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Bitcoin Transaction Fees and UTXO Management

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- when bitcoin blocks are full, highest fee transactions are confirmed first

- your bitcoin wallet may show a single balance but the reality is that it is made of many different unspent transaction outputs (UTXOs)

- when you make a bitcoin transaction your wallet will select as many UTXOs as necessary to reach the amount of bitcoin you wish to send

- onchain transaction fees are calculated based on size in bytes not the amount of sats sent

- the more utxos required on the input side the higher the fee paid

- from a cost perspective you want to consolidate utxos, fewer utxos with larger amounts

- consolidation has privacy tradeoffs though: you link any UTXOs you consolidate as owned by the same person + larger UTXOs mean you will dox more of your stack to anyone you pay in the future

Therefore you want to reduce the number of UTXOs you have while being mindful of the privacy concerns.

Lightning Transaction fees are calculated differently: based on the amount in sats sent. Opening lightning channels when fees are low can enable you to save money in the future when fees rise. 🤙

SamBTC5150 ☣️⚡️ 2y ago

Is it best to consolidate first before mixing? Or mix and then consolidate?

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Discussion

Kruw 2y ago

You can consolidate within a coinjoin using Wasabi Wallet so you keep your privacy on every input.

SamBTC5150 ☣️⚡️ 2y ago

Any step by step guides that you know of that you can recommend?

Kruw 2y ago

Yes, here's the download and setup walkthrough: https://www.youtube.com/watch?v=fM5pVMj91D0

And here's the coinjoin walkthrough: https://www.youtube.com/watch?v=UbOAbXjzBJg

SamBTC5150 ☣️⚡️ 2y ago

Awesome! Thanks 🤙🏼

Max 2y ago

1. Receive bitcoin

2. Wait

3. Spend bitcoin anonymously

Using Wasabi got pretty simple, coinjoin just happens by default in the background.

Sid Shattuck 2y ago

If we take whirlpool as an example, you are effectively doing both at the same time. You select a number of UTXO inputs to coinjoin,selectt pool size which represents the size of each UTXO output. In general you want to batch into material amounts to minimize coinjoin and miner fees.

Kruw 2y ago

Whirlpool does not do both at the same time. It creates a pre mix transaction called "tx0" that consolidates your inputs and produces traceable change.

Sid Shattuck 2y ago

Thankyou for clarifying. That's a better way to explain it.