Crypto glossary
UTXO (unspent transaction output)
A UTXO, or unspent transaction output, is an amount of bitcoin received in a past transaction that has not been spent yet and can be used as an input.
Bitcoin does not keep account balances. Each transaction consumes earlier outputs as inputs and creates new outputs locked to the recipients. The outputs not yet spent form the UTXO set, and a wallet's balance is simply the sum of the UTXOs its keys can unlock. An output must be spent in full, so any excess returns to the sender as a change output.
Bitcoin, Litecoin and Cardano, which uses an extended version, follow this model, while Ethereum uses accounts. Every full node keeps the UTXO set to validate new transactions quickly, and on-chain analysts use the age of UTXOs to study how long holders keep their coins.
Fees depend on transaction size, and spending many small UTXOs creates a large transaction, so wallets full of tiny outputs, or dust, can become expensive to move when fees rise. Combining UTXOs from different sources in one transaction can also reveal to observers that they belong to the same owner.
Example
If Alice holds a single 0.5 BTC UTXO and pays 0.2 BTC, the transaction spends the whole 0.5 BTC and creates two outputs: 0.2 BTC to the payee and about 0.3 BTC back to her, minus the fee.
