What Is UTXO?
UTXO refers to the unspent transaction output in Bitcoin.
What is UTXO?
UTXO stands for Unspent Transaction Output. Technically, a Bitcoin balance does not consist of a single account entry, but rather of these outputs that your wallet is able to spend. Every output that came to you in a previous transaction and has not yet been used in another transaction can be the source of a new payment.
You can compare this to a wallet filled with banknotes of different values. Your total money is a single amount, but you use specific bills when making a payment. In Bitcoin, the wallet software selects which outputs to use. The limit of this analogy is that Bitcoin outputs are not physical banknotes, and outputs of different amounts can be created in new transactions.
How is change created?
Suppose you have a single UTXO worth 0.01 BTC. You want to send 0.003 BTC to someone and pay a 0.00001 BTC transaction fee. The transaction can use the entire 0.01 BTC output; it creates a 0.003 BTC output for the recipient and a new 0.00699 BTC output for your wallet. The old output is now spent. The part that comes back is called change.
Therefore, in a block explorer, you might see an input larger than the amount you intended to send or an unexpected second output. This second output is often the wallet’s own change address. Do not conclude that “too much money was sent” just by looking at the total input.
Importance for fees and privacy
Using many small UTXOs in a single transaction can increase the transaction size and require higher fees. Additionally, it can lead to establishing links between the outputs used in the same transaction. If the wallet has a “coin control” feature, you can choose which outputs to spend; however, this option is not mandatory for inexperienced users. Understanding the total fee and change information on the sending screen is the first step.