Replying to Avatar ODELL

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. 🤙
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Eymon 2y ago 💬 2

I think one should have a diversified set of utxos from small to very large so that he can combine the smallest amount of utxo possible to pay any amount, the different coinjoin sets in sparrow comes in handy 100k sats 1m sats 5m sats..

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Kruw 2y ago

Wasabi does this even better since you get private outputs of many denominations, allowing you to easily compose transactions that don't even create a change output-

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Max 2y ago

That's one of the important improvements of Wasabi 2.0, low hamming weight standard denominations help in two ways:

First, in a coinjoin to efficiently decompose any arbitrary input value into less than 8 output values. This avoids non-standard change output.

Second, in a single user transaction to efficiently consolidate only a few inputs to generate an arbitrary output value. This avoids payment change output.