An unspent transaction output (UTXO) refers to a transaction output that can be used as input in a new transaction. In essence, UTXOs define where each blockchain transaction starts and finishes. The UTXO model is a fundamental element of Bitcoin and many other cryptocurrencies.
In other words, cryptocurrency transactions are made of inputs and outputs. Anytime a transaction is made, a user takes one or more UTXOs to serve as the input(s). Next, the user provides their digital signature to confirm ownership over the inputs, which finally result in outputs. The UTXOs consumed are now considered "spent," and can no longer be used. Meanwhile, the outputs from the transaction become new UTXOs – which can be spent in a new transaction later.
Alice creates a transaction that essentially says to the network: take my 0.4 BTC UTXO as an input, break it up, send 0.3 BTC of it to Bob’s address and return the 0.1 BTC to my address. The 0.4 BTC is now a spent output, and can’t be reused. Meanwhile, two new UTXOs have been created (0.3 BTC and 0.1 BTC).
Note that we broke up a UTXO in this example, but if Alice had to pay 0.42 BTC, she could just as easily have combined her 0.4 BTC with another 0.05 BTC to produce a UTXO worth 0.42 BTC, while returning 0.03 BTC to herself.
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