The UTXO set is the number of all unspent transactions on the network. Unspent transactions are, in turn, payments in which higher coin denominations were involved, resulting in the sender having to return the change.

How it works?

When paying for services or goods or making a payment transfer to another user in cryptocurrency, money is transferred from one address to another. However, a situation may arise here when coins of an inappropriate denomination are on the crypto wallet (this depends on previous transactions). As a result, the system selects the closest value of the number of coins, sends them to the recipient, and then returns the change to the sender through a new transaction. The sender ends up being charged twice for both transactions.

There can be a large number of such transactions in the system at the same time. A special system called UTXO is designed to eliminate the reuse of coins and track statistics of the total number of available crypto assets.

What problems does the UTXO set solve?

In addition to preventing double spending of the same coins, this model provides:

• simplified network scalability, resulting in transactions being processed faster due to parallel verification processes;
• confidentiality and security - when mixing coins, users have an increased level of security; it is much more difficult for interested parties to track the purpose of transactions and the path of coins;
• flexibility - when using the UTXO system, coins of different denominations can be used, as a result of which the transaction is confirmed.