What are Unspent Transaction Outputs (UTXOs)?

To get the most out of features like Coin Control, it's essential to understand Unspent Transaction Outputs, or UTXOs. A UTXO represents a specific amount of cryptocurrency that you have received at one of your addresses and is currently available for you to spend. For a deeper dive, you can learn more about what a UTXO is on our blog. 

Think of each UTXO as an individual digital "coin" or a banknote of a particular value stored in your wallet. Each UTXO is a distinct unit of value linked to a specific address. When you use a UTXO in a transaction, it must be spent in its entirety. When you receive cryptocurrency, you are essentially receiving one or more new UTXOs.

How UTXOs form your cryptocurrency balance

The total balance displayed in your wallet isn't a single sum like you'd see in a traditional bank account. Instead, it's the sum of all the individual UTXOs that your wallet controls. Managing these UTXOs effectively can sometimes involve strategies like UTXO consolidation. 

When you send cryptocurrency:

• Your wallet selects one or more of your UTXOs.
• The combined value of these selected UTXOs must be enough to cover the amount you want to send, plus the network transaction fee.

Understanding change addresses

When you make a transaction, if the total value of the UTXO(s) you're spending is more than the amount you're sending (plus the transaction fee), the leftover cryptocurrency is returned to your wallet. This leftover amount is called "change."

Automatic and privacy-focused

To enhance your privacy, cryptocurrency wallets, including the BitBox, typically send this change to a brand new address that your wallet also controls. This new address is called a “change address.”

Using a new address for change offers several benefits:

• Increased privacy: It makes it harder for someone analyzing the blockchain to link your transactions together.
• Improved anonymity: It makes it more difficult to definitively identify which output in a transaction was the change.

Distinct and important to recognize

Change addresses are generated automatically by your wallet for internal management and privacy. You generally don't interact with them directly.

In the BitBoxApp's Coin Control interface, UTXOs at change addresses are clearly marked. It's important to note that these addresses might not appear in your standard list of receiving or transaction history, which can sometimes cause confusion if you're not aware of how they function.

Understanding that change addresses are a normal and beneficial part of how cryptocurrencies like Bitcoin work is crucial. For instance, UTXOs residing at change addresses should not be used for procedures like a "Satoshi Test" or address ownership proofs, which require verification of a specific, primary receiving address you've explicitly shared.