One of the foundational concepts of Bitcoin is the Unspent Transaction Output, or UTXO. Every Bitcoin transaction results in the creation of these UTXOs, which represent a piece of Bitcoin that can be spent in future transactions. When you send or receive Bitcoin, you’re essentially working with UTXOs: combining them, splitting them, and creating new ones.
The entire history of Bitcoin transactions is available on the blockchain, and UTXOs provide a clear snapshot of which pieces of Bitcoin are yet to be spent, offering a transparent view of Bitcoin’s liquidity. Analyzing the number and size of UTXOs can offer insights into network activity, congestion, and users’ transactional habits.
UTXO consolidation refers to the process of combining multiple smaller UTXOs into a single, larger UTXO. It’s akin to exchanging several smaller denominations of money for a larger note. Consolidation can benefit users as it can lead to simpler and often cheaper future transactions. However, it c
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