Homework on Bitcoin Transactions and UTXO - Questions

Blockchain and Bitcoin 101
#2497
  1. Describe what Unspent Transaction Outputs (UTXO) are.

a UTXO is a transaction input that you have received but not yet spent

  1. What would happen if you don’t have any single UTXO that is large enough to cover for your transaction?

your transaction would be invalid as you would not have enough to cover your transaction and transaction fee.

  1. How would a bitcoin wallet specify the transaction fee when creating a transaction?

the wallet looks at previous transactions and ascertains which fee will get you onto the blockchain, it is worked out by the wallet and can be viewed in the chain as input - output = fee.

  1. How could you use the notion of transaction inputs and outputs to increase privacy in your transaction?

inputs and outputs are linked to addresses but these addresses are not linked to an ID so individuals can send coins to any address even ones that they may own themselves and no one would be able to know unless the same address is used time and time again.

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#2498

  1. UTXO’s are defined as Unspent Transaction Outputs. They are essentially all of the remaining unspent outputs listed on the blockchain that are associated with your wallets private key. All of the UXTO’s associated with your wallets private key are added up by your wallet to provide you with your wallets balance of unspent bitcoins. Although all of a private keys/wallets combined UXTO’s must be sent on each purchasing transaction, there would likely only be the one UXTO to add up considering the full balance of a private keys UXTO’s are sent to the seller, the miner takes his fee and sends the remaining UXTO’s back to the buyers private key. Once you use the wallets private key has been used to buy something or send btc, all of the UXTO’s would essentially be totaled in the blockchain and the wallet would only need to add up any new inputs it received in later blocks to total the wallets UXTO’s total balance. Not completely sure if that last part is fully correct, I will be researching later to confirm; but, please advise if this is the process of UXTO’s once a wallet has been used. If true, I could see how this could make btc quite easy to track.

  2. If you didn’t have any single UTXO that is large enough to cover your transaction you would than at least need to have many UXTO’s that would add up to enough to cover the transaction, otherwise it would fail and your wallet would not allow it to go through because you do not have enough bitcoin currency (aka sound money) to purchase the item you want to buy or the mining fee associated with processing the transaction.

  3. A bitcoin wallet specifies the transaction fee by determining the amount of bytes for your transaction and charging the amount of satoshis per byte. A good wallet would allow you to specify or input the amount you are willing to pay for your transaction while entering the data.

  4. You could use the notion of transaction inputs and outputs to increase privacy in your transaction by both the buyer and seller creating or using a number of wallets which would have separate private/public keys. You would then pay for the item being purchased with multiple wallets using different private keys and send smaller amounts to the sellers multiple wallets with different public keys across a varying time scale until the sum of the purchase has been achieved. You would also need to use VPN’s, different IP addresses and locations/cities, countries ect.

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#2499

  1. Unspent transaction outputs are the sum of all the transactions a wallet has recived

  2. Transaction would fail

  3. Input-Output= Transactionfee

  4. Since only the inputs and outputs from each wallet adress are visible, the owner stays anonymous

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#2500

If there is no link to an identity that owns the address it can be used as much as you want and keep privacy, the problem is when someone finally links that address to a person. Like depositing from that address to an exchange where you did KYC. :slight_smile:

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#2501

You don’t have to spend all UTXOs at once, just as many to cover the tx.

You can just use different addresses each time you receive a tx in one wallet. :slight_smile:

#2502

What if you withdraw from an exchange where you did KYC? :wink:

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#2503

  1. An unspent transaction output (UTXO) is is the output from a previous transaction which the private keys of the wallet to which it was sent to are allow to spend.

  2. If a single UTXO is not large enough to cover a transaction multiple UTXOs (as many as are required) are used to create a sum equal to or larger than the output values + fees.

  3. The transaction fee is the amount left when the total of the outputs is deducted from the total of the inputs.

  4. Privacy can be increased by the change address in the output of a transaction being different to the address of the inputs. This way someone looking at the transaction cannot tell how much was spent by the origin address.

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#2504

a utxo constructs the transaction for you it can pick the fee which is best for you, but there is the option to do it your self.

if you dont have a utxo that is big enough then what your trying to spend would be invalid transaction declined.

input minus output of transactions

use multiple addresses

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#2505
  1. Describe what Unspent Transaction Outputs (UTXO) are.

Is the amount of bitcoin you have to make outputs with

  1. What would happen if you don’t have any single UTXO that is large enough to cover for your transaction?

The transaction would not gain consensus and therefore would not make it onto the blockchain and the transaction would not be completed.

  1. How would a bitcoin wallet specify the transaction fee when creating a transaction?

The wallet will look to the blockchain to find the level of transaction fee that will get the transaction completed within a timely manner.

4.How could you use the notion of transaction inputs and outputs to increase privacy in your transaction? Not sure

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#2506

  1. they are transactions that have been sent to you that you have not sent to anyone else yet. anything you send to someone else then become their UTXO

  2. You have to overpay, or send the total sum of your UTXOs and then send yourself back the change, after covering the cost of the transaction fee

  3. The transaction fee is found by subtracting the outputs from the inputs of the transaction.

  4. by using multiple addresses to send transactions to, it’s difficult from the outside to know where exactly and how much coin you are sending

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#2507

  1. Describe what Unspent Transaction Outputs (UTXO) are.
    UTXOs are previpis transactions that have been sent to you which you haven’t spent yet. The sum of all UTXOs are basically your butcoin balance.

  2. What would happen if you don’t have any single UTXO that is large enough to cover for your transaction?
    You can send several UTXOs at a time to cover the transaction.

  3. How would a bitcoin wallet specify the transaction fee when creating a transaction?
    The bitcoin wallet doesn’t actually specify the transaction fee, however it is implied that there is a fee. This fee is the difference between the UTXOs (the input) and the output.

  4. How could you use the notion of transaction inputs and outputs to increase privacy in your transaction?
    The blockchain allows you to send money back to yourself or to other wallets that you control. No one can actually identify or verify that you are receiving the transactions.

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#2508

1. Describe what Unspent Transaction Outputs (UTXO) are.
The unspent outputs of received Tx(input) which can be spend.

2. What would happen if you don’t have any single UTXO that is large enough to cover for your transaction?
It would be invalid Tx and will be declined.

3. How would a bitcoin wallet specify the transaction fee when creating a transaction?
Fee=input - output

4. How could you use the notion of transaction inputs and outputs to increase privacy in your transaction?
By using different private key addresses (could be under same wallet) when receiving Tx.

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#2509

Yeah:but, aren’t all of this private keys totaled UXTO’s sent from the buyers wallet, the amount of the item/service sent to the seller, the fees taken by the miner and the UXTO that remains the summed up original wallets private key as one totaled UXTO sent back?

I am of course, referring to the section of the video where Ivan says you give the seller $100 or all UXTO’s, he takes the amount for the item, the miner takes the tx fees and returns the change or as one combined UXTO. Isn’t the change being referred to all of the leftover UXTO’s put back into the original senders private key as one UXTO at that point? From there the next time the wallet is opened, the blockchain would send the wallet that UXTO and any new inputs and sum them to show the new balance?

#2510

  1. Describe what Unspent Transaction Outputs (UTXO) are.
    UTXOs are transactions that you have received to your Wallet address which you have not spent as yet. The sum of all UTO’s are the balance of your wallet which you have available as funds.

  2. What would happen if you don’t have any single UTXO that is large enough to cover for your transaction?
    Your transaction includes a number of UTXO’s combined. So if a single UTXO isn’t large enough then other UTXO’s are used to cover the difference.

  3. How would a bitcoin wallet specify the transaction fee when creating a transaction?
    The wallet will reference other transactions on the blockchain and will propose a fee for the transaction to complete in a reasonable timeframe.

  4. How could you use the notion of transaction inputs and outputs to increase privacy in your transaction?
    Multiple transaction outputs can occur at once. But there is privacy as no one can determine who the outputs are going to. So you could be sending outputs/fund to other wallets you control.

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#2511

Homework on Bitcoin Transactions and UTXO - Questions

Describe what Unspent Transaction Outputs (UTXO) are.

Money you receive goes from being someone else’s output (a spent transaction) to being your input, which is an unspent transaction until you pass the funds on to someone else again.

Your wallet calculates your balance based on the total of UTXOs associated with your bitcoin address (and all of the bitcoin addresses associated with your private key) - there is no balance on the blockchain itself, though.

This constant re-contextualisation of the funds from one wallet address to another, from input to output, creates a traceable flowchart of transactions, which can be observed on the blockchain via a block explorer application.

What would happen if you don’t have any single UTXO that is large enough to cover for your transaction?

Your wallet chooses a combination of smaller UTXOs that add up to the required amount, whilst also factoring in the fee for the transaction - this goes to the miner who adds your transaction to the blockchain, as a reward for processing that particular block.

If you don’t have sufficient funds in your wallet to cover the output in combination with the transaction fee, or the receipt of funds to your address has not yet been verified with enough confirmations by nodes on the blockchain network, the transaction will fail.

How would a bitcoin wallet specify the transaction fee when creating a transaction?

The mining process consumes a significant amount of electricity to solve the cryptographic puzzle that completes a block of transactions, so the miner needs to at least breakeven to cover the running cost of their rig, otherwise, they will be operating at a loss.

The transaction fee is paid to the miner to at least compensate (but ideally reward) them for processing that transaction. The reason that paying a higher fee for a transaction speeds up the process, is because there is greater incentive due to the higher reward associated with mining that particular transaction.

Without profiting from the mining process, miners will be dis-incentivised, and may shut down their rigs to avoid substantial financial losses - if this were to happen on a large scale, the integrity and efficiency of the blockchain network would be compromised, and even become vulnerable to security breaches.

How could you use the notion of transaction inputs and outputs to increase privacy in your transaction?

Despite public blockchains being open ledgers, wherein you can track and trace funds along a clear path of connected inputs and outputs, it is impossible to know whether any two addresses involved in a transaction are owned by the same individual - someone could be transferring funds to another account of theirs, perhaps to a different wallet, or from their wallet to a decentralised exchange, and in most cases, the only information available is the bitcoin address.

Without KYC (know your customer), and also in the case of owning your private keys (as opposed to interacting with them via a third party), there is no identity information intrinsically associated with a bitcoin address, so you can transact anonymously, as long as the process is peer-to-peer.

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#2512
  1. UTXO’s are unspent transactions available for you to transact with. The total utxo’s are total of the wallet.
  2. Use more than one.
  3. Fee = input - output
  4. Generate a new address so they are not positive if the transaction went to another person or back to you.
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#2513
  1. All utxo on your private key is your wallet balance.
  2. It will use more utxo’s and send the remaining output to yourself.
  3. Input - output = txfee
  4. Use different addresses.
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#2514

You can use a different address every time you receive a tx. :slight_smile:

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#2515

You don’t need to spend all your UTXOs, you can pick just enough to pay the tx + fee and of corse return the change back to yourself :slight_smile:

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#2516

Yes, but you still don’t need to spend all of them. You can for example have a 0.1 and 0.8 UTXO on one address and a 0.3 UTXO on another address. And you want to make a tx to pay someone 0.35 BTC.

You can use 0.1 and 0.3 UTXOs as inputs to a new tx and create two new outputs of 0.35 (to the payee) and 0.05 (your change) ignoring the fees for the simplicity. These two UTXOs are large enough to pay so your tx will go through, the 0.8 UTXO will remain unspent and you will recieve a new 0.05 UTXO to spend another time :slight_smile:

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