What Is A UTXO?

Last Updated on March 7, 2022

Short answer: Unspent Transaction Output

Long answer: https://www.investopedia.com/terms/u/utxo.asp

The term UTXO refers to the amount of digital currency someone has left remaining after executing a cryptocurrency transaction. The letters stand for unspent transaction output. Each bitcoin transaction begins with coins used to balance the ledger. UTXOs are processed continuously and are responsible for beginning and ending each transaction. Although confirmation of transaction results in the removal of spent coins from the UTXO database, a record of the spent coins still exists on the ledger. 

A UTXO database is used to store change from cryptocurrency transactions. This database or ledger is initially set to empty or zero. As transactions multiply, the database becomes populated with change records from various transactions. When a transaction is completed and there are outputs that aren’t spent, they are deposited back into a database as inputs that can be used at a later date for a new transaction

The profusion of small coins within bitcoin’s network makes certain transactions uneconomic. This is because it may cost more to transact than the actual cost of the product being purchased with bitcoin. For example, it doesn’t make sense to purchase a $2 cup of coffee if the transaction fee on bitcoin’s network is greater than the price of the coffee

There is another problem with increasing UTXO. The change in equipment cost required for processing UTXOs has not kept pace with its increase. In fact, the cost of data mining rigs for fully validating nodes, for example, has not kept pace. “Allowing more transactions with no other changes would very likely accelerate the UTXO set growth making it more expensive to run a full validating node,”