Checking your balance or sending Bitcoin can be as simple as opening an app or scanning a QR code and clicking send, but what is happening behind the scenes to make that happen?
Unspent transaction outputs (UTXOs) are the monetary units of bitcoin. They are likes coins and notes in the traditional financial system but can be of any value.
When accessing a wallet, the software creates your balance by totalling the value of all your UTXOs, and when you want to send someone Bitcoin, your wallet selects the UTXOs required to make up the amount you want to send.
In many cases, wallet software abstracts away UTXOs so that the user does not have to consider them. However, it is a crucial part of the system that, when properly used, can help protect your privacy and reduce your transaction fees.
In this interview, I talk to Shinobi, the host of Block Digest. We discuss UTXOs, what they do, how they work and the implications for both privacy and transaction fees.