The full name of the UTXO model is the Unspent Transaction Output model. It is one of the main accounting models for a shared ledger (blockchain) used to record, store and execute transactions. The UTXO model is often mentioned in conjunction with Bitcoin (BTC). But in fact, many other blockchain networks also apply UTXO as their accounting model, such as NEO, Litecoin, Zcash, Cardano (extended UTXO model), etc.

How the UTXO model works

The name of the UTXO model actually contains its basic concept, which is This model uses the unspent portion of the cryptocurrency in a transaction as the accounting method for the transaction.

In the UTXO model, there are no "accounts" and "balances". UTXO is a unit of measurement that helps execute transactions. UTXO refers to the amount of cryptocurrency remaining after a transaction is executed (i.e., unspent cryptocurrency). In other words,the balance a user can transfer in the UTXO model is the amount that has not been spent in his previous transactions.

In the UTXO model, each transaction consists of inputs and outputs represented as UTXOs. Input consumes an existing UTXO, while output creates a new UTXO. After a transaction is completed, any unused outputs are recorded in the database as inputs and can later be used in new transactions.

Example of UTXO model

A has 5 Bitcoins (UTXO_0) in his wallet. B has an empty wallet. Now, A wants to send 3.15 BTC to B’s wallet. A's 5 BTC will be recorded as inputs and then consumed (can be considered destroyed). At the same time, 3.15 BTC and 1.85 BTC (UTXO_1 and UTXO_2) will be created as the output of the transaction. UTXO_2 will go to A's wallet, and UTXO_1 will go to B's wallet. After the transaction is completed, Person A's wallet has an unused balance of 1.85 BTC. B's wallet has an unused balance of 3.15 BTC.

Note: In real blockchain transactions, transaction fees will be deducted. For example, the balance of UTXO_2 after deducting transaction fees will be slightly less than 1.85 BTC.

Characteristics of the UXTO model

The UXTO model is applied as the main accounting model of the blockchain because it can Trace transactions back to their origins and verify them.

• From the above example, we can seethat the origin of every asset can be traced back to its creation. Because every transaction output must have a corresponding input. In the Bitcoin system, every Bitcoin can be traced back to the block in which it was mined. In the UTXO model, once an erroneous transaction occurs, the system can pinpoint its source.
• The UXTO model can also be viewed as a verification system. It only allows transactions to be executed when the inputs are Unspent Inputs. The system will verify the status of the input before executing the transaction. If the input is not used, the transaction continues. It prevents malicious behavior such as the double-spending problem from occurring.

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