The question of “What is a UTXO?” comes up a lot in various groups and communities I’m involved with. In this article I will attempt to explain the concept of a UTXO — or an Unspent Transaction Output — in plain English.

If I do the job well — you will be able to explain it to your grandparents and they will get it.

Also, I will come at this from the Skycoin perspective — as #SkycoinIsMyCoin and #SkycoinMakesMeDance. If you don’t know about Skycoin I suggest you check it out — I have provided some links at the bottom of the article.

Unspent Transaction Outputs — UTXOs

As I mentioned in the intro, my aim here is to explain what a UTXO is, but in a what that your grandparents would understand — so I will use an analogy.

Consider you have a Big Coin Bag that you use to carry your money around in (this is your wallet address).

Your Big Coin Bag — or Wallet Address

When you first start out, your Big Coin Bag (wallet address) is empty. Eventually you will get some coins — either earning them or purchasing them — the method is not important.

In order to receive the coins a transaction must take place on the Skycoin blockchain. As part of this transaction you nominate where you would like to receive your coins — this is what your Big Coin Bag is for — so you provide the wallet address that is associated with it.

When the transaction is complete coins will appear in you Big Coin Bag — these are now yours. But you don’t just drop the coins loosely into the Big Coin Bag — you use another smaller bag to keep them nicely bundled together. This smaller bag is the UTXO — or the Unspent Transaction Output.

Your Small Coin Bag — or UTXO

Now over time, you may continue to earn more coins over seperate transactions. The process is the same for each transaction. You nominate where you want to receive the new coins (your Big Coin Bag — or wallet address) and when you receive the new coins, you keep them nicely grouped together in their own smaller bag — the UTXO.

As you receive more and more coins into your Big Coin Bag — you will start to accumulate many of these smaller bags (UTXOs) — one per transaction in fact.

Your Big Coin Bag (Wallet) containing multiple Small Coin Bags (UTXOs)

UTXOs and Sending Coins

Eventually you may wish to send funds to another person, and exchange, or even to another of your own Big Coin Bags (Wallet addresses). In this case you must create a new transaction on the Skycoin Blockchain and provide the destination where the coins are to be sent (the receiving Big Coin Bag).

In order to send coins however you must take a look inside your Big Coin Bag (Wallet address) and decide which of the smaller coin bags (UTXOs) you will use to send funds from.

With the Skycoin Desktop or Mobile apps, you have two options here:

Let the app decide automatically for you; or Use the advanced option and you decide which of the smaller coin bag (UTXOs) to use.

In either case, to complete the transaction you will need to nominate which of the available smaller coin bags (UTXOs) you will use to fund the transition.

If the amount of coins you are sending happens to be equal to the number of coins contained in the selected smaller coin bag (UTXO) then all the coins in that smaller coin bag will be sent to the recipient — and they, like you, will store them in a small coin bag (UTXO) inside their nominated Big Coin Bag (Wallet address).

It’s also possible that the amount of coins you need to send is more than you have in any single one of your smaller coin bags (UTXOs). In this case you will need to choose to fund the transaction from multiple smaller coins bags (multiple UTXOs).

It may also be possible that the number of coins you need to send as part of the transaction is less that the total amount from the selected smaller coin bags (UTXOs). In this case you will receive the remaining coins back from the transaction as change — but importantly — these will come back to you in their own new small coin bag (UTXO) — the original small coin bags (UTXOs) that were involved with the transaction will have been used in full and can never be used again.

This last point is extremely important to understand as its the essence of the immutable nature of the Blockchain — the small coin bags (UTXOs) can only ever be used once. Transactions will always consume an existing small coin bag (UTXO) and generate new small coin bags (UTXOs) for their recipients and any remainder (change) that is to be returned to you.

Conclusion

I hope that I’ve been able to achieve what I set out to do in this article and bring clarity and understanding to what a UTXO is.

Now it’s your job to share the knowledge.

If you want to find out more about Skycoin, checkout the website: