UTXO (unspent transaction output)

A UTXO is an unspent transaction output: a chunk of bitcoin that has been received and not yet spent. Bitcoin does not track account balances. Your wallet balance is the sum of all the UTXOs your keys can unlock.

When you pay someone, your wallet selects one or more UTXOs as inputs, sends the payment amount to the recipient as a new output, and returns the remainder to you as a "change" output, minus the network fee. It works much like paying with notes: you hand over a ₹500 note for a ₹320 purchase and get change back.

UTXOs matter for fees and privacy. A transaction with many small inputs uses more data and costs more, and combining UTXOs in one transaction can reveal to observers that they belong to the same owner. Ethereum, by contrast, uses an account-based model.