What Is the Concept of “Transaction Privacy” in Relation to UTXO Management?

Transaction privacy in relation to UTXO management refers to techniques used to obscure the link between the sender's and receiver's addresses and the history of the coins being spent. Since the UTXO model exposes the entire transaction graph, linking a user's various UTXOs can reveal their spending patterns.

Privacy-enhancing methods like CoinJoin mix UTXOs from multiple users into a single large transaction, making it difficult for external observers to determine which output belongs to which input owner.