What's Your Strategy for UTXO Consolidation in Light of Privacy & Fee Trade-offs \ stacker news ~bitcoin

What's Your Strategy for UTXO Consolidation in Light of Privacy & Fee Trade-offs

2956 sats \ 7 comments \ @fbv000 6 Nov 2023 bitcoin

I've been thinking over the best practices for UTXO consolidation and would love to hear your strategies. As we know, consolidation can significantly reduce future fees and make wallet management easier.

Here are a few specific points I'm curious about:

How do you decide when it's the right time to consolidate your UTXOs? Do you wait for low network fee periods or have a threshold of outputs to reach before consolidating?

Are their any privacy considerations to take into account when combining UTXOs?

Looking forward to learning from your experiences.

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519 sats \ 0 replies \ @DarthCoin 6 Nov 2023

My main focus is to organize my stash on the 3 levels: HODL, cache, spending (think like a bank)

From there I use this strategy:

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.
1-5M sats UTXO for opening LN channels on mobile private nodes
10-20-50-100M sats for opening LN channels on public nodes (if you run a public routing node).
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, spending

223 sats \ 1 reply \ @harrr 6 Nov 2023

I've consolidated all my outputs a few years ago, for close to zero fees. So yeah, I'd simply wait for that if you haven't done it yet. I also don't really care about privacy, all my KYC coins go into one wallet group for hodling, all others are in a separate group. The tax authorities know that I have bitcoin, but they never asked for any detailed information. If they ever do I'll give it to them and spend coins accordingly. If you have specific privacy concerns, what are they?

1 sat \ 0 replies \ @fbv000 OP 6 Nov 2023

I do not have any specific privacy concerns, my concern is mostly having UTXOs with small amounts that are hard to spend in the future because of network fees.

223 sats \ 1 reply \ @davidw 6 Nov 2023

Mempool Size I try to pay attention to the fee markets. Last few weekends have been great for consolidation and security upgrades. 2-3sats per byte.

Mempool has exploded these last few days though. 10x more expensive right now. Some wallets still let you lowball the fee if you’re happy to just have transactions queued.

Coinjoins Always try to avoid combining more than 2 inputs into one transaction. And if you do combine 2, increase privacy first. If you combine 2 inputs, surveillance companies will always (for now at least) associate those as the same owner, so consider this into your strategy.

Unless of course you don’t care about the original source identifying you, because you’ll shake the tail later with more coinjoins.

Label, label, label everything. All UTXOs. Your future self will thank you.

0 sats \ 0 replies \ @DarthCoin 6 Nov 2023

<mempool size

good important point 👍 Always keep an eye on it when is about to move UTXOs.

21 sats \ 0 replies \ @Zepasta 6 Nov 2023

I don't use on-chain besides my montly DCAs, so my UTXO is small. I will probably only consolidate once a year (when we get 1 or 2 sat/vB). Most of my bitcoin activity is on Lightning.

0 sats \ 0 replies \ @BitcoinIsTheFuture 29 Jan

I’ve got around 50 UTXO’s with a cold storage multisig wallet with a reputable Bitcoin only company. Thoughts on consolidation and how?