UTXO - What is it and how to use it
A lot of users who own BTC, LTC, DOGE or other derivative tokens from Bitcoin might have not heard about UTXO before. But UTXO is an important feature tagged to all the BTC and BTC derivative coins, such as LTC, DOGE, and more. Here is what people usually ask about the UTXO:
"I sent 1.221 BTC to other places, but the transaction sent my remaining 2 BTC to another BTC address, instead of the address in my SafePal wallet. I can't find that address anywhere. Why is that? Did I lose my assets?"
This is what typically happens when you transfer a UTXO token: the remaining coins of a transaction will be recorded in a new, unused address. The following tutorial will guide you through what is a UTXO and how we should handle it.
UTXO stands for Unspent Transaction (TX) Output. Basically, it’s the amount of leftover cryptocurrency change that you receive from each transaction. Let’s use Bitcoin for our example as it’s the most well-known cryptocurrency using UTXOs.
When you open the SafePal wallet and look at your Bitcoin balance, you see a number. For this example, let's set the balance at 100 BTC. Though the balance is an intact number, your Bitcoins are actually comprised of multiple UTXOs. You may have two UTXOs worth 50 each, four UTXOs worth 25 bitcoin each, or a set of UTXOs valuing 32, 10, 21, and 37 bitcoin. The amounts for each UTXO don’t matter, but they must add up to your total balance. Let's assume that you want to buy a house that costs 35 bitcoin, and your wallet only contains UTXOs equaling 15, 17, 28, and 40 bitcoin each, then you will have to pay the 40 bitcoin UTXO because you don’t have one UTXO valued at precisely 35 bitcoin. In this case, the network mints two new UTXOs: one valued at 35 bitcoin, one worth 5 bitcoin. The car dealership receives the 35 bitcoin UTXO while you receive the 5 bitcoin UTXO as change. You may also spend the 17 and 28 bitcoin UTXOs and receive 10 bitcoin as your change. A transaction may use any combination of UTXOs; however, you don’t have control over which ones. Just as you can split a UTXO into separate instances, you can also combine them in larger transactions, creating fewer of them on the network.
UTXOs are critical in preventing double-spend attacks, and they stop you from spending coins that don’t exist. Network nodes record and maintain a database that contains every UTXO (i.e., unspent coin) available for spending. If you try to send a transaction with a coin that isn’t in that database, the nodes will reject it.
How UTXO works in a Bitcoin transaction
Nothing. You don't need to manage your UTXO, nor can you manually decide which UTXOs to use for a transaction. UTXO addresses are tag to your seed phrase. So long as your seed is secure, your funds are safe. No matter how many UTXOs there are behind your Bitcoin address, you can always view the total balance in the SafePal wallet at a glance.