What are UTXOs?
UTXO stands for Unspent Transactions Output. In simple words it is cryptocurrency you haven’t spent.
Your cryptocurrency balance differs from your bank account balance in the way it is registered.
When 3 of your friends send some money to your bankaccount, you will see the total amount on your statement of account. The bank system merges the 3 deposits with your current balance into a new balance.
When 3 of your friends send you some cryptocurrency, you will see a total amount in your wallet app, but from the blockchain’s point of view you have access to three portions of cryptocurrency. You have 3 UTXOs.
With every transaction you perform, the system has to browse your UTXOs to find a total value of UTXOs that is equal to or higher than the amount of cryptocurrency involved with your transaction. In case the total amount of UTXOs presented to the system was higher than needed for the transaction, a new UTXO is created for the remaining crypto amount.
The more UTXOs your account has, the more time it will cost
In Simple Words
You can look at UTXOs as being checks you have received and need to spend in full.
For Example, you receive 3 checks, one after the other:
– check 1 – 0.0500000 BTC
– check 2 – 0.3000000 BTC
– check 3 – 0.2000000 BTC
You want to send someone 0.2400000 BTC. Different scenarios can happen.
|Method||Used Checks||Amount||Refund Check||Total Number of Checks after Tx|
|First In, First Out||1 and 2||0.350000 BTC||0.110000 BTC||2|
|Last In, First Out||3 and 2||0.500000 BTC||0.260000 BTC||2|
|High to Low||2||0.300000 BTC||0.060000 BTC||3|
|Low to High||1 and 3||0.250000 BTC||0.010000 BTC||2|
|First Fit||2||0.300000 BTC||0.060000 BTC||3|
|Best Fit||2||0.300000 BTC||0.060000 BTC||3|
With 3 checks this is all manageable, but imagine having a wallet filled with 100’s of those checks, all for different amounts, many probably for smaller amounts. It is obvious it will take time to go through them to put a set together that is equal or higher than the amount involved in your transaction.
Why is it a problem?
For the Incognito system it is a time problem. If it takes too long to find sufficient funds, the transaction will be unsuccessful. Users experience this behavior when some, often smaller amounts, go through just fine, but larger amounts error or time out.
How to solve it?
There is a feature in the Incognito wallet app, to consolidate your UTXOs. The process takes, max 30 at a time, UTXOs and transforms them to one UTXO. It is like you swap a bundle of checks, for one check with the same value.
This feature is found at the bottom of the Settings tab