Simple explanation of Bitcoin UTXOs – and why they matter.

A UTXO is Bitcoin transaction output. That is, any number of sats that you receive from a transaction.

Think of it as your Bitcoin balance for a transaction: the amount of sats that were sent minus the transaction fee.

🔸You receive 0.01 Bitcoin in a transaction, that's one UTXO.

🔸You receive 0.0042 Bitcoin in a transaction, that's one UTXO.

🔸You receive 1.25 Bitcoin in a transaction, that's one UTXO.

As you can see, you get one UTXO regardless of Bitcoin amount.

The problem arises you get UTXOs that are too small.

Because blockchain fees fluctuate all the time 📈📉

In a high-fee scenario, your small UTXOs may become unspendable.

Let's say you want to transfer 0.001 Bitcoin, approx. $70.

On the day you want to transfer, the fee is 0.0005 Bitcoin, approx. $35.

You see, the high fee would eat up half the amount you want to transfer. Probably not worth it.

In certain scenarios, the fee may be even greater than the intended transfer amount.

Takeaway:

Every now and again, when fees are low, it's healthy to consolidate your small UTXOs into a big one.