Uncle Block, Utility Token & UTXO

And… we’re back in this week’s Crypto Terminology: A to Z series! We are approaching the tail end of this glossary pack, so stick it out with us as we dive into the letter “U”.

A similar concept was explored with the letter ‘O’ under Orphaned Blocks; an uncle block is analogous to that, but native to the Ethereum network instead. Due to a lag in processing time, two miners may end up solving for the same block. And as only one of them can be validated successfully, the block with the higher share of work will be counted, leaving the other block to be “orphaned”. In the case of an uncle block, however, it is not fully abandoned and can be re-admitted into the network via Ethereum’s consensus mechanism.

A term that was often seen during the peak of the Initial Coin Offering (ICO) period, a utility token is created by project owners and sold to consumers to raise funds. In exchange, the project would promise holders of utility tokens exclusive access to new project developments and functions. While the heydays of ICOs are decidedly over, utility tokens are still widely used today. For example, one of the main functions of the Basic Attention Token (BAT) is to facilitate the process of users blocking or viewing advertisements on the BAT browser.

A utility token differs from assets such as Bitcoin or Ether as it is not mined. 

A UTXO can foundationally be understood as a coin that holds a specific value; it is imbued with a record of digital signatures that reflect the transfer of funds from an owner of the UTXO to a receiver. This model is used in many blockchain networks, including that of Bitcoin’s. To put it simply with a real-world example, imagine if you are at a store and paying for a $2 drink with a $10 note. The change the buyer receives in return would be the equivalent of a UTXO in blockchain terms.