Understanding bitcoin e-cash model utxo in 5 minutes

To understand bitcoin’s accounting model, we need to understand utxo. The full name of utxo is unspent transaction output. Translated into Chinese, utxo is “unspent transaction output”. It is a unique account structure adopted by bitcoin. In bitcoin, a transaction actually works by spending a set of utxos, which are created by one or more previous exchanges and then producing one or more new utxos (which can be spent in future transactions). Bitcoin is a peer-to-peer e-cash system. Every utxo can be understood as an e-cash: it has a denomination and an owner. For a transaction to be valid, the following rules must be met: the transaction must contain a valid signature from the owner of the utxo it spent; the total denomination of the utxo spent must be equal to or greater than the total denomination of the utxo generated by the transaction (the difference is miners’ fees). Another common form of transaction that Alice sends to Bob is the pattern of combining multiple inputs into one output. This is equivalent to changing the change into a large amount of whole money. Transactions like this are sometimes generated by wallet applications to clean up many small amounts of change received during the payment process. Finally, another common transaction form in bitcoin books is to assign one input to multiple outputs, that is, transactions with multiple receivers. Such transactions are sometimes used by business entities to distribute funds, such as in the case of multiple workers. So, a user’s bitcoin balance is not stored as a number, but calculated by the sum of all his utxo. There are two main benefits of using utxo: scalability – parallel transactions can be implemented because multiple utxos can be processed at the same time. Privacy – bitcoin is not a completely anonymous system, but utxo can provide a higher level of privacy as long as users use a new address for each transaction.

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