What is Unspent Transaction Output (UTXO)?
Crypto Glossary Definition
UTXOs are a fundamental concept behind the way cryptocurrency is transferred on many blockchains, including Bitcoin. The total UTXOs tied to a given wallet address represents the amount of funds available in that wallet. Every transaction consumes elements from this set and creates new ones. When funds are sent to a wallet address, the remaining balance in that wallet is sent back to itself as an UTXO.
Why Unspent Transaction Output (UTXO) Matters
Bitcoin doesn't track "account balances" the way a bank does — instead, your balance is the sum of all UTXOs (unspent outputs from previous transactions) associated with your addresses, a fundamentally different accounting model from Ethereum's account-based system.
Unspent Transaction Output (UTXO) in Practice
A Bitcoin holder receives 0.5 BTC from a sale and later wants to send just 0.2 BTC to a friend, and is initially confused when his wallet software shows the transaction spending the entire 0.5 BTC input rather than a neatly divided 0.2 BTC. That's because Bitcoin doesn't track a running account balance the way a bank does, his wallet's real balance is just the sum of unspent transaction outputs, or UTXOs, tied to his addresses, and the 0.5 BTC he received exists as a single indivisible UTXO he can't partially spend. To send 0.2 BTC, his wallet consumes that entire 0.5 BTC UTXO as an input to a new transaction, sends 0.2 BTC to his friend's address as one output, and automatically sends the remaining amount, minus the transaction fee, back to a new address he controls as a second output, commonly called change. Over time, as he receives many small payments, his wallet accumulates a growing collection of UTXOs of different sizes, and sending a larger future payment might require his wallet to combine several small UTXOs together as inputs rather than using just one. Understanding this UTXO model eventually helps him make sense of why Bitcoin transaction fees can vary based on how many inputs and outputs a transaction requires, not just the amount being sent.
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