Bitcoin's UTXO model explained in detail

[chenille]

What is an UTXO – detailed explanation

When reading more technical details about Bitcoin, you’ll learn sooner or later about UTXOs. UTXOs are very important to understand how sending Bitcoin transactions is working in detail.

Each transaction consists of (often several) UTXOs. UTXO means "unspent transaction output" and basically it is what it’s meaning as well. UTXOs are unspent fractions of Bitcoin on your Bitcoin address. We can understand an UTXO as an unspent banknote "on" your Bitcoin address. You can receive as much banknotes of any size (amount of Satoshis) on your Bitcoin address and send as well as much as you have on your Bitcoin address.  
And UTXOs are always tied to a specific Bitcoin address, where Bitcoin has been sent to. Basically, each transaction will cause (several) additional unspent transaction outputs on an address it has been sent to.
Under normal conditions, a normal transaction will always create a new UTXO on an address, where you are sending Bitcoin to and a change UTXO going as change to your address where you’ve spent your Bitcoin from (or for better privacy to a different change address).

All of your UTXOs on your address is your whole balance on your address.

For a new transaction, usually all UTXOs will be bundled and sent to a different address which you have selected to transfer Bitcoin to.

For example, your address contains 0,00134 Bitcoin. If you send 0,00124 Bitcoin to someone`s address, it’ll create a 0,00124 Bitcoin UTXO on the receiving address and 0,00010 as a change UTXO to your address back.  



Transaction https://mempool.space/tx/64fdb48e0c3cda851d641018cbcb02f477d535074e483ad32cbb8a73c52256e5
Several input UTXO’s are merged into 1 output UTXO and a fee is deducted.


A transaction is always resulting in one or several new UTXOs, which appear as a result on all wallets, where a transaction is received.


Sending several UTXOs in a single transaction will cause more transaction fees

Now, if we are sending all UTXOs as a bundle to a new address, we have many inputs and each additional input on our address will increase transaction fees, when sending all UTXOs again.
It’s very important to know, especially during times of very high transaction costs: each additional UTXO on our address will increase transaction fees when sending all UTXOs to a different address.
For such cases, it is recommended to consolidate our UTXOs during times of low transaction fees.


About dust attacks, expensive fees and how UTXOs will help us

Because usually all UTXOs from a single address will be bundled by default for many wallets, malicious actors come into play, using so called “dust attacks”.
Dust attacks are occurring, when an often malicious attacker is sending small transactions (UTXOs) to one of our addresses. In detail, dust attacks are really small transactions being sent to one of our wallets.
Especially for publicly known wallets it’s a big issue and that’s why we should always try to avoid giving our address to anyone. It’s better to keep it always as private as possible.  
Now, we will face several UTXOs on our address and when sending a new transaction, all UTXOs will be sent as a bundle to another address, making our transaction very expensive because of so many UTXOs.
So, UTXOs are helping us to avoid compromising our privacy and also to avoid sending too expensive transactions by avoiding a high transaction fee.
Here, UTXO management is of importance to avoid merging our transactions.


UTXO management for saving transaction fees and avoiding dust attacks

After a dust attack has happened (where an attacker has sent many very small Satoshi transaction inputs to your address), UTXO management will help us to avoid merging such dust attack UTXO’s into our regular transactions.
Because each UTXO will cause an increase in transaction fees and dust attacks are usually planned by attackers to require more transaction fees compared to their intrinsic value, especially when transaction fees are high.
UTXO management will help us to select only UTXOs we really want to sent forward to a new address.
Of course, a dust attack can also try compromise our privacy by sending us transactions of tainted coins.

Also, for regular transactions, UTXO management will help us to save transaction fees for cases, where we have accumulated many inputs on our address but during times of high transaction fees, we just want to send out a single (or few) UTXO to save transaction fees.



UTXO management for privacy

UTXO managing is a nice feature for privacy as well. We can decide to forward only a part of all UTXOs on our address.
UTXO managing for privacy only makes sense in multi address wallet, of course.
If you are sending from a single address where multiple UTXO are stored, UTXO managing from a privacy perspective doesn’t make much sense.
UTXO managing is available in quality wallets like BitcoinCore, Sparrow Wallet or Electrum.

Understanding UTXOs is very important not only for privacy but for many different issues.


UTXO management to lower your transaction costs

After reading more about UTXOs (unspent transaction outputs) here, you might now try to use your gained knowledge to lower your transaction costs. Because especially during times of very high transaction costs, transaction fees can be very significant for your transactions.

Because for regular transactions, UTXO management will help us to save transaction fees for cases, where we have accumulated many inputs on our address but during times of high transaction fees, we just want to send out a single (or few) UTXO to save transaction fees.

UTXO management is also effective against “dust attacks”.



Two solutions if how you can apply UTXO management to lower your transaction fees

First, you can tidy up your address from many UTXOs which have been accumulated over a longer period of time. To tidy up your wallet, you just need to bundle all of your UTXOs on your address initiate a transfer and send it as a single transaction to a different address.


Second, you can use a feature, called "coin control", which basically is managing your UTXOs. Coin control will allow you, to only spend specific UTXOs in a new transaction, where your can only select a single or a few UTXOs, to prevent your transactions from becoming too costly because more UTXOs included in a new transaction means higher transaction fees.
In coin control, you can select manually, which UTXOs will be spent.

UTXO management (coin control) is available in quality wallets like BitcoinCore, Sparrow Wallet or Electrum.

[Mahiyammahi]

Op you have created a great topic on UTXO , I don't mean any offense to you but the message you are trying to give us is not clear. After reading your whole topic I've only get to understand maybe 20% of it.

Why did you used repetitive sentence Since you have created this for beginners, I doubt they will understand a single piece. You have made it so much hard . It's like we need a decipher to understand your post. You're a senior member you should have re arrange and write the topic more clearly.

Unless you have created the whole draft by AI and used some cheap humanizer tool. Cause I've saw they add so much un necessary words , repeated sentence. Btw don't get hurt , just my hypothesis.


As for UTXO how it works.
Our Bitcoin transaction works in  UTXO. Think of it a Bank note . Let's say you have $100 Bill , think of it as one UTXO . You bought something from groceries shop total 40$ , you gave shop keeper a $100 bill note , they will keep 40$ and return you $60 bill .

So we have like $10 , $20 , $100 all are bills but diff value. Same as for bitcoin if you have 0.1 BTC That comes with a whole UTXO, you spent 0.05 BTC , you will get as a return UTXO 0.05 BTC. This return 0.05 BTC will create another UTXO. Since bitcoin spent/transaction has been done by UTXO so you can't make any transactions without any UTXO.


I did learned more about UTXO when my bitcoin did stuck cause there was no UTXO . Since you created this topic you should have explain it more easily.

[EL MOHA]

After a dust attack has happened (where an attacker has sent many very small Satoshi transaction inputs to your address), UTXO management will help us to avoid merging such dust attack UTXO’s into our regular transactions.
Because each UTXO will cause an increase in transaction fees and dust attacks are usually planned by attackers to require more transaction fees compared to their intrinsic value, especially when transaction fees are high.
UTXO management will help us to select only UTXOs we really want to sent forward to a new address.
Of course, a dust attack can also try compromise our privacy by sending us transactions of tainted coins.

For clarity dust attack isn’t meant for you spend more in transaction fees, because the attacker might not even be benefit from your transaction fee (that’s if they are even miners). Dust attack is purposely to either trick you into sending coins to the attacker’s wallet when you copy address from your wallet transaction history and that’s why you would see that the address you usually receive dust attack from are addresses very identical to your address; probably just a character change.

Or dust attack is simply to monitor that address. In any of those situations you cannot hide your address from this attackers or stop them from sending you those dust because once you make a transaction to or from an address it is publicly available in the blockchain.

What you do with little UTXO from dust attack is freeze them or use coin control as both will help you to avoid spending them. Read this thread about Dust Attack, what it is, why it is dangerous and how to prevent falling to it

As for consolidation of little UTXO I read you where you wrote it protects one’s privacy, to be sincere it doesn’t, in fact the biggest down of consolidation of your little UTXO is it gives your privacy away and makes everyone knows that all the UTXO from different addresses belong to that new address you sent it to.
Look here on consolidating your fees

[Cookdata]

Each transaction consists of (often several) UTXOs. UTXO means "unspent transaction output" and basically it is what it’s meaning as well. UTXOs are unspent fractions of Bitcoin on your Bitcoin address.

The utxo fractions are not on your address but on your public key hash. I checked your post, you mentioned addresses multiple times which is wrong. Bitcoin are lock on your public key hash and not an address, the Bitcoin address is your encoded version of public key hash and it's one of the locking scripts.

Under normal conditions, a normal transaction will always create a new UTXO on an address, where you are sending Bitcoin to and a change UTXO going as change to your address where you’ve spent your Bitcoin from (or for better privacy to a different change address).

Not every transaction creates a change. You only get a change to your address if your inputs and the fee is less than the utxo you are spending for the transaction. If you spend the whole utxo as inputs, there will not be a change to another address.

There is alot mistakes in your posts that need correction, please revise it. You should also learn more about utxo more before you open a thread next time.

[OcTradism]

UTXOs relate to transaction inputs and outputs, transaction size and transaction fee, as well as privacy.

To have better control of your coins, including UTXO control and selection for your transactions, you will have to use Non custodial wallets with private keys and coin control feature. You will need to maintain good habit when making your transactions, starting with inputs that are from UTXO selections.

Consolidate inputs.
Guideline for privacy with Bitcoin transactions.

[Sticky Bomb]

UTXOs are unspent fractions of Bitcoin on your Bitcoin address.

UTXO must not be a fraction, it could be a whole Bitcoin or more, it's basically any single value input received from a Bitcoin transaction, if you receive Bitcoin in 10 transactions, then you'll have 10 different UTXO sets in the same address, although you can still consolidate them into one at a later time.

Basically, each transaction will cause (several) additional unspent transaction outputs on an address it has been sent to.

This isn't true, each transaction would add only one additional UTXO set in the address your sending to.

Dust attacks are occurring, when an often malicious attacker is sending small transactions (UTXOs) to one of our addresses. In detail, dust attacks are really small transactions being sent to one of our wallets.

It's not always malicious, sometimes even government agencies send dusts to thousands of addresses in an attempt to deanonymize users on chain.

[hugeblack]

I have no issue with creating such topics, but please try to at least include sources; there are many good resources available on the forum.
Search the forum for terms like "how to reduce transaction fees," "Coin Control using Electrum" (or any other wallet), and "how to avoid paying higher fees." You will find plenty of topics that could be added to improve your post.

[hosemary]

And UTXOs are always tied to a specific Bitcoin address, where Bitcoin has been sent to.

There are UTXOs that are not associated with any Bitcoin address.
For instance, see the output generated in the coinbase transaction of the genesis block. The funds have been sent to the public key, and there is no address at all.

[chenille]

I have no issue with creating such topics, but please try to at least include sources; there are many good resources available on the forum.
Search the forum for terms like "how to reduce transaction fees," "Coin Control using Electrum" (or any other wallet), and "how to avoid paying higher fees." You will find plenty of topics that could be added to improve your post.

There are no sources to be credited by. It's only from my knowledge if we can add such a source.
For my topic, I have only used my knowledge and not a source.

And UTXOs are always tied to a specific Bitcoin address, where Bitcoin has been sent to.

There are UTXOs that are not associated with any Bitcoin address.
For instance, see the output generated in the coinbase transaction of the genesis block. The funds have been sent to the public key, and there is no address at all.

That ist true, coinbase transactions are beginning a new set of UTXOs which are ultimately a sart point frp new UTXOs.
UTXOs are relevant for all other transactions, where no coinbase transaction is involved.

[hosemary]

That ist true, coinbase transactions are beginning a new set of UTXOs which are ultimately a sart point frp new UTXOs.
UTXOs are relevant for all other transactions, where no coinbase transaction is involved.

I'm not sure I understood you correctly, but they are all UTXOs, regardless of whether they were created by a coinbase transaction or a regular transaction.
I can also show you outputs that are generated in non-coinbase transactions and aren't assosated with any Bitcoin address. For instance, see this transaction.

[noorman0]

-snip-
After a dust attack has happened (where an attacker has sent many very small Satoshi transaction inputs to your address), UTXO management will help us to avoid merging such dust attack UTXO’s into our regular transactions.

If we return to the definition of the dust, this utxo probably cannot be spent again because the majority of nodes reject it (below the minimum limit of the standard minRelayTxFee rule). Most bitcoin wallets enforce this rule even in the UI level, so your transaction will probably get a warning when making a consolidation that one of the utxo contains dust amounts and cannot be executed.

But the definition of "dust" is increasingly being broadened by many groups, especially after a series of dust attacks by cexes users who experienced restrictions on many services.

[notocactus]

If we return to the definition of the dust, this utxo probably cannot be spent again because the majority of nodes reject it (below the minimum limit of the standard minRelayTxFee rule).

There are different limits for dust.
P2PKH: 546 satoshis
P2WPKH: 294 satoshis
P2SH: 540 satoshis
P2TR and P2WSH: 330 satoshis

Most bitcoin wallets enforce this rule even in the UI level, so your transaction will probably get a warning when making a consolidation that one of the utxo contains dust amounts and cannot be executed.

Bitcoin nodes can customize their node settings.
Announcing the Bitcoin Core config generator.
https://jlopp.github.io/bitcoin-core-config-generator/

Like these transaction relay settings.

Code:

Dust Relay Fee
Min Transaction Relay FeeFee rates (in BTC/kB) smaller than this are considered zero fee for relaying, mining and transaction creation.

[hosemary]

If we return to the definition of the dust, this utxo probably cannot be spent again because the majority of nodes reject it (below the minimum limit of the standard minRelayTxFee rule).

You are completely wrong.

You can spend any of your UTXOs, regardless of their amount. Even if you have a UTXO below the dust limit, you can still combine it with other UTXOs to create an output that exceeds the dust limit.
Note that nodes check the value of the outputs to see whether they are higher than the dust limit. The value of inputs doesn't matter to them.