What Is UTXO (Unspent Transaction Output)?

In the UTXO model, there is no single number kept as an account balance. Each transaction consumes one or more UTXOs left over from previous transactions as inputs and creates new outputs. A UTXO cannot be partially spent; it must be used as a whole. For example, when a user who holds a 0.5 BTC output sends 0.2 BTC, the transaction produces two outputs: 0.2 BTC going to the recipient and the remaining amount returning to the user as change. The difference between the inputs and outputs is left to miners as the transaction fee.

This model is used in networks such as Bitcoin, Litecoin and Bitcoin Cash. Cardano adopts an extended UTXO (eUTXO) model that adds smart contract support. Ethereum, by contrast, uses the account model, in which balances are held directly in accounts. Because UTXOs are independent of one another, parallel verification of transactions is easier, and double spending is prevented because it is easy to check that each output can be spent only once.

For privacy, using a new address for each transaction is encouraged; however, combining multiple UTXOs in the same transaction can reveal that those addresses belong to the same person. Wallets that accumulate many small UTXOs may also pay higher transaction fees when spending.