A change address is an address used by a wallet to receive the portion of funds that remains unspent in a transaction. The concept is especially associated with the UTXO model used by Bitcoin and similar systems.

If transaction inputs contain more value than is needed for the recipient and the transaction fee, the remainder is normally returned to the sender through another output. The wallet can automatically create a new change address for this purpose.

Why separate change addresses are used

Using new addresses allows wallets to manage multiple UTXOs and can improve privacy because not all transactions have to be associated with a single repeatedly used address.

In HD wallets, change addresses are normally generated deterministically from common key material. When the wallet is restored using the correct derivation path, it can therefore regenerate the relevant addresses.