Blockchain technology operates as a decentralized distributed database, but how does it manage accounting? Among current blockchain projects, two primary accounting models dominate:
- Account Balance Model (used by Ethereum)
- Unspent Transaction Output (UTXO) Model (used by Bitcoin).
Understanding UTXO is key to grasping Bitcoin’s accounting logic.
Understanding UTXO
UTXO, or Unspent Transaction Output, refers to the fundamental unit of Bitcoin transactions. Think of it like individual cash bills in a wallet:
- When Bob receives Bitcoin and doesn’t spend it, that Bitcoin becomes a UTXO.
- Each UTXO is indivisible (like a $10 bill cannot be split into two $5 bills).
- To spend a UTXO, you must use it entirely. For example, paying 50元 with a 100元 bill requires receiving 50元 in change (a new UTXO).
How UTXO Works in Blockchain
- Transaction Input: Consumes existing UTXOs ("old bills").
- Transaction Output: Generates new UTXOs ("new bills").
- Balance Calculation: Sum of all UTXOs = User’s available balance.
UTXO Transaction Scenarios
1. Peer-to-Peer Transfer
Example: Bob has a 10 BTC UTXO and sends Alice 2 BTC.
Process:
- The 10 BTC UTXO is spent entirely.
Outputs:
- 2 BTC to Alice (new UTXO).
- 8 BTC back to Bob as "change" (new UTXO).
- Security: Miners verify the UTXO hasn’t been spent before (preventing double-spending).
👉 Learn more about Bitcoin security
2. Multi-Party Transfers
Case 1: One sender to three recipients (A → B/C/D).
A’s 10 BTC UTXO splits into:
- B: 2 BTC, C: 2 BTC, D: 2 BTC.
- A’s change: 4 BTC.
Case 2: Three senders to one recipient (A/B/C → D).
- Inputs: A (4 BTC), B (2 BTC), C (2 BTC).
- Output: D receives 6 BTC (sum of inputs).
3. Transfers with Multiple UTXOs
Example: Address A holds UTXOs of 1 BTC, 2 BTC, 3 BTC, and 4 BTC. Sending 2.5 BTC to B:
- Uses 2 BTC UTXO (direct transfer) + 1 BTC UTXO (splits into 0.5 BTC to B and 0.5 BTC change).
Result:
- A retains 0.5 BTC, 3 BTC, and 4 BTC UTXOs.
- B holds 2.5 BTC across two UTXOs.
Key Features of UTXO Model
- Event-Based: Records transaction outputs, not account states.
- Security: Prevents double-spending via cryptographic verification.
- Privacy: No direct link between UTXOs and user identities.
- Scalability: Supports parallel transaction processing.
👉 Explore UTXO-based cryptocurrencies
FAQs
Q1: Can UTXOs be partially spent?
No. UTXOs are consumed entirely, with "change" generated as new UTXOs.
Q2: What happens if I send Bitcoin to a wrong address?
UTXO-based transactions are irreversible. Funds sent to incompatible addresses (e.g., contract addresses) may be permanently lost.
Q3: Which cryptocurrencies use UTXO?
Examples: Bitcoin (BTC), Bitcoin Cash (BCH), Litecoin (LTC), Dogecoin (DOGE), and Cardano (ADA).
Q4: How does UTXO improve privacy?
By decoupling transaction history from wallet addresses, UTXO obscures spending patterns.
UTXO-Based Cryptocurrencies
Below are notable projects using UTXO:
| Coin | Symbol |
|----------------|-----------|
| Bitcoin | BTC |
| Bitcoin Cash | BCH |
| Litecoin | LTC |
| Cardano | ADA |
| Dogecoin | DOGE |
Warning: Always verify addresses before transferring UTXO-based assets. Recovery is often impossible for errors.