Bitcoin: Are UTXOS added to the UTXO set immediately after a transaction is created or after the transaction is mined?

05 Feb Bitcoin: Are UTXOS added to the UTXO set immediately after a transaction is created or after the transaction is mined?

Understanding Bitcoin UTXOs and the Transaction Creation Process

When it comes to the underlying mechanics of a blockchain like Bitcoin, two fundamental concepts are crucial to the creation and management of transactions:
UTXOS (Unspent Transaction Outputs) and
UTXO Sets. In this article, we will delve into the details of UTXOS and how they relate to transaction creation.

UTXOS: Transaction Outputs

In Bitcoin, each transaction is broken down into outputs, which are combinations of funds sent to a specific address. These outputs are known as
UTXOs (Unspent Transaction Outputs)

. Each UTXO has two components:

• Input: The amount of cryptocurrency that was spent during the transaction.

• Output: A unique UTXO identifier used to track the balance and history of the output.

The total supply of UTXOs on the Bitcoin network can be thought of as a “waiting list” of all possible outcomes that any future transactions could produce.

UTXO Sets: The Centralized Store

Let’s now discuss how UTXOs are added to the
UTXO Set, which is essentially a central store of all valid UTXOs on the Bitcoin network. In theory, a UTXO can be “added” to the set immediately after it is created or mined.

However, in practice, this is not exactly how it happens. Here’s why:

Immediate Addition

In reality, adding a new UTXO to the UTXO set requires additional steps beyond just creating or mining the transaction. Specifically:

• The
  transaction must be verified by multiple nodes in the network to ensure that it is valid and has not been altered since its initial broadcast.

• After verification, the
  UTXO Set must update its records to reflect the new UTXO.

This process is called
hardening, and it ensures that only authorized transactions can add new UTXOs to the chain.

Unconfirmed Transaction Chain

Now you might be wondering where the input data comes from. Since there is no hard limit on the size of transactions, there is no inherent mechanism for generating an infinite number of transactions. Bitcoin’s drawback is due to its limited supply of 21 million coins, which must be mined by special computers called
miners.

When miners attempt to add new UTXOs to the chain, they must sign their transactions using their private keys. This process is irreversible and ensures that each transaction has a unique identity, even without knowing its destination. Once a miner signs the transactions of all parties involved in a particular block, it broadcasts the block to the network.

To track pending transactions, miners use a complex algorithm called a
Merkle tree, which creates a visual representation of all valid UTXOs on the chain.

Pending Transaction Chain: Key Feature

The pending transaction chain is what makes the Bitcoin blockchain so unique and secure. This feature has several advantages:

• Immutable History: The Merkle tree allows us to create an immutable record of all transactions that have occurred on the network.

• Scalability

  

  : By creating multiple blocks at once, miners can process a large number of transactions per second, making Bitcoin scalable for large user bases.

Finally, adding a UTXO to a UTXO pool requires additional steps beyond simple creation or mining. Instead, it relies on a series of verified transactions and a decentralized ledger system like the Merkle tree.

When developing a blockchain from scratch, keep in mind that understanding these underlying mechanics is essential to creating a secure, scalable, and feature-rich platform.