, let us consider you have 2BTC in your wallet which are the UTXO of previous transactions as explained above in case of fiat money. You have bought an article which is worth 1BTC. Here in this situation, you need to pay all the 2BTC as the input and the 1BTC will be returned to your wallet as UTXO. This can be further used for various transactions in the future.

"UTXOs are important for Komodo’s atomic-swap-powered decentralized exchange. Komodo is the world leader in atomic swap technology."

I am not completely aware of Komodo, but they seem to be swapping your Bitcoins to other coins in a decentralized way. Since UTXO are a core part of bitcoin to prevent double spending, I believe this is the reason they are preferring more on UTXO.

Of course this needs to exclude lost coins, and those of Satoshi. My feeling is that it is not really representative, as we have seen large blocks of coins moved by whales, and we don't know if those are genuine sales, or just movements to reduce the size of the UTXO pool.

If the UTXO were to be excluded that could reduce the total supply of the bitcoin to a larger extent. Since UTXO are the core part for the calculation of the circulating mined supply, they should be included to prevent further speculation in the community.

So what do you guys think, should we ignore the UTXO when we are trying to work out how much Bitcoin is in circulation?

Most of the people assume that the total bitcoins mined till now are the circulating supply. But as you have said, this doesn't make sense actually and we should completely ignore the UTXO of probably satoshi's at least to have a fair value of the circulation supply. As per the Google Dictionary,

Circulation :

the public availability

Is the satoshi's coins public available to spend? I agree with your point in this totally.

[Cruxer]

The UTXO pool is a database of all of the transactions that are currently unspent. I'm seeing some analysis of this, and there is an assumption that the coins are held by HODLers  if the entries are more than a year old.

is it possible to you provide data for example sum of all unspent bitcoins with more than a year status? about your question im not really sure if asking beginners is best course of action here if you really want to know answer to this, im not sure here but such data provided would maybe help to determine this

[Jet Cash]

One part of my OP that I should have emphasised is the bit about the analysis of UTXO entries that are over a year old, and the assumption that this gave an indication of the total number of coins in HODL wallets. I believe this is being manipulated, and HODL whales ( sometimes referred to as "investors" ) move coins between wallets they own to give a false impression of the circulating supply.

[Diamond Member]

Some of the unspent outputs represent coins held in cold storage by exchanges, and other crypto businesses ("Websites").

When a Website receives a withdrawal request, they will first check if their hot wallet can process the request, and if so, will process the withdrawal via the hot wallet. This is regardless of if the customer has had coins on the Website for a day, a month or a year, or longer. Being that there are risks involved anytime cold storage is accessed, many Websites will have ample coins in their hot wallets so that it is not necessary to access their cold storage very frequently.

The above means that the UTXO that are "old" will be artificially high.

The LN protocol (and similar protocols) will also cause many UTXOs to "age" because LN channels do not ever need to close, and may stay open for years at a time, even if coins move between the parties many times.