UTXO

A UTXO (unspent transaction output) is a discrete chunk of cryptocurrency that has been received but not yet spent, and it is the basic unit of accounting in Bitcoin and similar blockchains. Instead of keeping balances in accounts, a UTXO chain tracks a global set of these unspent outputs; your "balance" is simply the sum of all UTXOs your keys can unlock, the way cash in a wallet is the sum of individual bills.

Every transaction consumes whole UTXOs as inputs and creates new ones as outputs. Because UTXOs cannot be partially spent, transactions usually include a change output back to the sender. For example, if you hold a single 1 BTC UTXO and pay someone 0.3 BTC, your transaction spends the full 1 BTC input and creates two outputs: 0.3 BTC to the recipient and roughly 0.7 BTC (minus the fee) back to a change address you control. Wallets manage this bookkeeping invisibly, which is why many users never realize their balance is a collection of pieces.

The model contrasts with the account model used by Ethereum, where the ledger stores balances that are debited and credited. UTXO's advantages are easy parallel validation (each transaction touches independent outputs) and cleaner privacy practices (fresh addresses per payment); its costs are awkwardness for smart contracts and the need for coin selection. A common misconception is that a Bitcoin address "contains" a balance; addresses are just lock scripts on individual UTXOs, and dust — UTXOs too small to be worth the fee to spend — is a practical consequence of the model.