What are ‘change addresses’?
Have you ever looked up an address on a block explorer and found that the balance didn't match your Exodus wallet? Or saw your Bitcoin or other assets sent to an unfamiliar address? The answer might be change addresses!
In this article:
- What is happening?
- What is change in a UTXO-based crypto?
- Example of how change addresses work
- How change addresses work on the blockchain
- Change addresses and your Trezor
- Why not receive change to the same address?
What is happening?
Don’t worry! There is nothing wrong with your wallet. UTXO-based assets like Bitcoin and Litecoin create something called change addresses.
Unless it is your first transaction, when you look up a single address for a UTXO-based asset on a block explorer you will not see your entire balance. Your Exodus wallet displays the total balance of all addresses associated with any UTXO-based asset.
And if you see crypto sent to an address you don't recognize, it might be one of your wallet's change addresses.
What does UTXO mean? UTXO stands for Unspent Transaction Output. Your wallet’s total balance of a UTXO-based asset is the sum of several addresses, including receive addresses and change addresses.
Exodus supports several UTXO-based assets. Some examples are Bitcoin (BTC), Litecoin (LTC), Dogecoin (DOGE), Bitcoin Cash (BCH) and Digibyte (DGB). Each of these assets has multiple change addresses that are managed by your wallet.
To understand change addresses, it's helpful to compare them to physical cash. For example, if you pay for a four-dollar coffee with a ten-dollar bill you will get change back, maybe a five-dollar bill and some coins. This is like paying with 0.1 BTC and getting 0.05 BTC back to your change address.
What is 'change' in UTXO-based crypto?
UTXO-based cryptocurrencies work in a similar way to physical cash. There is a set amount of crypto in each UTXO.
Example of how change addresses work
Let’s say you are paying for a meal, and it costs $20. You reach into your pocket and pull out a $50 bill that you hand to the waiter, who returns with $30 in change, which you then put in your wallet. That $30 dollars might return to your wallet in several combinations (since there is no $30 dollar bill).
Similarly, with Bitcoin and other UTXO-based assets, the 'change' you receive can be represented in several change addresses or 'bills', in this example, waiting to be spent. The more transactions you make, the more change addresses will be associated with your wallet's private keys.
Imagine that you are paying for your meal with Bitcoin and it costs 20 BTC (the most expensive meal you will ever eat). You have 50 BTC inside of your wallet. So when you pay your 20 BTC for your meal, you receive 30 BTC in change as expected.
This change is sent to another address controlled by your Bitcoin wallet, called a change address. This process happens for every transaction you make. As you might imagine, the more transactions from your wallet, the more change addresses are linked to your Bitcoin wallet private keys.
How change addresses work on the blockchain
After sending a transaction that doesn't send out your entire balance, your wallet automatically sends any unspent funds to a different change address. This change address is generated by your wallet.
This is why when you look up one address on a block explorer, you might only see part of your balance. However, your Exodus wallet knows to look at all of your addresses to see your total balance.
Change from the unspent part of the UTXO never leaves your Bitcoin wallet. It simply moves to a different address. This process is built into the code that governs the Bitcoin blockchain (and all other UTXO-based assets).
If you want to see all your addresses you can export the addresses for each crypto from the asset menu and look each one up on a block explorer.
Change addresses and your linked Trezor
This is also true of all your UTXO-based assets in your paired Trezor hardware wallet. After a transaction is confirmed on the blockchain, your Trezor UTXO-based assets will also send any unspent crypto to a change address.
Why not receive change to the same address?
Now, you might be thinking, this is really confusing! Why not receive change to the same Bitcoin address?
Change addresses are important for your privacy. The blockchain is viewable by anyone with an internet connection. To preserve some degree of anonymity, features like change addresses are used.
Publicly accessible blockchains allow for innovative transparency, immutable transactions and the ability to verify (instead of trust). On the other hand, change addresses make it more challenging to identify the owner of all associated addresses. Balancing transparency and privacy is an ongoing process. Change addresses are one attempt to achieve this balance by enhancing privacy.
Let's take a Bitcoin transaction as an example. Alice sends Bob 1 BTC from a UTXO that is 2 BTC, so she gets 1 BTC back in change.
If Alice receives the 1 BTC back to the same address, it would be obvious that it was Alice who was paying Bob.
However, since the 1 BTC goes to an unknown address (we'll call it X) it is unclear if Alice is paying Bob or X, because both Bob and X received BTC from Alice.
Even though we know that X is another address owned by Alice, someone who is looking at the blockchain won't. So an observer will have no idea if Alice sent BTC to Bob or X.
Receiving change to change addresses enhances your financial privacy.