My understanding so far: each time I deposit crypto into my wallet the transaction is classified as a UTXO. These UTXOs can be thought of like dollar bills in my physical fiat wallet.
My deposits of 0.1 BTC five times are like five separate one dollar bills in my wallet. Likewise, my deposit of 0.5 BTC is like a single five dollar bill in my wallet. In either case I have 0.5 BTC, but the format of the currency is different (one 0.5 UTXO vs five 0.1 UTXOs).
When making exchanges, sales and purchases, these UTXOs are selected for use, like pulling a one dollar bill from my wallet, or maybe a different one dollar bill. Perhaps the five dollar bill.
So, that’s what a UTXO “is”… the unique identifier that defines a quantity of BTC stored in my wallet. (Right?)
So, why do UTXOs matter? Why do I care about UTXOs and why do I want fewer of them?
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