UTXO (Unspent Transaction Output) is the accounting model used by Bitcoin and several other blockchains. Instead of tracking account balances, the UTXO model tracks individual "outputs" of transactions that haven't been spent yet.
How UTXOs Work
Think of UTXOs like physical bills. If you have a $20 bill and want to pay $15, you hand over the $20 and receive $5 in change. Similarly, if you have a UTXO worth 1 BTC and want to send 0.3 BTC, the entire 1 BTC UTXO is consumed, 0.3 BTC goes to the recipient, and 0.7 BTC comes back to you as a new UTXO (minus fees).
UTXO vs Account Model
UTXO (Bitcoin): Each transaction consumes UTXOs and creates new ones. Privacy is enhanced since each transaction can use a fresh address.
Account (Ethereum): Like a bank account with a running balance. Simpler for smart contracts but less private by default.
Why UTXOs Matter
UTXOs enable better privacy (each UTXO can belong to a different address), easier parallel transaction processing, and simpler transaction verification. However, they make smart contract implementation more complex.