Homework on Bitcoin Transactions and UTXO - Questions

[Alko89]

@CryptoDenise

All UTXOs are used as input for the new transaction. The balance remaining from the transaction becomes a new UTXO sent to the creator and held on the blockchain. If there is only one single UTXO available to be spent, and that single balance is not enough, your wallet will deny the transaction.

I’m not sure if you meant this right just not explained it properly. But not all UTXOs are used for the new tx. Only as much as there are required to pay the desired value

@CryptoDenise

You could use the notion of transaction inputs and outputs to increase privacy in your transaction by using multiple inputs and outputs, by controlling addresses on multiple exchanges and by having multiple cold storage wallets.

That would be way to complicated and most exchanges are not really private. You only need one cold storage wallet. All hardware wallets are HD wallets or Hierarchical Deterministic wallets, which means the wallet will create a new address from a seed each time you receive funds.

[Alko89]

@santalittlehelper1

by sending bitcoin back to yourself with payment to others the part going back to you would be in an address that only you know is yours

You would increase privacy by sending the change back to a new address you own

[ackebom]

Thank you for clarifying Alko89! Much appreciated

[Maceo]

Thank you. I reviewed Ivans explanations, now I got it.

[Damon]

1 Describe what Unspent Transaction Outputs (UTXO) are.
UTXO is the balance available in your wallet until spent by the precipitant your output balance minus the the transaction fee.

2 What would happen if you don’t have any single UTXO that is large enough to cover for your transaction?
Your transaction would fail as there isn’t enough to cover the cost.

3 How would a bitcoin wallet specify the transaction fee when creating a transaction?
Although the fee is implied, if you add more to the fee your transaction will be processed quickly as opposed to a lower fee which would not be processed at all if too low.

4 How could you use the notion of transaction inputs and outputs to increase privacy in your transaction?
You could use variable transaction amounts to various addresses to obfuscate involved parties.

[CryptoDenise]

Thank you for the feedback, Alko89. Not sure I understand yet, but will continue to try and make sense of it.
Does the wallet determine how much is required to pay the desired value, using previous outputs from other transactions? It must use specific transactions if one of the outputs is the remainder unspent that goes back to the owner’s wallet, right?

Regarding the other response, what is a seed? I don’t remember learning about that. Is it the public key, or is the remainder/ output from the tx (new UTXO)?

[Mauro]

@Damon

2 What would happen if you don’t have any single UTXO that is large enough to cover for your transaction?
Your transaction would fail as there isn’t enough to cover the cost.

Maybe. There is a possibility that your address has multiple UTXO’s. This means that you can combine them in order to do the transaction. As long as the sum is larger than the output needed, the transaction will be valid. Otherwise it will be invalid just like you said.

[Mauro]

@Damon

3 How would a bitcoin wallet specify the transaction fee when creating a transaction?
Although the fee is implied, if you add more to the fee your transaction will be processed quickly as opposed to a lower fee which would not be processed at all if too low.

Yes, if you add more fee your transaction will be confirmed sooner. A wallet sets the fee using a unit of measurement called: satoshi per byte. This way the wallet will know how much to set aside for a miner. We can then calculate the total fee by substracting the total output from total input. Fee = total input - total output.

[Mauro]

@CryptoDenise

Does the wallet determine how much is required to pay the desired value, using previous outputs from other transactions?

The wallet will construct the transaction by combining the avaliable UTXO’s. It will do this automatically, figuring out the best approach. The wallet will also look at how much others are paying. That way it can suggest us an appropriate fee to get our transaction confirmed in the next few blocks.

@CryptoDenise

It must use specific transactions if one of the outputs is the remainder unspent that goes back to the owner’s wallet, right?

I am not sure if I understand your question correctly. If you have a remainder the wallet will create a new address and send it there.

@CryptoDenise

Regarding the other response, what is a seed? I don’t remember learning about that. Is it the public key, or is the remainder/ output from the tx (new UTXO)?

A seed is a set of words that you are given when your wallet has generated a series of private keys. In case something happens to your pc/phone or the wallet, the seed can be used to recreate the private keys again which allows you to access your funds again.

[Prophet79]

1. Describe what Unspent Transaction Outputs (UTXO) are.
   To start…UTXO’s reveal how much bitcoin an address has…Like money in your wallet they add up to how much bitcoin you have… When UTXO information is updated during a transaction spent bitcoins are removed and the transaction is complete.

2. What would happen if you don’t have any single UTXO that is large enough to cover for your transaction?
   Get change (bitcoin) sent back to an address that you own.

3. How would a bitcoin wallet specify the transaction fee when creating a transaction?
   Simply subtract the output amt from the input to calculate your fee.

4. How could you use the notion of transaction inputs and outputs to increase privacy in your transaction?
   Since the addresses are anonymous there is really no way to know that you are the creator of the transaction.

[wafflemakr]

@Prophet79

To start…UTXO’s reveal how much bitcoin an address has…Like money in your wallet they add up to how much bitcoin you have… When UTXO information is updated during a transaction spent bitcoins are removed and the transaction is complete.

The wallet does not actually store money, just the private keys, which can then be used to identify which UTXOs you can spend.

@Prophet79

Get change (bitcoin) sent back to an address that you own.

This is when you have an UTXO larger than the amount you wish to send, but what if I have 2 UTXOs of 1BTC each, and I wish to send 1.5 BTC to a friend?

@Prophet79

Since the addresses are anonymous there is really no way to know that you are the creator of the transaction.

Although the transaction does not have your identity on it, if you deposited funds to an exchange from that address, maybe then you will be identified. So, how can you arrange the inputs and outputs of a transaction to increase privacy?

[marcetech]

1. UTXO are the balance left in your wallet that it keeps track of
2. The transaction would be declined if your UTXO is not large enough to cover it.
3. The fee is calculated from the remainder of all inputs minus the outputs of a transaction.
4. Use a different address for each receiving transaction.

[Alko89]

@marcetech

• UTXO are the balance left in your wallet that it keeps track of
• The transaction would be declined if your UTXO is not large enough to cover it.

The way you explain it makes me think there is only one UTXO. Your balance is the sum of all UTXOs you have access to and haven’t used yet.
Also the transactions will be declined it your sum of these UTXOs is not large enough (not just one)

[LongTermSmoothie]

1. Describe what Unspent Transaction Outputs (UTXO) are.
   From a private key owner perspective, UTXOs are the transactions that are unspent. All UTXOs are recorded on the blockchain. A wallet application can show only that UTXOs to the user that belongs to his private keys.
2. What would happen if you don’t have any single UTXO that is large enough to cover for your transaction?
   If you create such a transaction, the inputs would be less than the output. That transaction would be rejected by the network. If you have many UTXOs that sums up to be equal or greater to the transaction amount (plus the fee for the miners) a valid TX can be created. You collect those UTXOs as inputs. As outputs you have at minimum the transaction output. The rest amount you can redirect to yourself.
3. How would a bitcoin wallet specify the transaction fee when creating a transaction?
   There is no specific variable name for the fee in a TX. Since Inputs = Outputs+fee, the Outputs sum is always constructed as such that Outputs = Inputs - fee. The fee is indirectly specified and can be reverse calculated by fee = Inputs - Outputs.
4. How could you use the notion of transaction inputs and outputs to increase privacy in your transaction?
   By randomly choosing the inputs and the amounts. By splitting up the transaction in many smaller TX outputs.

[OhD.Crypto]

1. UTXOs are basically the connection between sender and recepient. UTXO has to have at least 1 input and at least 1 output. UTXO is a connector between received amount of btc and sent amount.
   It is also an one or two or more transactions which are supposed to be recent to another recepient.

2. UTXO will be combined with the help of your wallet. So that you would know combined amount of tokens that you own.

3. The difference between UTXOs input and out put is a transaction fee. Transaction fees are going to the miners. Also you can setup a transacton fee in some wallets

4. After your wallet combined a couple of inputs you just need to sent yourself the same amount you have but different wires.

[SiBTC]

So a single UTXO is translated as the entire balance in the wallet? I am slightly confused as in thcourse it is explained that you can have multiple UTXOs in your balance (say 0.3 and 0.2 btc) and use both to make a transaction and the fees, with any ‘change’ sent back to the wallet… so my understanding from this is that you can use multiple UTXOs to cover the transaction? Where have i messed up? haha thanks

[Alko89]

I’m sorry I think we misunderstood each other Yes you do have multiple UTXOs and the sum of them represents your balance in the wallet.

[SiBTC]

Yes I think it was the question, it was not very clear, thanks for your assistance

[Alko89]

No problem keep up the good work!

[SiBTC]

1: Unspent Transaction Outputs (UTXO) are essentially the balance that is available to be spent in a transaction.

2: If a single UTXO won’t to cover the transaction, multiple UTXOs can be used that will cover the transaction, these can be used together and the ‘change’ sent back to the wallet (less transaction fees.)

3: The transaction fee is calculated by the Input minus the Output to give you the fee amount.

4: Creating multiple transaction inputs and outputs will increase privacy in a transaction.