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Unspent Transaction Output (UTXO)

An unspent transaction output (UTXO) is an abstraction of electronic money. Each UTXO represents a chain of ownership implemented as a chain of Digital Signatures where the owner signs a message (transaction) transferring ownership of their UTXO to the receiver’s Public Key.

The total UTXOs present in a blockchain represent a set, every transaction thus consumes elements from this set and creates new ones that are added to the set. The set thus represents all the coins in the system.

A UTXO defines an output of a blockchain transaction that has not been spent, i.e. used as an input in a new transaction. Bitcoin, Litecoin, and Bitcoin Cash are three examples of currencies that use this model.

For a valid blockchain transaction, unspent outputs (and only unspent outputs) may be used to effect further transactions. These unspent transaction outputs may be used (by the holders of private keys; for example, persons with cryptocurrency wallets) for the purpose of future transactions.

This is different from the Account/Balance Model (used by Ethereum and other chains), on the other hand, which keeps track of the balance of each account as a global state. The balance of an account is checked to make sure it is larger than or equal to the spending transaction amount.

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