Can someone explain UTXO management to me in an easy to understand way... 🙏
Discussion
UTXOs are like cash in your wallet.
If you were to pay someone $100 for a service, you wouldn’t give him 100 1 dollar bills (or even worse 10,000 pennies!)
Keeping your UTXOs in the 1 million to 10 million Sats per is ideal, imo.
This means in the future, you won’t have a bunch of “dust” in your wallet. Will make it easier to avoid huge fees in a hyperbitcoinzed world.
Hope that helps!
I just asked AI to ELI5.
Imagine you have a piggy bank full of coins. Each coin represents a UTXO. When you want to spend Bitcoin, you take some coins out of your piggy bank and send them to the person you are paying.
The more coins you take out, the heavier your transaction will be. Miners charge fees to process transactions, so the heavier your transaction is, the higher the fee will be.
You can reduce the fee by combining multiple coins into a single coin before you send it. This is like taking a bunch of small coins out of your piggy bank and exchanging them for a single large coin.
You can also reduce the fee by waiting for a time when there is less demand for block space. This is like waiting until there is less traffic on the road before you drive to your destination.
Here is a simplified analogy for a 5-year-old:
Imagine you are standing in a line at the store with a bag of candy. Each piece of candy represents a UTXO. When you want to buy something, you hand the cashier some candy from your bag.
The cashier needs to count your candy to make sure you have enough to pay for the item. This takes time, so the cashier charges a fee for each piece of candy that they have to count.
You can reduce the fee by putting all of your candy into a single container before you go to the store. This way, the cashier only has to count the candy once.
You can also reduce the fee by going to the store at a time when there is less traffic. This way, the cashier has more time to count your candy.
I hope this helps!
This clip of nostr:npub1qny3tkh0acurzla8x3zy4nhrjz5zd8l9sy9jys09umwng00manysew95gx explaining coin control on Citadel Dispatch 15 really helped me understand UTXO management. 🤙 https://video.nostr.build/b557a1c165f2a2ee37dd4a04a5044e679077a770920b8df247db0e88b290d2ce.mp4
Good clip. So back to the original Q, control is basically the practice of labeling and using your UTXOs in an intentional manner. As odell says here, not all wallets even show your utxos. If you have only used such wallets, this is probably confusing
Bluewallet for mobile and sparrow for desktop are intuitive and allow you to “do coin control”.
Also worth noting, this is a local/client-side feature!! If you have the same bitcoin wallet in both of those programs, and label one in sparrow, that will NOT show up in the same wallet on bluewallet
Great addition, thanks!