Homework on Bitcoin Transactions and UTXO - Questions

Blockchain and Bitcoin 101
#1932
  1. UTXO is information stored on blockchain that is linked to the specific public address which reflects balance of incoming funds minus spent funds minus transaction fees, showing how much that address can spend
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#1933

2.Transaction would be rejected and not confirmed and not broadcasted to the blockchain

  1. It would provide UTXO minus the output amount which will result in tx fee
    Wallet sets a fee by looking at previous tx fees on the ledger
    Some wallets allow user to specify the tx fee

  2. To use a set of several different addresses to send UTXO to yourself when creating certain transaction

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#1934

  1. In Bitcoin and UTXO is an address which constains X amount of satoshis and can be send to another address.

  2. If an UTXO is not large enough, the wallet will try to add another UTXO balance from another address generated by the same private key (wallet). E.g: You have to pay 17€, and you have 3 billnotes (utxos) of 10€, 10€ and 5€. You will use 2 bills (utxos) of 10€ value and wait for the change back.

  3. The bitcoin wallet determines the fee depending on the number of data (bytes) in the transaction, not the amount.

  4. If you don’t want to get your bitcoins traced back to you, then the option is mixed your transaction with multiple other transactions from different users. In that case, no one would be able to know with input goes to which output. The more people / address join the transaction, the more difficult is to track the output.

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#1935

Hi Alko90,

If you sent it to a private hardware wallet - such as Trezor - would that not help with privacy? If one was horribly paranoid you could, I suppose, send (assuming KYC at the originating point as you mentioned) it to hardware wallet A and then onto hardware wallet B. Both hardware wallets being private naturally. Or is there some other method that I am missing?

#1936

Yes, HD wallets generate a new address for you every time :slight_smile:

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#1937

Why not just a new address? :slight_smile:

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#1938

Actually these are just unspent funds, just need to sum them up to get the balance :slight_smile:

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#1939

Indeed :smiley: this is called a coinjoin if you want to achieve better anonimity this is a good way. But an easier method every user can do (or actually does since wallets do it for them) is to just use a different address each time, admittingly its not as good :slight_smile:

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#1940

Well since you fill the KYC form at the exchange and then withdraw your funds to a specific address, the exchange can assume this is your address :slight_smile:

There are a few methods how to achieve better privacy on Bitcoin, one was just explained by @Nomarsky a few posts back. But an easier way for the user to mitigate the issue with privacy (after withdrawing funds from an exchange) is when you eventually send your funds to someone else use a new address to send the change back to yourself :slight_smile:

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#1941

  1. Keeps track of fees

  2. The transaction would not be valid

  3. Inputs = Output + transaction fee

  4. Bitcoin can send transaction to any number of people at the same time. The wallet will construct the transaction and the wallet is an unspent transaction output. The wallet is a private key. Only the sender would know the output address so it is hard to tell who it is going to.

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#1942

lol thas what I meant, another wallet address I control. Thx for clarifyin that
:handshake: :pray: :handshake:

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#1943
  1. UTXO is the input in a transaction, you could think of it as crypto sent to address
  2. The transacktion should still go through as long as the sum of all UTXO is more than the transaction cost (Amount Sent + Fee)
  3. The Fee = Input - Output
  4. Sending multiple outputs from multiple inputs in a single transaction
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#1944

1). UTXO’s are the available funds that can be spent… basically like the pennies in your piggy bank (wallet).
2). If you do not have enough UTXO’s for the transaction + fee than the transaction will not go through because the miners will not confirm that you have enough in the wallet and it will never be added to the blockchain.
3). It would set all the outputs (including what is sent back to you) the amount below your total UTXO that the wallet has set for fees.
4). Because it is not possible to know where the transactions are going and which are going back to you it makes it more private where the funds are. I would think that Monero uses this function but takes it to the n^th degree by also doing some type of shuffling with multiple accounts that are unrelated to the transaction.

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#1945 
1. Describe what Unspent Transaction Outputs (UTXO) are.

`They are unspent funds in your wallet that can be used to make transactions.`

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



`Your transaction can be made up from a number of UTXO’s, not just one.  It finds and calculates the transaction amount based on numerous UTXO’s if a single one isn’t enough to complete the transaction itself.`


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

`Your wallet gives you the option of making your own fee, but it usually decides which fee amount is best for your transaction.  It takes a look at your past transactions and finds a fee amount that will get you into the blockchain faster.`

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

You cannot tell from the outside if the output transactions went to numerous addresses or back to the original address, or what partial amount went to a different address and the reminder went back to your private wallet. This creates anonymity.

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#1946
  1. UTXOs are unspent transaction output from previous transaction and they get clubbed with other UTXOs to form a transaction input
  2. look for other UTXOs to satisfy the input criteria
  3. Transaction fee is never specified but it is equal to Input - Output
  4. You can generate and use different addresses for every transaction that you sign
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#1947
  1. Describe what Unspent Transaction Outputs (UTXO) are.

Answer:
UTXOs are transactions that you have received to your wallet but still haven’t spent yet.

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

Answer:
We would need to create a transaction in the following way, let’s say that I have UTXOs with the following amount
0.5 BTC and 0.4 BTC
To be able to buy something for 0,7 BTC, I would need to send a total of 0.9 BTC.
To solve this, I would only need to send 0,7 BTC to the seller and 0,2 BTC to myself.
This is of course a simplistic way of explaining it because we are not counting in with the fees.

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

Answer:
It is basically the difference between the inputs and the outputs = fee

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

Answer:
By generating more output addresses

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#1948
  1. Bitcoin wallet construct sign broadcast wallet communicates with blockchain what bit coin I have to spend, I receive inputs which are the senders outputs, balance of a given digital currency that has been sent from one wallet address to another but has not yet been transferred from the receiver to somebody else.

2.If a single UTXO isn’t large enough to satisfy the demand of the input amount, then the wallet use second, third, until the total is greater than or equal to the amount you sending.
3. Bitcoin Wallet will examine the blockchain’s activity level and automatically provide you with a recommended fee that is perfectly serviceable majority of the time. if you are making an urgent transaction that you want to be certain is included in the next block, you can change the recommended fee within your client wallet client to higher than average fee.
4.The transaction has one input and multiple outputs all going to seperate addresses of users making a withdrawal. An output is part of the serialized transaction which is comprised of: a) an amount of that is being spent, b) a locking script (otherwise known as a pubKeyScript). The locking script is written using the bitcoin scripting language and it defines the conditions that need to be met when spending the output. A transaction can contain lots of these locking scripts, each outlining a unique set of conditions for different addresses.

Multiple inputs can be included inside transactions, just as multiple outputs can be. When spending an input you have to sign that specific input using your private key to prove you own it.

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#1949
  1. Your wallet balance from inputs sent to you.
  2. You can use many inputs to cover one UTXO output.
  3. Input minus output= fee
  4. Use many inputs and outputs.
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#1950

UTXO is unspent transactions output. This is crypto that you have that is available to spend.
Your wallet will add up all you UTXO TO GET A total. If the total us not enough then your transaction will be declined .
The transaction fee is not specified it is determined as input minus output.
The address cannot be identified which gives inherent privacy

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#1951

  1. Unspent Transaction Outputs are the result of previous transactions that you have received but not yet spent.

  2. Multiple UTXO’s would be combined to create a large enough sum to cover the transaction. If there are not enough UTXO’s to cover the transaction, it will be rejected.

  3. The transaction fee will be the balance of your UTXO’s minus your output.

  4. By using multiple input’s and outputs you can obscure the parties involved somewhat.

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