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When you view your expanded transaction details, you may see addresses under “Received By” called Change Addresses. To understand change addresses, first we’ll need to explain how cryptocurrency transactions work. Then, we’ll get into change addresses and their role in the transaction process.
Every cryptocurrency transaction is made up of at least one input and output. Inputs and outputs are how the breakdown or denomination of cryptocurrency happens as funds are transacted across the network. Inputs are the existing funds you use when sending a transaction. When those funds come out on the receiving end of a transaction, they are now called outputs. From one transaction to the next, each input is the output of a previous transaction.
To explain inputs and outputs a bit more, let’s use a currency like US dollars as an example. Say you buy something for $20 and pay the the seller with a $20 bill. Later that day, the seller who accepted your $20 leaves work to go buy some dinner. He pays the restaurant with the same $20 that you gave him. Going back to your transaction, the $20 was your output and the seller’s input. In the dinner transaction, the $20 was the merchant’s output and the restaurant’s input.
Now, what if your purchase doesn’t cost $20, but it costs $15? Since all you have is one $20 bill, you can’t pay exactly $15, right? In that case, you’d pay with the $20 bill, and the seller will give you a $5 bill as your change.
Switching gears back to cryptocurrency, change plays a similar role like we explained with the $20 used for a $15 purchase. When you use an input that is worth more than the transaction cost, the extra funds are sent back to you as change through a newly generated address (as opposed to you receiving it to the same address you sent from). This is called your change address.
When you send funds, your change addresses are generated by your wallet, but you won’t see separate transactions in your transaction history for receiving your change; it’s included in the original sending transactions as a second output. You can view your change address for any given outgoing transaction by clicking on your transaction history. Then, expand the specific transaction to view extra details.
Of course, there are times when your transaction may not need a change address. If you end up spending the exact balance of an input, then you won’t need change (just like how, if you bought something from a seller for $20, then the seller wouldn’t have to give you change for your $20 bill).
To sum all of this up, change addresses are an aspect of cryptocurrency that allow users to transact using exact amounts, even if the transaction isn’t the total amount of the output being spent. It’s similar to when people transact with cash. If the buyer pays with a $50 bill, but the transaction cost $35, they would receive $15 in change back. In cryptocurrency, the difference between the total amount paid and the total transaction cost is sent back to the user as change using a change address.