Understanding The Concept And Operation Of UTXO In The Bitcoin Ecosystem

According to BlockBeats, the recent surge in Bitcoin network activity has led to a common issue among new wallet users: despite having sufficient balance, they often encounter a 'UTXO insufficient' message during on-chain operations. This article aims to explain the concept of UTXO, why 'UTXO insufficient' situations occur, and how to split UTXO. UTXO, or Unspent Transaction Output, is a core concept in Bitcoin. It is a method of recording transaction output status, tracking each unspent transaction output to determine which Bitcoin belongs to which address. To simplify, each UTXO is like a banknote with a specific value (amount of Bitcoin) and a lock that can only be opened by a private key. When you want to send Bitcoin, you need to select some 'banknotes', merge them into a new 'banknote', and re-lock it with the recipient's lock. For instance, if you have two UTXOs, one worth 10 Bitcoin and another worth 20 Bitcoin, you can merge them into a new UTXO worth 30 Bitcoin and re-lock it with the recipient's address. This completes a transaction, sending 10 and 20 Bitcoin to the recipient and generating a new UTXO. The need to split UTXO arises because platforms like Magic Eden prohibit the use of UTXOs that have not been confirmed by the Bitcoin network for transactions. Regardless of the amount contained in a UTXO, once it has been used and is unconfirmed, it cannot be used for other operations. This is why users often encounter 'UTXO insufficient' messages despite having sufficient wallet balance. However, having more UTXOs is not necessarily better. When UTXOs are too fragmented and the individual amounts are too small, a large payment would require the merging of many UTXOs, leading to increased transaction fees. With the current high transaction rates on the Bitcoin network, this would further increase transaction costs. The most commonly used tool for splitting and merging UTXOs is Wizz.Cash. Users can link their wallets in the top right corner of the website, add rows by clicking 'Add Amount And Recipient' (each added row means a new UTXO), and fill in the amount for each UTXO and the recipient's address. UTXOs typically increase with wallet transactions, but funds just withdrawn from exchanges are often a single large UTXO. Users with a large demand for engraving runes/inscriptions can prepare by splitting in advance.