What are UTXO and how they actually function in the blockchain network

[Livingleged]

I’ve notice that our local board do not discuss more on the functionalities and the technology behind the blockchain network, so I decided to create this thread in addressing that.

Hoping this will bring more of the bitcoin technology discussion to our own local board.
What are UTXO ?
-UTXO are just unspent transactions output.

Why do we need them in bitcoin transactions?

-Because bitcoin has no Account or balance like the traditional banks, it is just a decentralised digital money system. hence, there was need to come up with ideas that will prevent user from double spending since bitcoin transactions are just output becoming inputs to create new outputs.

-Any time a new transaction is created and broadcast the node will check the UTXO set to confirm if the input actually refers to the unspent output. And if that set of UTXO isn’t found then it will not go ahead with the transactions i.e the node will reject the transaction.

-Like I said earlier bitcoin doesn’t have any account so what you see in your wallet as your balance is basically the sum of your entire UTXO’s i.e the UTXO whose locking script satisfy your private key.

- UTXO is also useful for node runners during the initial block download; During the initial sync, the node has to process all past transactions to calculate the current, valid UTXO set. This set is considered the "truth" of who owns each set in the network.
If you consider how bitcoin transactions happens;
It is you selecting some of your UTXO as Input and create output with the recipient address. If  the input value is more than the output value, then the remainder/change will sent to another output created with your own address that’s after a small fee charges as miners fee.

[Charles-Tim]

This may not let people still understand what UTXO is if you do not use a wallet as an example.

So this is in addition:

Assuming I received 0.01 BTC, 0.3 BTC and 0.007 BTC on my wallet. That means 3 UTXOs.

0.01 BTC ----------> 1st UTXO
0.3 BTC ----------> 2nd UTXO
0.007 BTC ----------> 3rd UTXO

Making 3 UTXOs in total and a wallet balance of 0.01 BTC + 0.3 BTC + 0.007 BTC which is 0.317 BTC which can be spent or part of it can be spent.

[promise444c5]

In addition to what’s above already,

A wallet single address can carry as many as possible UTXOs , it has no limit  but the more the UTXOs the  higher your TX size gets when you try to spend all at once unless you use Coin control . Using coin control will still attract slight higher fees depending on the number of combined UTXOs you’re using as inputs and how congested the network is at the moment you need your money.

To avoid that, always Consolidate

Apart from what I just mentioned, it’s bad for your privacy when you reuse an address to receive UTXOs

[I_Anime]

This may not let people still understand what UTXO is if you do not use a wallet as an example.

So this is in addition:

Assuming I received 0.01 BTC, 0.3 BTC and 0.007 BTC on my wallet. That means 3 UTXOs.

0.01 BTC ----------> 1st UTXO
0.3 BTC ----------> 2nd UTXO
0.007 BTC ----------> 3rd UTXO

Making 3 UTXOs in total and a wallet balance of 0.01 BTC + 0.3 BTC + 0.007 BTC which is 0.317 BTC which can be spent or part of it can be spent.

Exactly this will even make user understand it more I also made a post concerning UTXO in this our local board before I will drop the link  .

https://bitcointalk.org/index.php?topic=5552049.msg65636434#msg65636434

Op would have been nice if you define the meaning of UTXO , not just saying it acronyms alone . Would have put it this way UTXOs (unspent transactions output ) which simply is a chunk of Bitcoin that you received but haven’t spent yet. It represents the amount of Bitcoin you currently control , just like Charles explains .

[Mia Chloe]

Assuming I received 0.01 BTC, 0.3 BTC and 0.007 BTC on my wallet. That means 3 UTXOs.

Well I think there are some factors to consider before you count each receival as a UTXO.  First they should be to different addresses. I know address reuse is not advisable but literally all campaign participants are mostly guilty of it because they use a single address for a long time.

Those receival pile up to one big UTXO that only gets split when you try to spend from it because of the use of change addresses. Same way UTXOs also get consolidated to one big one when you try to spend. I think Obim34's post explained the whole stuff in more detail.

[Charles-Tim]

Well I think there are some factors to consider before you count each receival as a UTXO.  First they should be to different addresses. I know address reuse is not advisable but literally all campaign participants are mostly guilty of it because they use a single address for a long time.

If you send the coins to the same address, they are still counted as different UTXOs.

Yes, address reuse it not good but should we blame the campaign participants or the campaign managers? I think it is the campaign managers that should be blamed but requesting new addresses every week may make the work more heavy for them. But there are managers that do not display the spreadsheet to the public.

Those receival pile up to one big UTXO that only gets split when you try to spend from it because of the use of change addresses. Same way UTXOs also get consolidated to one big one when you try to spend. I think Obim34's post explained the whole stuff in more detail.

Can you give me a link to the Obim34's post so that I can read his post? I do not really understand what you mean here if I should be sincere. But about receiving bitcoin at different times just into one address is counted as one UTXO, it is not counted as 1 UTXO but it is counted as different UTXOs.

[Livingleged]

Can you give me a link to the Obim34's post so that I can read his post? I do not really understand what you mean here if I should be sincere. But about receiving bitcoin at different times just into one address is counted as one UTXO, it is not counted as 1 UTXO but it is counted as different UTXOs.

Yes that’s how I understand it too.receiving bitcoin at different times but into same address will always be regarded as different UTXO set. that why it’s is said that the sum of the set UTXO’s will be your total balance. where I think will be a little bit different is the institutions like the central exchange where butyl they do not give user direct  control over the individual UTXO. They probably have one address and sets of UTXO serving the whole user registered under them.
When I saw @ Mia Chloe’s reply this what exactly what came to my mind actually.

[Cookdata]

Assuming I received 0.01 BTC, 0.3 BTC and 0.007 BTC on my wallet. That means 3 UTXOs.

Well I think there are some factors to consider before you count each receival as a UTXO.  First they should be to different addresses. I know address reuse is not advisable but literally all campaign participants are mostly guilty of it because they use a single address for a long time.

Campaign participants received Bitcoin on the same address because there is no way to change address for new payments, it's going to be a tedious work for managers to be asking for fresh address, changing them on spreadsheet is going to slow down payment, the manager has to wait for everyone to update there address before payments can be sent, imagine doing this all the time.

The simple solution is silent payment address, this helps generate new address for multiple payments, the manager doesn't need to sent payment to new address and doesn't need to ask participants and the transactions will appear independently on new address of the recipients, this way signature participants doesn't reuse their address and doesn't have chunks of utxo on a single address.

However, most wallets doesn't support silent payment yet, just few of them are out there.

Those receival pile up to one big UTXO that only gets split when you try to spend from it because of the use of change addresses. Same way UTXOs also get consolidated to one big one when you try to spend. I think Obim34's post explained the whole stuff in more detail.

Basically, when you spend the total utxo from an address, the address doesn't return any utxo as change but when you spend small from the chunk balance, everything get spent and the rest return as change to another address like you said but if the wallet doesn't not have a change address, the rest of the utxo as change are sent back to the same wallet address.

[Lembo69]

Here I want to ask a question to know one thing, if I deposit small Utxo in my wallet, will there be any problem in my transaction later, for example if 0.01 btc is deposited, will the fee be higher if I spend all of them together? If I use coin control, is there a possibility of my fee being lower?

Using Utxo together often costs more, I just want to know how I can reduce the fee and make transactions safely. If I use all the Utxo at once, will it cause any harm to my privacy, experience on this

[Frankolala]

Here I want to ask a question to know one thing, if I deposit small Utxo in my wallet, will there be any problem in my transaction later, for example if 0.01 btc is deposited, will the fee be higher if I spend all of them together? If I use coin control, is there a possibility of my fee being lower?

Too many small transactions add together to spend as one will definitely increase your transaction fee compared to when you are spending from on UTXO. This is why it's advisable to always consolidate your small small transactions into one. Of course, using coin control will make it cheaper if you want to spend from only one UTXO.

Using Utxo together often costs more, I just want to know how I can reduce the fee and make transactions safely.

Currently, bitcoin transaction fee is very cheap. However, like I said, you can only lower your transaction fee with coin control if you want to spend from one UTXO.

If I use all the Utxo at once, will it cause any harm to my privacy, experience on this

Yes, this is why it's it's advisable to use coin control to avoid address linking to each other to show that the addresses belongs to one person. You should also not reuse your bitcoin wallet address to receive coins. You can also freeze the funds on the addresses you don't want to spend in order to spend from a particular UTXO.