Homework on Bitcoin Transactions and UTXO - Questions

Blockchain and Bitcoin 101
#1812

Thanks for your correction.
I was intended that fees are not specified in the transaction but just derived. I misunderstood the question. :slight_smile:

#1813
  1. UTXO keep track of the left over balance in your account after you spend your cryptocurrency.
  2. The transaction will not go through if you don’t have enough the to cover fees (utxo) and the transition.
  3. The blockchain communicates the appropriate fee.
  4. Inputs and output create new addresses and the blockchain keeps track of it all. And learns from past transactions, making it new and different addresses with every new transaction making it extremely secure.
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#1814

  1. Describe what Unspent Transaction Outputs (UTXO) are.
    R: An unspent transaction is an input of a new transaction or output of the previous transaction.

  2. What would happen if you don’t have any single UTXO that is large enough to cover for your transaction?
    R: The transaction will be invalid if there is no enough UTXO. If there is enough than will sum up them.

  3. How would a bitcoin wallet specify the transaction fee when creating a transaction?
    R: The bitcoin wallet recommends a transaction fee based on the previous transaction but in some wallets give the owner the possibility to choose. (higher fee faster transaction lower fee slower transaction) The fee can be calculated if we subtract the output from the input.

  4. How could you use the notion of transaction inputs and outputs to increase privacy in your transaction?
    R: By using multiple addresses.

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#1815

Describe what Unspent Transaction Outputs (UTXO) are
UTXO is input on hold to be transacted

What would happen if you don’t have any single UTXO that is large enough to cover for your transaction?
The wallet will ask the Blockchain which UTXOs it can spend it will send back list of outputs and the wallet will figure out the balance on all outputs

How would a bitcoin wallet specify the transaction fee when creating a transaction?
Transaction fee is specified as the difference on total input and total output in BTC

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

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#1816 
* Homework on Bitcoin Transactions and UTXO – Questions

1. Describe what Unspent Transaction Outputs (UTXO) are.?

     It’s unspent transaction available to spend,
     used by wallet to get your current balance. 

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

    Then the wallet will use two or more of your UTXO:s, 
    and sum up until it can cover your current transaction,
    the rest that was not spend in that transaction will be
    send back to your wallet. If your total UTXO + fee is less than the requested transaction the 
    transaction request will be rejected.  

3. How would a bitcoin wallet specify the transaction fee when creating a transaction?
   
   The wallet normally check the last transaction fee done on blockchain, 
   and then calculate   the same percentage rate from the current transaction sum (in sum – out sum)

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

  By creating multiple wallets on different exchanges, for each transaction
  generate a new RX or TX address done in wallet. And to backup and
  protect password/private keys from unauthorized/hackers/ if they are lost your privacy will be lost.
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#1817

1 UTXO is the unspent transaction that you can spend
2 the wallet will merge various utxo to meet the required balance
3 the fee is calculated by the difference between the input balances and the output balances.
4 never use the same address

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#1818
  1. Ttansactions sent (output) to recipients that they have not spent yet.
  2. Then you can’t perform a transaction until you have enough in your wallet to cover both the transaction and the fees.
  3. The formula is… INPUT - OUTPUT = FEES
  4. Use new, empty wallets. (use new private keys)
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#1819

There are no actual “coins” in bitcoin, etc., but instead, it is a ledger tracking/recording “chains of ownership” or chain of digital signatures. Each “transfer of ownership” (sending/receiving) is recorded on the ledger (blockchain) as UTXOs, as Unspent Transaction Outputs transfer ownership of said amounts of bitcoin/satoshis from sender’s wallet (private keys create transaction or “transfer of ownership”) to receiver’s wallet (public key). Only unspent outputs (UTXOs) are used in further/future transactions; inputs (spent transactions) are deleted from blockchain as transaction occurs while also creating outputs in the form of UTXOs. This process is necessary to prevent double spending or fraud.

Your wallet (private keys) query the blockchain for all UTXOs (bitcoin/satoshis ownership) can this wallet (private keys) spend, then the wallet calculates the total sum of unspent UTXOs the wallet can spend. To spend, the transaction will gather enough individual UTXOs for a sum large enough to cover the transfer amount specified, so if your wallet cannot gather enough UTXOs to cover the cost of the “purchase” or transfer, then no input transaction can be validated (invalid transaction). (*further detail on inputs/outputs used as “whole amounts” and receiving “change” in transactions are discussed; inputs = outputs + fees, all inputs in a transaction must be spent).

Your wallet calculates the implied fee for you, based on previous fees, etc.; it suggests a fee which is most likely to get your transaction validated in a reasonable time frame.

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#1820

  1. Unspent Transaction Outputs are the outputs of old transactions which can be used as inputs for new transactions. The total of all UTXOs that are tied to your address is what makes up your wallet balance.

  2. The wallet will total up all of your multiple UTXOs giving you your balance, these can be used to cover the transaction. If there is still not enough the transaction would be invalid and declined.

  3. Most bitcoin wallets calculate and give you the optimal transaction fee amount, however some wallets allow the user to manually change/set the transaction fee. The fee will be equal to The Inputs - The Outputs.

  4. A user could use multiple inputs and outputs in their transactions and send money to themselves in order to increase their privacy.

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#1821

Describe what Unspent Transaction Outputs (UTXO) are.
A. UTXO’s are inputs to you that allow you to create a transaction

What would happen if you don’t have any single UTXO that is large enough to cover for your transaction?
A. If you have additional UTXO’s they will be summed and if they cover transaction it will be
accepted, if not rejected.

How would a bitcoin wallet specify the transaction fee when creating a transaction?
A. Your wallet could look at previous transactions and recommend a fee that is reasonable.

How could you use the notion of transaction inputs and outputs to increase privacy in your transaction?
A. Have multiple addresses attached to your wallet.

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#1822
  1. Describe what Unspent Transaction Outputs (UTXO) are.
Answer

UTXO’s are basically spendable “coins”/“tokens” that belong to a private key holder. UTXO’s belonging to you come from either spent transactions from other addresses or from newly mined “coins” from coinbase transactions. Your wallet balance consist of all your UTXO’s combined.

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

Your UTXO’s would combine in the input of a transaction until they were equal to or greater than the transaction cost (plus fees), any excess would be sent to another address you control, making the output equal the input. Otherwise, the transaction will be rejected.

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

Some wallets will try to calculate the appropriate fee rate to have the miners confirm a transaction in a reasonable amount of time based on the most recent state of the blockchain. Other wallets will let users select their own fee rate manually when creating a transaction.

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

By making sure that you only use one address for one input and one output (Basically, never reusing addresses).

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#1823

  1. UTXOs are unspent transaction outputs of the previous transaction and when added together give your the total balance of your wallet (wallet automatically calculates it). They are the transactions that have been received and are available to be spent.

  2. It will add up all other available UTXOs. If it’s enough to pay the transaction then the transaction can be executed. Otherwise it’ll be rejected by the network and miners.

  3. Transaction fee is the difference between the transaction inputs and outputs (inputs minus outputs). The fewer inputs the better as regards to cheaper fees.

  4. Generate a new address for each transaction received. Increasing the amount of outputs will make it more difficult to trace transactions and is therefore more private.

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#1824

Good point, the more return addresses you specify, the greater your privacy.
Perhaps an issue though that the larger the number of addresses in your transaction, the more space required in a block - it may take longer for your transaction to be added to a block, unless you use a higher fee?

#1825

Describe what Unspent Transaction Outputs (UTXO) are.

The output part of a transaction, pointing to an address.

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

Wallet cannot create the transaction.

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

Fee = Inputs - Outputs

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

Send output to new address.

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#1826

Just the ones you haven’t spend yet :slight_smile:

Its the remainder of the funds being sent and the funds being received (input - output = fee), not percentage :slight_smile:

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#1827

UTXOs are the outputs you received but didn’t spend yet, the sum of them is your balance :slight_smile:

Depends on what you mean by secure. In the context of privacy this is true. But you can use the same address all the time and it wouldn’t make your funds any less prone to being stolen :slight_smile:

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#1828

Most exchanges are not private at all since on most exchanges today you had to do KYC to even be able to use them.
The only way to have your privacy is to use your own wallets and manage your own keys. Most wallets today are HD (Hierarchical Deterministic) wallets that create a new address for you using the master key that makes your backups easier (you only need to store the master key and all other keys will be derived from it).

If you loose that key, you will loose your funds, not necessarily your privacy :slight_smile:

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#1829

You can just use new keys :slight_smile: most wallets can manage this on their own

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#1830

Nothing gets deleted from the blockchain, they are just considered spent :slight_smile:

You forgot to answer the last question :wink:

2 Likes
#1831

If one would only use different UTXOs on the same address that wouldn’t really increase privacy. You must use different addresses to achieve that :slight_smile:

3 Likes