Crypto 101 · Crypto basics
UTXOs Explained: How Bitcoin-Style Coins Track Your Balance
Abstract
Bitcoin-style blockchains track coins as unspent transaction outputs rather than account balances. A payment consumes whole outputs as inputs and creates new outputs, including change back to the sender. We explain the model in plain terms, contrast it with the account model used by Ethereum and Solana, and describe how it affects fees and privacy.
Keywords: UTXO, unspent transaction output, change address, inputs and outputs, account model
1. In plain English
Think of physical cash. If you owe someone 7 and only have a 10 note, you hand over the 10 and get 3 back. Bitcoin, Litecoin, Dogecoin and many related coins work the same way. Your wallet does not have a single balance number; it holds a collection of separate pieces of value, each locked to one of your addresses. Those pieces are unspent transaction outputs, or UTXOs.
When you pay someone, your wallet picks one or more UTXOs, spends them whole, sends the payment amount to the recipient and sends the remainder back to you as change, a new UTXO. Your balance is simply the sum of all your unspent pieces.
2. Inputs and outputs
A transaction lists inputs, the UTXOs being spent, and outputs, the new UTXOs being created. The total of the outputs cannot exceed the inputs, and any difference is the fee paid to the miner [1]. An input is valid only with a signature from the key that controls that UTXO [2].
Table 1. The same purchase, seen two ways.
| Model | How your balance is kept | Used by |
|---|---|---|
| UTXO | Many separate outputs; spending consumes whole outputs and creates change | Bitcoin, Litecoin, Dogecoin and their relatives |
| Account | One balance per address, updated by each transaction | Ethereum [3] and Solana |
3. Go deeper: effects on fees and privacy
Because fees depend on transaction size and every input adds size, spending many small UTXOs costs more than spending one large one [4]. Wallets sometimes consolidate many small UTXOs into one in quiet, cheap periods. Change outputs also matter for privacy: the change address is usually new, but the link between your inputs and outputs is visible on a public chain, so reusing addresses reveals more than using fresh ones.
4. In Scrypt Wallet
You never have to pick UTXOs yourself. The wallet chooses inputs, creates change and shows you the total fee before you confirm. If many small payments have arrived at one address, for example mining payouts, the wallet may spend them together, which is why the fee on that send can look larger than usual.
References
- Bitcoin Project (2020). Transactions, Bitcoin Developer Guide. Explains inputs, outputs, signatures, change and unspent transaction outputs (UTXOs). https://developer.bitcoin.org/devguide/transactions.html
- Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System. Whitepaper. https://bitcoin.org/bitcoin.pdf
- Buterin, V. (2013). Ethereum Whitepaper: A Next-Generation Smart Contract and Decentralized Application Platform. Whitepaper (maintained at ethereum.org). https://ethereum.org/en/whitepaper/
- Bitcoin Wiki contributors (2010). Transaction fees. Bitcoin Wiki: how transaction fees work and why they are paid to miners. https://en.bitcoin.it/wiki/Transaction_fees
Common questions
What is a UTXO?
An unspent transaction output: a piece of coin value locked to an address that has not been spent yet. Your balance is the sum of your UTXOs.
Why do I get change back?
An output must be spent whole. If you spend a larger output than the payment, the difference returns to you as a new output, called change.
General education, not financial, tax or legal advice. Figures are schematic. Protocol parameters are cited to primary sources and can change; verify against the linked source before relying on them.