UTXO Model
Web3 / blockchain technology
Unspent Transaction Output—the accounting model used by Bitcoin, Litecoin, Cardano, and other chains, where the blockchain state is represented as a set of unspent outputs rather than account balances. In UTXO, every transaction consumes one or more existing UTXOs as inputs and creates new UTXOs as outputs. Your 'balance' is the sum of all UTXOs assigned to your addresses. This contrasts with the account model used by Ethereum, where state is maintained as account balances. UTXO advantages include: natural parallelism (transactions consuming different UTXOs don't interfere), better privacy (new addresses per transaction), and simpler verification of coin history. Disadvantages include increased complexity for applications requiring account state (smart contracts are harder to implement) and potentially larger transaction sizes when many small UTXOs are consumed.
Example
If you receive 0.5 BTC in one transaction and 0.3 BTC in another, your wallet holds two separate UTXOs. Sending 0.7 BTC requires consuming both UTXOs as inputs, creating one output of 0.7 BTC to the recipient and one change output of ~0.1 BTC (minus fees) back to yourself.
Why It Matters
The UTXO vs. account model is a foundational architectural choice with downstream implications for smart contract expressiveness, privacy, and transaction throughput. Understanding UTXO explains Bitcoin's transaction structure, fee market, and the technical basis for Lightning Network channels.
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