Change address

UTXOs must be spent in full. If you hold a 0.5 BTC output and pay 0.2 BTC, the transaction creates two outputs: 0.2 BTC to the recipient and about 0.3 BTC, minus the fee, back to you. That second output goes to a change address. HD wallets generate change addresses automatically from a separate internal branch of the derivation path, so they do not appear in the list of receiving addresses.

Using a fresh change address each time protects privacy, since outside observers cannot easily tell which output is the payment and which is the change. Chain analysis tools try anyway, using hints such as round amounts, address types and which output is spent later. Wallets that match the change output type to the recipient's make that harder.

Change can confuse users: a balance seems to disappear from an address after a payment because the remainder moved to a new one. Restoring a seed in a wallet that does not scan change addresses can show a lower balance than expected. Older wallets that sent change back to the same address, or to a non-backed-up key, have caused losses.