UTXO is a piggy bank ﾎｩﾎｩ(o-∀-))

I feel that we live in such a complicated era. I mean that we are surrounded by a lot of electrical gadgets such as TV, smartphone, PC, and even microwave. I know how to use them, but technically speaking, I have no clue how these things actually function. What I want to say here is that I do not know how technically TVs display images, how smartphones are connected to the Internet, how PC send emails, and how microwaves make my breakfast warm. Well, I just have to google how these gadgets function technically. That is the era we live in. We are not sure how these things function technically, but it does not matter, but we use them because they are very convenient. That is what all matters. They are easy to use and make our life better.  ﾎｩ…( ﾟｪﾟ)ｺﾞｸﾛｳｻﾝ

It must be easy to use!

Many things we use almost every day are designed very user-friendly. I think it is the same in the crypto world.  (*´･д･)ﾀﾞﾈｰ

Bitcoin (BTC) used to be transacted among computer scientists, programmers, so-called computer geeks (sorry to call so!), and it was only used who knew how to mine it. Satoshi invented Bitcoin first as a One CPU One Vote basis. Most of us did not know that Bitcoin even existed until Mt. Gox finally started selling Bitcoin to whoever was interested, and Mt. Gox made access to Bitcoin easy. (It was too bad that Bitcoin was recognized as a way of speculation in Japan, but not so many people realized the importance of blockchain technology including me.)   ﾖﾁﾖﾁ( *´д)/(´д`､)ｱｩｩ

Role of Bitcoin wallet

I believe that Bitcoin (BTC) and Bitcoin Cash (BCH) became more and more the mainstream after Bitcoin wallet was released. There are many wallets that are compatible with Bitcoin and Bitcoin Cash now. Bitcoin.com and other wallets made it easy to handle and transact Bitcoin and Bitcoin Cash using these wallets even like me who is not a tech person.

The Bitcoin white paper starts by stating, “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”(1) So, what kind of transaction Satoshi envisioned when he wrote the white paper? What does it mean that online payment, which is not going through a financial institution?

In Bitcoin, all transactions on the blockchain are transacted based on UTXO (Unspent Transaction Output).

What the heck is UTXO?  (･´ω`･)困ｯﾀﾅｧ…

For myself who is not a tech person, it was very difficult to understand the concept of UTXO. Well, still now, I am not sure if I have understood 100%. So, please correct me if you see any wrong points. Please make comments and educate me! Anyways, I watched a couple of videos and read a few articles about UTXO. I hope that I understood alright. We will see!

Before we dive into the explanation of UTXO, I would like to mention what makes transactions valid.  ヾ(´ε`;)ゝ…

Necessary conditions for valid transactions

１、 Identity authentification

２、 Enough funds in the account

３、 Trustability (the funds are transacted with duplication)

EX）When we use a check for transaction

１、 Sign on the check (verify for authentication)

２、 Verify if there are enough funds in the account by the bank

３、 Verify that funds are not duplicated by the bank

In the traditional financial systems, banks function as a gatekeeper to check if there are any malicious attempts in the transactions.  It seems that banks have inevitable functions in the financial systems unless we have blockchain and UTXO.

Well, let us get back to the explanation of UTXO.

UTXO functions like a piggy bank

I thought that Bitcoin transactions are very similar to how banks do in our bank accounts. Well, I was very wrong.  (人´3`*)ﾌﾝﾌﾌ～ﾝ♪

As we all know, in the traditional banking system, if Tom wants to send 2000USD from his bank account in Bank A, then 2000USD is deducted from his account then sends the fund to Alice, which she has a bank account in Bank B.

(Thanks to Sunil and Ram) (2) ありがとう (*´-`*)ゞ ﾎﾟﾘﾎﾟﾘ

Accounts are easy for users, humans like us to understand but surprisingly difficult for computers when it comes to all the complexity of decentralization. In Bitcoin transactions, there is no longer a central entity to check all the transactions being made in the account, there is no entity which “check there are enough funds in the account” and “check if the transactions are not duplicated.”

UTXO defines “a discrete piece of bitcoin. Bitcoin does not use accounts and balances. Instead, individual pieces of bitcoin are owned by individuals. Each UTXO has an amount associated with it. These are the discrete units of bitcoin which are spent and received in every transaction.” by River Financial (3).

For myself, I understand UTXO is like a piggy bank. We put our bitcoin in a piggy bank and lock it. And, we break the piggy bank when we use it, well, we break it every time!

∩(´∀`)∩ｳｪｰ ﾊｯﾊｯﾊ♪

For instance, when we transact in Bitcoin, we put bitcoin in UTXO (piggy bank). Then, when we want to use any bitcoin in the piggy bank, we break it and put the rest of the bitcoin in another UTXO (piggy bank).

UTXO (piggy bank) can be used only once so that the verification process in the blockchain becomes easier as if “Does this single piggy bank have enough funds?”

I would like to site an excellent site that explains UTXO beautifully. Thanks to Mr. Akihide Higo who is from Gaiax Inc. --> LINK ありがとう (*´-`*)ゞ ﾎﾟﾘﾎﾟﾘ

All transactions are composed as input and output

Why a transaction in Bitcoin is named UTXO (Unspent Transaction Output)? All transaction on the blockchain which will be recorded are composed either input (to sender) or output (to receiver). More precisely, UTXO which is used by transactions is called “Transaction Input”. And, a new UTXO that is created by a new transaction is called “Transaction Output”. The sum of “Transaction Input” and the sum of “Transaction Output” is equal.

That is to say, in a transaction in Bitcoin, an output is “Unspent Transaction Output” which is not used by anybody yet. Also, the output is regarded as an input transaction by whoever receives the transaction. When the transaction is used as input, then a new UTXO is created. This is the true picture of transaction data on the blockchain, the cycle of UTXO which continues forever.   

Well, it is cool to see the UTXO cycle continues forever. It is like an endless cycle between input and output.

One thing I clearly understood that I am glad to use a wallet of Bitcoin.com which provides a very user-friendly service to transact Bitcoin (BTC) and Bitcoin Cash (BCH) which I do not have to think about UTXO all the time.

 LOL. ( *´艸`)ｸｽｸｽ

Mizuo – Mar. 30th, 2021.

Other stories in my blog (As of Mar. 2021)

1 - Reasons why I started becoming interested in cryptocurrencies.

2 - At last, I encountered Bitcoin and Bitcoin Cash!

3 – My first question towards BTC and BCH. What are cryptocurrencies anyways!? 

4 - Who is Satoshi Nakamoto?

5 – At last, I encountered Bitcoin.com

6 – Cyberpunk!!

7 - Bitcoin challenges banks!

8 – BTC and BCH help “unbanked” people (・∀・)ｲｲﾈ!!

References

1) Bitcoin White Paper

https://bitcoin.org/bitcoin.pdf

2) UTXO (Unspent Transaction Output) by Sunil and Ram

https://www.youtube.com/watch?v=YjiE4SZtSlY&t=26s

3) UTXO

https://river.com/learn/terms/u/unspent-transaction-output-utxo/

4) Blockchain Biz

https://gaiax-blockchain.com/utxo　

5) Bitcoin.com (wallet)

https://www.bitcoin.com/

6) Blockchain at Berkley

https://www.youtube.com/channel/UC5sgoRfoSp3jeX4DEqKLwKg