What is UTXO (Unspent Transaction Output)?

Bitcoin's accounting method differs from bank accounts (Account); it doesn't look at the account's "total balance" figure.

Instead, every amount of money you receive (no matter how much) is treated as an independent bill stored away.

These bills that haven't been spent yet are called UTXO (Unspent Transaction Output).

When you want to spend money, you actually take certain UTXOs as inputs, and the change becomes a new UTXO.

This mechanism is very important for on-chain analysis, because each UTXO records the time and amount of its "birth."

Analysts can track when these UTXOs are spent and whether the spenders are short-term speculators or long-term holders to gauge market sentiment and coin distribution.

Many well-known indicators, such as SOPR and HODL Waves, are calculated based on UTXO data.

Therefore, changes in the quantity and structure of UTXOs themselves act as a thermometer for on-chain sentiment.

Example Explanation:

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This chart is called UTXO Count by Script Type.

In simple terms, it counts which address technologies are used for the "unspent money" on the Bitcoin blockchain.

The earliest is P2PKH (legacy addresses starting with 1), shown as the large orange area.

Later, P2SH (starting with 3) supporting multisig appeared, shown in light yellow.

After the 2017 SegWit upgrade, the fee-saving native address P2WPKH (starting with bc1q) appeared, shown as the blue area.

The really interesting part is the purple surge starting in 2023 — P2TR, or Taproot addresses (starting with bc1p).

This surge aligns perfectly with the Ordinals inscription boom.

Because inscriptions heavily use Taproot scripts to embed data, pushing the total on-chain UTXO count to a historical high of nearly 190 million.

However, from mid-2024 onward, the total UTXO count began to slowly decline.

This usually indicates cooling inscription activity, along with large holders or miners starting to perform "UTXO consolidation."

In plain terms, it means merging many small change UTXOs into larger ones, preparing in advance for future fee environments.

So, on-chain analysis isn't just about transfer amounts; even changes in address technologies can reflect market sentiment and behavior.

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