UTXO, or Unspent Transaction Output, represents the basic building block of blockchain-based cryptocurrencies like Bitcoin. In essence, UTXOs are individual units of cryptocurrency, each representing a portion of a user’s balance that has not yet been spent.
When a user initiates a transaction, they utilize one or more UTXOs as inputs, combining them to create new UTXOs as outputs. These outputs can then be used as inputs in subsequent transactions.
The UTXO model offers several advantages, including increased privacy and security. Since each UTXO represents a specific amount of cryptocurrency and is associated with a unique public key, it becomes challenging to trace individual transactions back to their origins.