Introduction to UTXOs
UTXOs (Unspent Transaction Outputs) are the core building blocks of Bitcoin, Litecoin, and other UTXO-based blockchains. Each transaction consumes existing UTXOs as inputs and generates new UTXOs as outputs, which represent the wallet's spendable balance.
For example, if James receives 0.8 BTC from a friend, his wallet now holds a UTXO worth 0.8 BTC. When James sends 0.3 BTC to Clara and sets a miner fee of 0.01 BTC, the original 0.8 BTC UTXO is consumed. The transaction creates two new UTXOs: one for Clara (0.3 BTC) and one for James’s change (0.49 BTC).
Typically, change is sent to a newly generated change address derived from the wallet’s XPUB (Extended Public Key), rather than reusing the original address.