What is UTXO in Blockchain?
UTXO stands for Unspent Transaction Output. It is a fundamental concept in UTXO-based blockchains like Bitcoin and Cardano, representing the model used to track ownership of coins.
How UTXO Works
-
Transactions Consume and Create UTXOs
- Every transaction in a UTXO-based blockchain takes one or more UTXOs as inputs and creates one or more UTXOs as outputs.
- The inputs are previous UTXOs being spent.
- The outputs become new UTXOs available for future transactions.
-
Analogy: Physical Cash
- Think of UTXOs like physical cash (bills/coins).
- If you have a
50$bill and want to buy something for30$:- You give the
50$bill (input UTXO). - You receive a
30$payment (to the seller) and20$as change (new UTXOs).
- You give the
- Similarly, a blockchain transaction uses UTXOs as inputs and generates new UTXOs as outputs.
-
UTXO Lifecycle
- A UTXO is unspent until it is referenced in a new transaction.
- Once used as an input, it becomes spent and cannot be reused.
Advantages of the UTXO Model
✅ Security & Privacy
- UTXOs are independent and not account-based, making it harder to track balances or transactions linked to a single identity.
✅ Parallel Processing
- Since each UTXO is independent, transactions can be verified in parallel, improving scalability.
✅ Clear Ownership
- UTXOs explicitly define which outputs belong to which addresses, making balance calculations straightforward.
✅ Improved Smart Contract Design (Cardano’s eUTXO Model)
- In Cardano, the Extended UTXO (eUTXO) model extends UTXOs to support smart contracts, improving determinism and reducing transaction conflicts.
UTXO vs. Account-Based Model
| Feature | UTXO Model (Bitcoin, Cardano) | Account Model (Ethereum) |
|---|---|---|
| State Representation | Set of UTXOs | Global account balances |
| Transactions | Consume & create UTXOs | Modify account balances |
| Parallel Processing | Yes (independent UTXOs) | Limited (shared state) |
| Privacy | Higher (no centralized balance) | Lower (global balance tracking) |
| Smart Contracts | More deterministic (eUTXO in Cardano) | More flexible (Ethereum) |
Which Blockchains Use UTXO?
✅ Bitcoin (BTC) – First implementation of UTXO
✅ Litecoin (LTC) – Similar to Bitcoin
✅ Bitcoin Cash (BCH) – Uses UTXO for scaling
✅ Cardano (ADA) – Introduces eUTXO for smart contracts
✅ Monero (XMR) – Uses UTXO with privacy features
Final Thoughts
UTXO is a transparent, scalable, and secure model for blockchain transactions. While it differs from the account-based model used in Ethereum, its independence and parallel processing capabilities make it highly effective for both cryptocurrencies and smart contract platforms like Cardano.
Would you like a deeper explanation of eUTXO in Cardano? 🚀