UTXO
A UTXO (Unspent Transaction Output) is a discrete chunk of bitcoin that has been received but not yet spent. Bitcoin does not use account balances — your wallet balance is the sum of all UTXOs your keys can spend.
How It Works
Bitcoin does not work like a bank account with a running balance. Instead, every transaction creates new outputs — discrete chunks of bitcoin locked to specific addresses. When you receive 0.5 BTC, that creates a UTXO of exactly 0.5 BTC. When you later receive 0.3 BTC, you now have two UTXOs totaling 0.8 BTC. Your wallet displays the sum, but under the hood, these are separate, independently spendable pieces.
When you spend bitcoin, your wallet selects one or more UTXOs as inputs, creates new outputs for the recipient and any change, and the difference between inputs and outputs becomes the mining fee. If you want to send 0.6 BTC but your UTXOs are 0.5 and 0.3, the wallet uses both as inputs, sends 0.6 to the recipient, and returns 0.2 to your change address. The transaction fee comes from the gap between inputs and outputs.
UTXO management directly impacts your privacy and transaction costs. Combining UTXOs from different sources reveals they are controlled by the same entity. Having many small UTXOs (dust) means higher fees when you eventually spend them, since each input adds to the transaction size. Thoughtful UTXO management through coin control is a mark of an advanced Bitcoin user.
Key Points
- Discrete chunks of unspent bitcoin — your balance is the sum of all your UTXOs
- Each transaction consumes UTXOs as inputs and creates new ones as outputs
- Combining UTXOs from different sources links them to one owner on-chain
- Many small UTXOs increase future transaction fees proportionally
- Coin control lets you manually select which UTXOs to spend for better privacy