To dive deeper, check out the complete article from original source:
https://droomdroom.com/unspent-transaction-output-utxo-explained/
🔍 What is UTXO?
Unspent Transaction Output (UTXO) is the foundation of Bitcoin’s transaction system, keeping track of unspent cryptocurrency after each transaction. Think of it as getting change after a cash purchase — the leftover balance becomes spendable for future transactions. 💰
🔗 How Does UTXO Work?
Bitcoin uses the UTXO model instead of a traditional account balance system. Every transaction consists of inputs (spent coins) and outputs (remaining coins). The blockchain tracks these outputs, ensuring security and preventing double spending.
Benefits of UTXO:
Enhanced privacy & security 🔐 — addresses track transactions, not users.
Prevents double spending — each UTXO can only be used once.
Lower fees over time — UTXO consolidation groups small balances into larger ones, reducing future costs.
⚠️ Limitations of UTXO:
Frequent consolidation needed, leading to extra transaction fees. 💸
More complex to understand compared to account-based models like Ethereum.
Less fungibility, making transactions harder to manage.
🚀 Why Does UTXO Matter?
The UTXO model ensures Bitcoin’s security, privacy, and decentralization, setting it apart from Ethereum’s account-based system. While it has some inefficiencies, it remains a key innovation in blockchain technology. 🔥
