What is a UTXO?

Bitcoin does not keep account balances. What your wallet shows as a balance is a sum of separate pieces. Each piece is an unspent transaction output, or UTXO. Each one has an amount in sats and a lock: a script that says what it takes to spend it.

Coins, not a balance

Think of UTXOs as the notes and coins in a purse, not a number in a banking app. Receive three payments and you hold three UTXOs, even if every address came from the same wallet. Each full node keeps the whole set of UTXOs. Checking that an input is still in that set is how nodes stop the same coin being spent twice.

Spending and change

A transaction spends whole UTXOs. It cannot spend part of one. Pay 20,000 sats from a 50,000 sat UTXO and the transaction uses all 50,000 as its input. It creates one output for the payee and one back to you, called change. The fee is not a separate line. It is whatever the inputs hold that the outputs do not claim.

Why it matters for fees

Fees are paid by size, in sats per virtual byte, not by amount. Every input adds size, because each one carries its own signature data. Paying with ten small UTXOs costs more than paying the same amount with one large one. A UTXO worth less than the fee to spend it is called dust.

Your wallet picks which UTXOs to spend. Some wallets let you choose yourself, which is called coin control. Combining many small UTXOs when fees are low is a common habit. It has a privacy cost: it shows that they belong to the same wallet.

What the chain shows

Every UTXO and every transaction is public. Spending several UTXOs together, or reusing an address, links them. A fresh address for each receive, and care over which coins you combine, keeps those links fewer. The chain does not show names. The links add up once one address is tied to you, for example by an exchange that knows who you are.