9.6 The UTXO Model

Definition and Function: UTXO (Unspent Transaction Output) model is fundamental to Bitcoin transactions. It works by breaking down the total amount of Bitcoins into discrete units or outputs (UTXOs). When sending Bitcoins, entire UTXOs are spent, with leftover amounts returned as change to the sender's new UTXO.

Transaction Process: Each transaction consumes one or more UTXOs as inputs and creates new UTXOs as outputs. This creates a transparent and traceable history of transactions on Bitcoin's ledger.

Examples and Practical Applications:

Transaction Example: If Alice wants to send Bitcoins but only has larger UTXOs, she sends the exact amount needed and receives change back as a new UTXO. This demonstrates how UTXOs are managed and utilized in everyday Bitcoin transactions.

Node Verification: Nodes in the Bitcoin network verify transactions by checking the validity of UTXOs used as inputs, ensuring they have not been previously spent.

Security and Privacy Considerations:

Data Privacy: Revealing UTXOs can potentially expose transaction details and the amount of Bitcoins owned, compromising privacy.

Transaction Security: Hashing ensures the security and validity of transactions, preventing unauthorized changes or manipulations.