An unspent transaction output (UTXO) represents the cryptocurrency left in a wallet following a completed transaction. This balance is used in subsequent transactions and stored in the UTXO database. Unspent transaction output is an accounting measure to confirm the amount of cryptocurrency one owns, similar to double-entry accounting, where transactions have an input and output. However, beyond the basics of accounting, UTXO is a transaction output for cryptocurrency data that is stored in bits on a transaction database.
The system allows the users to spend the UTXO placed under the control of their private keys just once. As a state machine, the blockchain updates the participants’ balances in the transaction upon its transition to the new state. The transition is the foundation of accounting models such as UTXO. As cryptocurrencies are anonymous in nature, UTXO is associated with the public addresses detectible to the entire network.
The UTXO model makes certain transactions in the network uneconomic, as the transaction cost might be more than the product one is purchasing. For instance, if someone wants to buy a pen for $1, they might find that the transaction fee on the blockchain might be more than the price of the pen itself.