# UTXO Management

<figure><img src="/files/CwyeoVMMTkImgt1rVDEe" alt=""><figcaption></figcaption></figure>

## What is a UTXO?

The Cardano blockchain utilizes the eUTXO, or "Extended Unspent Transaction Output", accounting model. When you receive ADA or any other Cardano native token, it arrives in a specific object or box called a **UTXO**, or "**Unspent Transaction Output**". When you spend or send ADA, the network uses these objects (UTXOs) to facilitate the transfer of ADA and/or other native tokens from one place/address to another.&#x20;

{% hint style="info" %}

#### UTXO Inputs & Outputs

* Each UTXO has an <mark style="color:blue;">**input**</mark> from where it takes the assets and an <mark style="color:red;">**output**</mark> to where it sends them.&#x20;
* This <mark style="color:red;">**output**</mark> is termed "unspent" because they have yet to be used.
* Unspent <mark style="color:red;">**outputs**</mark> are used as <mark style="color:blue;">**inputs**</mark> in new transactions.
* UTXOs can have one or many <mark style="color:blue;">**inputs**</mark>, and one or many <mark style="color:red;">**outputs**</mark>.
  {% endhint %}

## **UTXO Speedrun**

#### Receiving

Whenever you receive ADA, the output of the transaction points to your address and specifies the amount you've received.&#x20;

#### Sending

When you send ADA to someone, the transaction created takes in one or more of these unspent outputs (old UTXOs) from your address as inputs. The transaction then consumes or "spends" the unspent outputs and the new (unspent) outputs point to the recipient's address (and possibly back to your own address if there is "change").

<figure><img src="/files/kPVApgGjw1SOFd2TYQAa" alt="" width="563"><figcaption><p>UTXOs</p></figcaption></figure>

Once an output has been used as an input in a new transaction, it becomes "spent" and cannot be used again in a future transaction.&#x20;

## How VESPR Manages Your Wallet's UTXOs

Cardano's transaction size limits can make UTXO management quite tricky, particularly for larger dApps or complex multi-signature wallets. To fit within these transaction size limits, UTXOs must be carefully selected to not only minimize "dust" or fees but also to curb future "fragmentation" – a situation in which a user's funds are dispersed across a myriad of small UTXOs. Proper UTXO hygiene necessitates a proactive and efficient strategy.

VESPR employs its own advanced coin selection algorithms to intelligently manage your wallet's UTXOs. Our heuristic approach ensures peak performance, efficiency, and speed adaptable to various transaction situations. With each transaction processed via VESPR, our coin selection algorithm systematically reduces dust, actively prevents fragmentation by consolidating UTXOs, and maintains "balanced" UTXO sets for future transactions.&#x20;

This means that the more you use VESPR, the more performant your wallet becomes.


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