Unspent transaction output is the maim accounting system that works in the Bitcoin protocol, which primarily tracks spending of Bitcoin and ownership.when someone sends you Bitcoin you don't necessarily receive Bitcoin per say but Instead you receive UTXO's which are pieces of Bitcoin locked to your wallet address, infact your balance is a summations of all UTXO'S that is associated with your your wallet. Simply put UTXO describes the flow of value in the Bitcoin BlockChain because UTXO tracks down the flow of information on the block by keeping records of the chronological records of every Bitcoin transaction that is ever made.
Yes the unspent transaction output is just a way bitcoin track and handle transaction from the blockchain just like the way you put hand in your pocket and pick up some bill to spend. Because when you receive bitcoin it will be stored as UTXO until spent the balance you see on your wallet is just the summation of all the UTXO’s you received from all your previous transactions that has not been spent yet.
How dose UTXO Work
It should be noted that every Bitcoin transaction that is made has two parts which are the input and the output parts. Input parts are the already existing UTXO'S on your wallet while the output are the UTXO'S that is been created which is usually sent out . For example if I want send out Bitcoin to someone. Let say I wants to send 0.4 worth of Bitcoin to someone named X, and assuming that I have up to 1BTC on my wallet.
UTXO X= 0.4BTC been sent to X.
0.0599= is back to me as change.
0.001BTC = miner's fee.
At the end of the day I have been able to spend 1BTC, it should be noted that, UTXO that has been spent is lost forever and is replaced by new UTXO'S.UTXO'S are the global list of all currently unspent outputs Stored and maintained by full Bitcoin nodes which are currently used to quickly verify if a transaction is valid or not on the Bitcoin BlockChain.If an output is not in the UTXO set, it cannot be spent.
Because you have like batches of UTXO’s that you received previously if you want to spend them your wallet will pick one or more of your existing UTXO that will be an input for the transaction you are about to make that will add up to at least the amount you want to send
You can’t spent these UTXO’s partially just the way you can’t tear $100 into two and say you want to spend half therefore they will be fully spent and destroyed
To balance it the transaction create UTXO outputs which the amount you want to send goes to the the recipient and the balance (change) is sent to you back as a new UTXO
Although there is a small charges in doing this transaction Wch is regards as the miners reward.
Let lie give example:
Let say you have UTXO worth 1BTC, and you want to send 0.6BTC to someone
The transaction will use your UTXO Which in this case is worth 1BTC as input and create two new UTXO as output UTXO worth 0.6 will be sent to the recipient and UTXO worth 0.39 will be sent back to you and change this includes small fee for the miners
