UTXO set & consolidation \ stacker news ~bitcoin

11k sats \ 15 comments \ @Thatguydude 8 Oct 2023 bitcoin freebie

Assuming proper UTXO labeling and understanding consolidation pros and cons:

Is there a UTXO count that you stay below for later fees, not overwhelming signing devices, and ensuring labels are cleanly labeled? 500? 100? 50? 25? 10? etc...
Do you just let it grow with no management or grow in UTXO with only labeling? Any long term plans to manage?
How are you factoring future spending (if ever) as the value continues to increase if managing your UTXO set given change output could reveal too much? IE: Too tight of consolidation makes for chunky UTXOs that could be problematic using for expenditures far less than the UTXO.
Do you have a preferred mix? 50% chunkier UTXOs and remaining 50% in several smaller?
What's considered a large UTXO set for when dealing with signing devices? 50? 100? 500? more? May help some context.

I've been around for a handful of years now and in it long term, but UTXO management seems like it wouldn't be a bad idea to stay somewhat organized for the future (many more years) without it getting too unkempt.

Any thoughts would be appreciated.

My first post hopefully doing it right.

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743 sats \ 1 reply \ @Athena_Alpha 8 Oct 2023

FYI, for those wanting more information on UTXOs and Coin Control we have dedicated pieces on each of these for all to read and learn from

In answer to your questions...

Is there a UTXO count that you stay below for later fees, not overwhelming signing devices, and ensuring labels are cleanly labeled? 500? 100? 50? 25? 10? etc...

A recommend amount suggested by Joko on X was 1,000,000 sats minimum per UTXO if you're trying to mitigate against a future higher fee environment making smaller UTXOs an issue, but in general it's really up to you. You can also always consolidate many small UTXOs together (or add one small UTXO to a bigger UTXO) and spend them that way if it's an emergency

Do you just let it grow with no management or grow in UTXO with only labeling? Any long term plans to manage?

Always label. It takes 5 seconds and your future self will thank you for it. It's also very important for your privacy and knowing which UTXOs are KYC and which are non-KYC.

From a cost perspective, the fewer UTXOs you have in your wallet, the better. A transaction with a single UXTO of 1 BTC will be cheaper than another transaction that has ten UTXOs of 0.1 BTC as it has ten inputs vs only one.

Thus, to save yourself fees in the future don't just let it go mental. Once you start getting over 10-20 UTXOs you should probably start thinking about some sort of management strategy.

How are you factoring future spending (if ever) as the value continues to increase if managing your UTXO set given change output could reveal too much? IE: Too tight of consolidation makes for chunky UTXOs that could be problematic using for expenditures far less than the UTXO.

How long is a piece of string? The only way to manage this properly is to know what the BTC/USD price will be which is impossible. Also worst case you could open a number of Lightning channels with a chonker of a UTXO and spend smaller amounts of it from there.

Do you have a preferred mix? 50% chunkier UTXOs and remaining 50% in several smaller?

While having fewer inputs will save you more fees, it can also be terrible for your privacy to just consolidate all of your coins into one big giant UTXO. This shows external observers common ownership and if you spend from that big UTXO in the future, the receiver can look back and see what your entire balance is.

Obviously what size UTXOs you keep will be different for everyone given everyone will have a different sized stash, but it’s considered good practice to have a number of different sized UTXOs in your wallet.

This is similar to how you probably don’t just carry around one $100 bill in your actual real world wallet. You instead probably have a few $5’s, a few $10s, maybe three 20’s, some coins or some sort of mix of big and small denominations in there. The same goes for your Bitcoin Wallet.

Don’t just have a single, massive 1 BTC UXTO, have a few 0.1 BTC, a few 0.05 BTC and maybe a 0.5 BTC UTXO as well. Like everything in life, you need a good balance.

What's considered a large UTXO set for when dealing with signing devices? 50? 100? 500? more? May help some context.

This depends on the HWW you're using and its MCU's processing power. The more powerful it is, the better it can process larger UTXO sets and thus, not crash half way through.

Realistically though, it's more likely that you'll be the breaking point as mentally trying to deal with, organize and maintain a UTXO set of 500+ sounds horrific lol

Bonus Point: Backing Up

Make sure you regularly backup your labels! While you should already be backing up your Private Keys, this only helps you to recover your funds, not any labels you might have added over the years to your wallet.

While most good wallets allow you to export or backup your UTXO labels, it’s still done differently depending on what wallet software you’re using. For example, if you’re using Sparrow Wallet and want to transfer all your UTXO labels over to Nunchuk, you can’t. You’d have to manually enter them all in again from scratch.

https://www.athena-alpha.com/wp-content/uploads/2023/07/Sparrow-Wallet-v1.7.7-Wallet-Labels-Export.webp

Thankfully, the developer of Sparrow (Craig Raw) has proposed a new BIP to address just this: Wallet Labels Export Format (BIP-0329). This BIP outlines a standard way that all wallets can adopt in order to ensure there’s full export and import compatibility for coin control labels going forward. Nunchuk has also said they're going to accept it too we believe

Hopefully it gets adopted by all the major wallet makers as coin control is something that will only become more important as the years go by.

10 sats \ 0 replies \ @DarthCoin 9 Oct 2023

1,000,000 sats minimum per UTXO

Agreed. I also try to have that minimum. It's easier to use them like that for opening LN channels.

Very good points in your answer.

20 sats \ 0 replies \ @SpaceHodler 9 Oct 2023

Thank for reminding me, I have some unconsolidated UTXOs from the times I didn't understand it and put more than one UTXO under one address. I woke up reading this post and thought I'd consolidate, because the fees were 1 sat/vB, but by the time I signed the tx they had grown to 20 sats/vB and now no block has been mined in 28 minutes. Glad I didn't broadcast my tx.

10 sats \ 0 replies \ @elvismercury 8 Oct 2023

Great question. Welcome.

10 sats \ 0 replies \ @sb 8 Oct 2023

This is the eternal question. I would love others' input, but I prefer holding stacks of 1 to 3 million sats per UTXO.

286 sats \ 3 replies \ @DarthCoin 8 Oct 2023

I see you didn't mention at all opening LN channels. It's an important aspect. Many people are focusing only on how the manage onchain, but not LN channels. And is wrong.

You should always keep in mind the 3 levels stash: vault (cold wallets), cache (coin control), spend (LN).

multiple onchain wallets, with multiple UTXOs, with various amounts.
never keep just one giant UTXO with all your BTC in it. Split it in small pieces, but not so small. Enough to be able to open regular good LN channels.
make a good coin control and funds management on 3 levels, before you are moving to your cold storage.
if an onchain wallet get too many UTXOs, split them into another wallets. Is not so handy to have too many UTXOs in just one wallet and you are killing the node and the app opening it.

I will repeat this over and over:

onchain is only for opening/closing LN channels
LN is for day to day use

41 sats \ 1 reply \ @Athena_Alpha 8 Oct 2023

This is also a super important point @DarthCoin makes. Don't fade the Lightning channels!

Speaking of which, it's not a bad time to open a few big ones now given the Mempool is finally clearing out! Many major players are dumping huge consolidation tx's at the moment which is still keeping fees slightly high (nothing terrible though), but once they're done it should be back at 1-2 sats/vB 🥳

0 sats \ 0 replies \ @DarthCoin 9 Oct 2023

0 sats \ 0 replies \ @lonestarr 11 Nov 2023

Good advice

1 sat \ 5 replies \ @2bithits 9 Oct 2023

I'm hoping there will be better ways to consolidate in the future. Less than 100k UTXO'S I think will be useless in a decade or so

0 sats \ 3 replies \ @SpaceHodler 9 Oct 2023

Less than 100k UTXO'S I think will be useless in a decade or so

Why useless? As the value goes up, they will only be more useful, no?

0 sats \ 2 replies \ @2bithits 9 Oct 2023

I think onchain fees will eat up too much of the 100k in the next decade or so

0 sats \ 0 replies \ @SpaceHodler 10 Oct 2023

I'm not sure they will go up that much. The value of the block reward (in terms of how much energy it can buy) may go up faster than its nominal BTC amount decreases.

I'm amazed we can still get a tx through at 1 sat/vB if not in a hurry (save for some outlier periods), the minimum fee possible, and yet the hash rate is making ATHs.

In any case, it's surely going to be interesting how things play out!

0 sats \ 0 replies \ @elvismercury 9 Oct 2023

It's going to be really interesting to see how things play out wrt fees, dust limit, on vs off-chain, etc.

0 sats \ 0 replies \ @DarthCoin 9 Oct 2023

100k UTXOs is insane just for a normal user. I could understand for an exchange that doesn't do proper management but not for a normal user. People forget to think like a bank and don 't do proper management of their money.