What is Unspent Transaction Output (UTXO)?

| December 22, 2023

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Tips for your Crypto wallet

A blockchain is a digital, decentralized, and distributed ledger system. Operating on a peer-to-peer (P2P) network, it involves participants referred to as nodes. This ledger records transaction data and takes the form of a linked sequence of blocks, with its distinguishing characteristic being the cryptographic linkage between these blocks. The primary objective of the blockchain is to facilitate transactions.

Within a single transaction, there exist various distinct structures, each bearing unique semantic significance. The following are the different structures present in the blockchain transaction:

Transaction Version Number is a numerical identifier denotes the transaction’s type within the network. It empowers a node to ascertain the specific set of rules governing the verification of said transaction.

 A transaction’s output comprises a cryptographic lock and a timestamp. Transaction input encompasses a pointer and an unlocking key. The pointer directs attention to the preceding transaction output, while the unlocking key serves the purpose of unlocking the corresponding prior output. Whenever an input successfully unlocks an output, it is duly marked within the blockchain database as “spent.”

Lock time is a parameter that specifies whether a transaction can be promptly incorporated into the blockchain or necessitates a specific waiting period before inclusion.

Unspent Transaction Outputs (UTXO) denotes all those transaction outputs that are yet to be unlocked by a corresponding input.

It is noteworthy that once an output is successfully unlocked, it is subtracted from the total circulating supply, and new outputs acquire their positions. Consequently, the cumulative value of unlocked outputs consistently aligns with the total value of newly generated outputs, ensuring an equilibrium in the transaction process.

Key Takeaways

  • Unspent Transaction Output (UTXO) refers to the remaining balance of a cryptocurrency after a particular transaction has taken place.

What is Unspent Transaction Output?

The term Unspent Transaction Output, or UTXO, signifies a blockchain transaction’s output that hasn’t yet been utilized as an input in a subsequent transaction. Bitcoin serves as the quintessential example of a cryptocurrency employing this methodology.

In every bitcoin transaction, there are two key components: the input, which denotes the source address from which the Bitcoin is sent, and the output, which indicates the destination address.

The user possesses control over the output of a transaction, enabling them to spend it in a future transaction. This stands in stark contrast to traditional bank accounts, which track debits and credit and furnish a monthly statement featuring an ongoing balance.

Under the blockchain UTXO model, the total wealth or balance within a wallet corresponds to the aggregate of all unspent transaction outputs. It’s similar to receiving change after making one or more purchases, which can subsequently be used for further transactions.


Examples no. 1:

UTXOs operate in a manner similar to cash transactions, where the full amount must be spent, and any surplus is received as change. For instance, if you wish to buy a $20 book but only have a $50 bill, you must use the entire $50 bill and receive $30 as change. Similarly, in the cryptocurrency domain, you cannot dispatch a specific sum from a UTXO blockchain.

Consider the scenario where Bob intends to send 2 BTC to someone, such as Alice, but possesses a UTXO crypto worth 5 BTC in his wallet. In this case, he must send the entire 5 BTC UTXO to Alice and subsequently obtain the remaining 3 BTC as ‘change’ in a new, smaller UTXO crypto. This entire process is managed by the blockchain protocol and does not necessitate trust on the part of the recipient to return the change.

Within the blockchain network, the transaction results in:

2 BTC sent to Alice.

2.99 BTC returned to Bob.

0.01 BTC allocated as a miner’s fee for processing the transaction.”

Unspent Transaction Output UTXO Model

At the protocol level, the UTXO model does not incorporate wallets. It operates on the basis of individual transactions that are grouped into blocks. This blockchain UTXO model is widely adopted across numerous cryptocurrencies, with Bitcoin being a prominent example.

In UTXO-based cryptocurrencies, the concept of accounts or balances is not utilized. Instead, blockchain UTXOs are exchanged among users, resembling physical cash transactions.

While each transaction within the UTXO blockchain model can potentially shift the system to a new state, achieving this with every transaction is impractical. Network participants must ensure they remain synchronized with the current state of the system.

How is a UTXO created?

UTXOs come into existence by utilizing existing UTXOs. Each Bitcoin transaction consists of inputs and outputs, where inputs spend an existing UTXO blockchain, while outputs generate a new UTXO.


Significance of the UTXO Model

Language-Independent Smart Contracts: UTXO-based smart contracts enable the development of distinctive consensus mechanisms.

Support for Decentralized Exchanges and Atomic Swaps: The UTXO blockchain model facilitates atomic swaps, empowering peer-to-peer cryptocurrency trading without intermediary involvement. This feature enhances direct wallet-to-wallet cryptocurrency transactions.

Scalability Advantages: The capacity for concurrent transaction processing reduces computational strain on blockchain networks, enhancing scalability.

Privacy and Security: The use of new addresses for each Unspent Transaction Output’s transaction makes transaction tracking virtually impossible, improving privacy and security.

Prevention of Double Spending: UTXOs can only be used once, a fundamental safeguard in blockchain technology that ensures currencies are not spent more than once.

Enhanced Flexibility: UTXOs offer greater flexibility compared to traditional fiat currency systems.

Streamlined Parallelization: The UTXO crypto model simplifies the parallelization of transactions within smart contracts.


Example no. 2:

To gain a better understanding of how transactions operate, let’s examine another example: 

  • Let’s assume we have received bitcoins through various transactions, with each of these transactions representing a blockchain UTXO.
  • Now, we intend to purchase a car priced at 0.5 BTC.
  • To facilitate the transfer of 0.5 BTC, we must select one or more transactions as inputs.
  • This is where bitcoin transactions differ from traditional banking methods. In a bank transaction, one would simply input the desired amount of 0.5 BTC, press ‘transfer,’ and it would be sent to the seller. However, in the realm of bitcoin, it’s necessary to choose one or more UTXO cryptos as inputs.
  • In the world of cryptocurrency, there isn’t a concept of a specific amount sitting in your account.
  • To make our car purchase, we’ll select 0.7 BTC from Sarah’s blockchain UTXO as the input
  • In the UTXO crypto system, the input amount cannot remain unspent; you cannot simply leave the 0.2 BTC unused.
  • The remaining 0.2 BTC must be utilized in one of three ways:
  • Return the remaining amount to your account, as demonstrated in the previous example.
  • Employ the remaining amount as a transaction fee. It’s important to note that a transaction fee is necessary; otherwise, miners will not include your transaction in a block, and it will remain unconfirmed.
  • Send the remaining amount to another recipient.
  • In the current scenario, where 0.5 BTC has been sent to the seller without the inclusion of a fee, the transaction has not been confirmed. After 72 hours, 0.7 BTC will be automatically refunded.
  • To successfully transfer the funds to the seller, we will designate the 0.2 BTC as the transaction fee.
  • To specify a transaction fee, no explicit mention is required. If you don’t send the remaining amount to another party, it is automatically considered a transaction fee.
  • Now that the transaction fee has been included, a miner incorporates this transaction into a block and earns 0.2 BTC as the transaction fee.
  • Let’s revisit our initial UTXOs.
  • The UTXO from Sarah no longer exists; it served its purpose until it was utilized in another transaction, which, in this case, was the car purchase.
  • Transactions are stored within a block, and they constitute one of the four factors that affect the block’s hash. This means that if a miner alters one transaction while keeping the other four factors unchanged, the resulting hash will be entirely different.
  • The four factors that determine a block’s hash include:
  • Timestamp
  • Block Number: This represents the sequential order of the block in the chain.
  • Data: The transactions recorded in the block.
  • Nonce
  • Even a single-bit change in any of these four factors results in a complete change in the hash, demonstrating the avalanche effect.



Differences Between the UTXO and Account Balance Models

The UTXO crypto and Account Balance Models are distinct approaches for monitoring funds and transactions, with Bitcoin adopting the UTXO model and Ethereum employing the Account Balance Model.

In the UTXO blockchain model utilized by Bitcoin, transactions are segmented into discrete components, namely inputs and outputs. The user’s wallet balance maintains a record of all UTXO transactions.

In contrast, Ethereum operates on the Account/Balance model. This model mandates that the account balance must be sufficiently large or at least equal to the transaction amount being spent.

Generally, many developers regard the UTXO model as more secure and less storage-intensive compared to the Account/Balance model, which demands greater storage capacity for handling substantial data blocks.


In summary, UTXOs are designated for specific users, or more precisely, their public addresses. UTXOs cannot be partially spent; instead, new checks must be generated from the old ones and then transferred accordingly.

More on Crypto

As we continue constructing a fully regulated digital asset custody platform, ensuring secure storage for both crypto and fiat assets remains a critical priority. 

To facilitate the last checkpoint of enabling institutions to convert their digital asset treasury into fiat currency, we’re expanding beyond pure wallet infrastructure and integrating seamless fiat off-ramp capabilities for our partners.

We’re thrilled to announce our partnership with Encryptus, licensed and compliant off-ramp solutions tailored for institutional clients. This collaboration elevates Liminal’s service offerings by empowering our partners to convert their digital asset treasuries into fiat currencies efficiently.

Integrating A Seamless Off-Ramp Solution

The digital asset ecosystem historically faced friction points when transitioning between fiat and cryptocurrencies. Off-ramp solutions address this pain point by enabling efficient and streamlined conversion between asset classes, minimising value loss and simplifying compliance processes.

Here’s how off-ramp changes the game:

  • Reduced Friction: Frictionless conversion minimises delays and operational complexities associated with traditional fiat-crypto exchange methods.
  • Enhanced Efficiency: Streamlined workflows expedite asset conversion, increasing speed and cost-effectiveness for institutional and individual users.
  • Optimised Value Preservation: Advanced off-ramp solutions prioritise minimising price slippage and value loss during conversion, protecting user portfolios.
  • Simplified Compliance: Integrated compliance features navigate regulatory complexities, ensuring adherence to relevant financial regulations.

With our partnership with Encryptus, we have embedded their institutional-grade APIs, connecting their off-ramp solution within Liminal’s wallet and custody platform. 

This integration simplifies our clients’ liquidation requirements while keeping their assets secure and more:

  • Effortless Digital Asset to Fiat Conversion: Our partners will be able to access treasury management and facilitate business payments in 54 countries and individual payments in an extensive network of 80+ countries.
  • Streamlined Compliance and Regulation: Our partners will be able to leverage Encryptus’s rigorous licensing and compliance framework, ensuring adherence to stringent financial regulations.
  • Enhanced Platform Value: We will be able to expand the functionality of the Liminal custody solution, attracting institutional users seeking comprehensive digital asset management capabilities.

Moving Towards A Robust Off-Ramp Partnership With Encryptus

The partnership between Liminal and Encryptus earmarks a significant step forward in secure digital asset custody, representing a shared commitment to pushing compliant practices while supplying institutions with easy access to convert their digital assets to fiat. 

For Encryptus, the opportunity to integrate with Liminal’s established platform presents a chance to reach a wider audience and scale their innovative off-ramp solutions to new heights. By streamlining fiat conversion within Liminal’s secure custody infrastructure, Encryptus gains access to a trusted network of institutional users seeking seamless and compliant treasury management.

For Liminal, this collaboration reinforces our dedication to partnering with companies that demonstrably prioritise clear governance and robust policy frameworks. By aligning with Encryptus’s stringent compliance standards, we reaffirm our commitment to building a secure and sustainable future for digital assets, where trust and regulatory certainty go hand-in-hand.

January 22, 2024

Hello world, it’s that time of the month when we share the biggest security breaches in the world of Web3 through our Security and Regulatory Newsletter. 

Liminal believes in optimizing security and custody practices globally across the Web3 industry. Through our Newsletter, we highlight security, regulations, and compliance incidents that have happened in the past month and how one can follow better Security practices to safeguard their digital assets. 

We will also highlight regulatory changes that might have happened globally, which were significant to the overall ecosystem.

Dive in and get a detailed analysis of everything security and regulation in the domain of web3 with Liminal’s Monthly Security and Regulatory Newsletter.

Web3 Security Compromises in January

Abracadabra exploited for almost $6.5 million, Magic Internet Money stablecoin depegs

The Magic Internet Money ($MIM) stablecoin has lost its dollar peg again, dipping all the way below $0.77 in a flash crash before returning to around $0.95.

The depeg appears to be related to an exploit of the Abracadabra lending protocol, which allows people to borrow $MIM. An attacker exploited an apparent flaw in the platform’s smart contracts to drain around $6.5 million.

Goledo Finance hacked for $1.7 million

Goledo Finance, an Aave-based lending protocol, was exploited through a flash loan attack. The attacker stole assets estimated by CertiK to be around $1.7 million.

Goledo Finance contacted the attacker to offer a 10% “bounty” for the return of the remaining assets. In a message on January 29, the attacker wrote: “I hacked Goledo and want to negotiate.”

Socket service and its Bungee bridge suffer $3.3 million theft

The Socket cross-chain infrastructure protocol was hacked for around $3.3 million in an attack that exploited its Bungee bridge. The thieves were able to exploit a bug that allowed them to take assets from those who had approved a portion of the system called SocketGateway.

A little over 700 victims were affected, and the highest loss from a single wallet was around $657,000. 121 wallets lost assets priced at more than $10,000.

On January 23, the protocol announced they had recovered 1,032 ETH (~$2.23 million) of the stolen funds.

Web3 Regulatory Practices for January

The EU Imposes Stricter Due Diligence Rules for Crypto Firms

On Jan. 17, the European Council and the Parliament came to a provisional agreement on parts of the Anti-Money Laundering Regulation (AMLR) that now extends to the crypto sector.

Under the new rules, cryptocurrency firms will be required to run due diligence on their customers involving a transaction amounting to €1,000 ($1,090) or more. 

However, the agreement isn’t final yet as it has to be first officially adopted by the Council and Parliament before the rules can be applied.

So, after the EU passed its landmark MiCA regulation last year, which clarified rules about cryptocurrencies, regulators are now targeting the space with tighter controls. 

While these regulations bolster security and trust in the crypto market, potentially attracting more cautious investors and combating financial crimes, they also present challenges. 

The US State of Virginia Introduces Digital Assets Mining Rights

Recently, the Virginia State Senate introduced Bill No. 339, which outlines regulations for the transactions and mining of digital assets and their treatment under tax laws. 

The legislation exempts individuals and businesses engaged in crypto mining activities from obtaining money transmitter licenses. Additionally, it protects miners from any discrimination. 

Issuers and sellers of crypto are also exempted from securities registration requirements if certain conditions are met. Moreover, those offering mining or staking services are not to be classified as “financial investment” but must file a notice to qualify for the exemption.

The bill further incentivizes crypto’s use for everyday transactions by offering tax benefits. Under this, up to $200 per transaction can be excluded from an individual’s net capital gains or gains derived from using crypto to purchase goods or services, starting from Jan. 1, 2024.

Key Takeaways:

  • Hackers continue to exploit vulnerabilities in DeFi protocols and cross-chain bridges, highlighting the need for robust security measures.
  • Regulatory frameworks are evolving rapidly, with stricter AML rules and supportive legislation for emerging technologies like crypto mining.
  • Staying informed about these developments is crucial for navigating the digital assets market safely and responsibly.

Stay #LiminalSecure

These events highlight the constant evolution of Web3 security and regulation. You can confidently navigate this dynamic landscape by staying informed and prioritizing security best practices. 

At Liminal, we’re committed to empowering institutions to unlock the full potential of digital assets without compromising security or compliance norms with our robust custody and wallet infrastructure solutions. Join us on this journey towards a safer, more accessible future for digital assets.

January 15, 2024

Buckle up as we’re about to take a trip down memory lane. 

The year 2023 was a wild ride that showed signs of a plummeting market, groundbreaking innovation and regulatory hurdles. 

Contrastingly, in the same year, we saw no market-shattering crashes. Financial institutions extending an olive branch, key jurisdictions unlocking the doors to blockchain technology. 

Simultaneously, at Liminal, we experienced significant breakthroughs, re-engineering our positioning and becoming a pioneer in digital asset security with bank-grade custody. 

We took major strides this year, right from building comprehensive products to becoming a qualified custodian, from revamping our brand design to expanding our offices in newer locations, from partnering with hyper-local communities to onboarding a diverse set of clients,  we did it all. 

So, let us take you through everything we accomplished in 2023 and what the future holds.  

Liminal Became A Qualified Custodian

One of the prominent moves we made this year was to change our positioning as a regulated custodian from being a wallet infrastructure platform. 

We got two licenses in key jurisdictions to operate as a regulated custodian. 

The first one came from Hong Kong, where we acquired the TCSP license issued by the SFC, which oversees and regulates financial activities to ensure compliance with legal and regulatory obligations. 

Our next license came in the MENA region, where we got In-Principle Approval for the FSP license granted by the FSRA, a governing body in ADGM, to establish a progressive financial services environment. 

Both these licenses paved the way for Liminal to push its wallet infrastructure and offer bank-grade custody to institutions looking to operate in these particular regions. 

Liminal Introduced A Suite of Products & Features

Continuing our building spree, we launched new products and integrations to broaden the existing infrastructure and added more parameters of security, scalability and sustainability. 


Liminal launched staking for institutions to eliminate the risks involved in running staking nodes and the vulnerabilities in hot wallet transfer. 

Hence, we introduced an industry-first mechanism of cold wallet staking to ease staking for institutions and secure assets explicitly.  

Whitelabel Solution

Accelerating the go-to-market time for organisations looking to build a secure and customisable application, Liminal launched its whitelabel solutions

Targeted to help organisations meet security standards, manage assets with maximum control, and add their custom branding to give it a personal touch. Our whitelabel solution is a first-in-class custodian-developed solution for institutional grade custody.

Smart Consolidation

We are building not just secure custody but also automation-based features to eliminate manual errors, increase the throughput of transactions and scale institutional wallets. 

Taking this ahead, we launched the Smart Consolidation feature to automatically calculate all the active addresses and consolidate them into a single address. With this level of automation, managing multiple addresses becomes uber easy for wallet teams. 

Travel Rule 

To limit the use of cryptocurrencies for activities like money laundering and terror financing by regulatory bodies, travel rule was mandated for institutions to follow. 

Continuing the latest compliance integration policy, Liminal partnered with Notabene to introduce Travel Rule, enabling institutions to manage counter-party risk and extend the process of due diligence right from the Vaults dashboard.   

Liminal Accured List Of Security Certifications

Following our ISO certification for data privacy and risk management, we added two new security certifications to fortify our systems and build trust for our clients. 

Liminal Achieves Crypto’s Highest Security Mark: CCSS Level-3 Certified

Cryptocurrency security lacked a gold standard, creating a vulnerable ecosystem. Enter the CryptoCurrency Security Standard (CCSS), setting the bar for auditing and certifying custodian infrastructure and establishing levels of trust and confidence for investors. 

Liminal became only the second wallet infra platform and the first regulated custodian to be accredited with Level-3 certification, deeming wallets, transfer environments, workflows and engines safe and secure. 

Liminal Reciueved SOC 2 Type II Certification

To tackle threats in institutional-grade security, organisations’ SOC has been identified as the primitive compliance standard for service organisations to handle customer data.

Liminal successfully attained SOC 2 Type II certification, validating its setup of security controls & compliance processes to be industry standard. 

Liminal Level Up

Liminal unveiled its most significant platform upgrade ever, revolutionising the future design standard of a qualified custodian. This level-up activity included revamping our website and product UI, giving a completely new look and feel to not “Liminal” but “Liminal Custody”. 

The Liminal level-up activity was a strategic step and the biggest one for us this year to create an intuitive, inviting and tailored experience for our clients. 

Liminal Reached New Borders

We spread out our operations this year, reaching new borders and onboarding a new wave of institutions across gaming, DeFi, HNI wealth, treasuries, and exchanges! From Indonesia and Africa to India, UAE, and Korea, we are setting up custody operations worldwide. 

This isn’t just a roster of clients; it’s a network ready to spark connections, collaborations, and shared success to further the definition of secure assets. 

Liminal Collaborated With Law Enforcement Agencies

The best and the proudest moment of Liminal for this year was when we collaborated with CBI & Himachal Prashesh police department to aid them in seizing digital assets. 

This partnership put us on the map, as we became the first point of contact for LEAs in India, and we standardised the process of secure seizure of digital assets. Leveraging our expertise, we enabled a safe space for officers to learn the basics of custody, contributing to a safer digital landscape.

Team Liminal Grew Bigger

Building such a massive infrastructure, prioritising security and compliance over everything else, we had to grow the team to build at pace and expand at an even higher level. Not only did we grow in team numbers, but we also elongated our footprint to new destinations. 

Team Liminal went from 32 to 70 with 5 new offices in Mumbai, Ahmedabad, Hong Kong, Singapore and ADGM, setting up our custody operations steadfastly. 

What’s To Look Out For In 2024

We are excited to announce that our commitment to integrating the most secure digital asset wallets with a cutting-edge custody platform is swiftly becoming a reality. 

The upcoming year, 2024, will serve as a testament to this transformative journey. Moving beyond self-custody, we are constructing a comprehensive infrastructure encompassing both custodial and non-custodial wallets. Exciting products are set to launch starting from the first week of January, some of which are: 

  • Official Custody Platform Launch
  • Liminal’s Off-Exchange Settlement Hub
  • Secure Custody of Real-World ‘Tokenised’ Asset

The Web3 space has evolved explicitly this year, pushing the narrative of secure digital asset custody and security, introducing new regulations and compliance standards, licensing VASP providers and standardising the use of custodians as a trusted third party. 

At Liminal, we took major strides this year, from building comprehensive products to becoming a regulated custodian, from revamping our brand design to building the full infrastructure of custodial and non-custodial wallets.

January 5, 2024

Find Out How You Can Benefit From A Fully Self-Custodial Wallet Architecture