There is no such thing as a dust UTXO \ stacker news ~bitcoin

3064 sats \ 39 comments \ @Scoresby 12 Apr bitcoin

Say you have a 3000 sat UTXO. If you were to try to combine it with another UTXO (make a P2PKH transaction with 2 inputs and 1 output) it would be around 340 vBytes. At a feerate of 20 sats per vByte, this transaction would cost 6800 sats to send. Therefore the UTXO is dust and of questionable value.

You'd think. But that doesn't take into account the gamble most of us in Bitcoin are making that bitcoin's value relative to US dollars will increase over time.

EXAMPLE: IF a Bitcoin miner needs to pay expenses today in US dollars AND they are willing to accept those dollars from me instead of btc to pay the fees for my transaction AND I expect the value of bitcoin to increase relative to the US dollar THEN it makes to pay them $5 (roughly 6800 sats) in US dollars and get my dust UTXO combined with another larger UTXO.

If I expect my 3000 sat UTXO to be worth more than the fiat value it costs to mine it and a miner will accept a fiat payment to mine it, then it isn't dust.

Put generally, as long as the following are true, or expected to be true:

Bitcoin miners have costs today that are paid in fiat currencies.
Bitcoin miners accept payment in fiat to accelerate bitcoin transactions (out of band payments).
Bitcoin is expected to increase in value relative to fiat currencies over time.

There is no such thing as a dust UTXO.

view all related items

103 sats \ 1 reply \ @PlebeiusG 12 Apr

You didn't explain the opportunity cost to the miner tho.

Why do you a favor? If average fees go up to 200s/vB then you may have to pay more than the sats are worth. Yes youll make out over time as NGU, but youd make more sats if you just bought straight sats.

Im probably confused.

10 sats \ 0 replies \ @Scoresby OP 12 Apr

Nope, you are right on. The problem with my argument is that it will only make sense if you can't buy sats at market rate.

I hadn't thought if this when I wrote it out.

121 sats \ 1 reply \ @nullcount 12 Apr

If you don't believe in dust, then you'd equally value 100x 500sat UTXOs and a single 50k sat UTXO.

One expression of value uses 100x more blockspace than the other.

10 sats \ 0 replies \ @Scoresby OP 12 Apr

Very good point, but it raises the specter of fungibility:

A sat is not just a sat, it matters what kind of utxo/locking script it has.

But then, when you pay you are creating a new utxo, so maybe it doesn't matter.

You have control over the locking script when you generate an address to give someone who wants to pay you. But if they only want to pay you 500 sats and they want to do it on chain, a sat is not a sat.

I wonder where the commonly agreed upon minimum acceptable onchain payment will end up. 100k sats? 1 million sats? Anything less and I won't accept such an inefficient utxo?

32 sats \ 6 replies \ @Murch 13 Apr

I don't think this is well reasoned.

A miner that includes your transaction has the opportunity cost of not using the blockspace for another transaction. In order for an economically rational miner to prioritize including your transaction over something else, you must provide now value to them than they'd otherwise earn.

As long as we have a block weight limit, transaction fees will always scale with the weight of transactions. If bitcoin continued to increase in value it will be because people find more utility in it. More utility implies that users will send larger amounts of value on the network. Larger payments can pay more for blockspace than smaller payments.

So, I don't think that bitcoin getting more valuable is compatible with smaller UTXOs becoming easier to spend—unless you expect the block weight limit to be significantly raised or altogether removed. Since having a block weight limit is important for network security, this is unlikely.

Occasionally there might be a spell of low feerate, and you should use that to consolidate and move funds to more blockspace-efficient output scripts, but generally I expect small amounts to get harder to spend over time.

10 sats \ 4 replies \ @Scoresby OP 13 Apr

I agree. I don't believe that smaller utxos will be generally easier to spend.

I do think it makes sense to spend (significantly?) more in fees than the face value of a nominally dust utxo in order to consolidate it if points 1-3 of the original post are true.

This is important because if you think bitcoin's value in terms of fiat will be an order of magnitude higher at some future point, it is economically rational to spend in fees much more than the current fiat value of the utxo in order to merge it with a larger utxo.

27 sats \ 3 replies \ @Murch 13 Apr

Why would it ever make sense to spend more in fees than the current fiat value!?

You're essentially saying that paying a miner out of band will be cheaper than paying them in band. That doesn't make sense to me.

10 sats \ 2 replies \ @Scoresby OP 13 Apr

Because I'm not paying in btc.

Now, the obvious problem here is that I could just buy btc at market rates, instead of trying to "redeem" my dust this way.

It only makes sense when a person can not buy btc at market rates.

But there might be use cases here: bitcoin atms charge significantly higher than market rates. As do some sellers on bisq.

Maybe there is a world where people interested in buying non kyc bitcoin pay out of band fees to miners to redeem other people's dust outputs.

27 sats \ 1 reply \ @Murch 13 Apr

Okay sure, if you cannot buy coins at market rate, you can pay a premium to consolidate small value UTXOs.

I guess your point wasn't clear to me from the OP.

31 sats \ 0 replies \ @Scoresby OP 13 Apr

Yes, I need to add this as a point 4 to my original post. Something like:

If you cannot buy btc at market rates, or if you don't want to buy it from other sellers available to you.

0 sats \ 0 replies \ @CruncherDefi 13 Apr

The hypothesis is that txs fees size scale with fiat-value of bitcoin. And it makes sense.

Money that competes for blockspace is mostly denominated in fiat.

Miner costs are denominated with fiat. Opportunity cost of using bitcoin is also denominated in fiat. Meaning

Think about it. Bitcoin network competes with meatspace entities:

If it costs me 1$ to send 10000$ of remittance with bitcoin I will use bitcoin.
If it costs me 1000$ to send 10000$ of remittance with bitcoin I will use western union.

If most economic decisions of "should I used bitcoin or $SOME_MEATSPACE_PRODUCT" are denominated in fiat, the competition for blockspace will be a function of fiat-denominated value (and not bitcoin-denominated value).

There are cases in which bitcoin have no meatspace competition (like censorship-resistant money) and those cases might cause a decoupling. But arguably most competition for blockspace at the moment are driven by competition-with-meatspace-entities.

48 sats \ 2 replies \ @kruw 12 Apr

But that doesn't take into account the gamble most of us in Bitcoin are making that bitcoin's value relative to US dollars will increase over time.

It does take that into account because fee rates are already measured in sats/vbyte, not US dollars per vbyte.

10 sats \ 1 reply \ @Scoresby OP 12 Apr

While fees are measured in sats/vbyte, this whole thing arises because miners accept fiat for fees via their accelerator services (item 2 in the list above). I don't think it matters much what fees are measured in so much as whether miners are willing to accept fiat.

Or maybe I am misunderstanding you.

10 sats \ 0 replies \ @Scoresby OP 12 Apr

If a miner is willing to accept dollars for fees instead of btc, I can act like my btc is worth many more dollars than it actually is.

How does fees being priced in sats change this?

27 sats \ 1 reply \ @kristapsk 13 Apr

There is such thing as dust UTXO, TX with outputs below 546 sats is not considered standard and will not be propagated through P2P network by the most of the nodes.

0 sats \ 0 replies \ @Scoresby OP 13 Apr

The idea is predicated on the availability of being able to pay miner fees in fiat out of band, and so it doesn't require mempool propagation.

27 sats \ 0 replies \ @joda 13 Apr

I disagree.

But I think there is a possibility for consolidation via a statechains, where private keys are consolidated rather than UTXOs spent. It might not be possible, but I can't get an answer.

It wouldn't be terribly difficult to imagine code changes to facilitate consolidation on the base layer, but there isn't really a push for that when we've got bigger fish to fry (or scale, as it were).

27 sats \ 10 replies \ @TonyGiorgio 12 Apr

~500 and under are dust, and you cannot spend them if you tried.

27 sats \ 4 replies \ @Murch 13 Apr

I think I see where you are coming from but that is a bit too imprecise.

There is a standardness rule that prevents creation of outputs with small amounts. The concrete amounts differ per output type: https://bitcoin.stackexchange.com/a/41082/5406

Additionally, UTXOs with a low amount may cost more to add to a transaction than their own amount at some feerate. I describe such UTXOs as having a negative effective value at a given feerate. E.g. a P2WPKH input weighs 68 vB, so a 500 sat P2WPKH output would be able to pay for itself at up to 7.35 s/vB. It's own cost would eat a significant proportion of it's value, though, so I would not recommend receiving such small UTXOs.

10 sats \ 3 replies \ @Scoresby OP 13 Apr

Yes, but my thinking here is entirely hinging on the availability of out-of-band payments in a currency that is not btc (and expected to lose value over time in relation to btc, and also in which miners need to pay their bills--all of which are true of miners today).

If I had a dust output in Jan 2023 and I could pay a miner in fiat 2x the fiat value of the utxo to use it in a transaction that combines it with a bigger utxo, it would have made sense for me to do that.

Similarly, if I expect the value of btc in fiat terms to increase in the future, I should be willing to pay more than the current fiat value of any dust output now as long as I can pay in fiat.

10 sats \ 2 replies \ @Murch 13 Apr

Even if you pay out of band, you have to compete with the fees other transactions are bidding.

10 sats \ 1 reply \ @Scoresby OP 13 Apr

Right, but I'm not competing with fee rates ten years from now, but I CAN make a prediction about fiat price ten years from now.

I only have to compete with fee rates now. And some people paying fee rates now may have a less hopeful opinion of btc's fiat value in the future than I do. It becomes an arbitrage case (if I'm right about my future fiat price prediction).

27 sats \ 0 replies \ @Murch 13 Apr

Why would you pay more in fees than the UTXO is worth? Shouldn't you rather buy more bitcoin instead then?

31 sats \ 4 replies \ @Scoresby OP 12 Apr

Even if I offer a miner $10 to mine my transaction via a transaction accelerator?

10 sats \ 3 replies \ @TonyGiorgio 12 Apr

Yes

31 sats \ 2 replies \ @Scoresby OP 12 Apr

How so?

I'm familiar with the mempool policy that won't relay a transaction that creates dust transactions, but is it also the case that a block will be invalid if it includes a transaction that has a ~500 sat input?

44 sats \ 1 reply \ @TonyGiorgio 12 Apr

Actually yeah, I think it's still possible out of band.

https://bitcoin.stackexchange.com/questions/10986/what-is-meant-by-bitcoin-dust/41082#41082

10 sats \ 0 replies \ @Scoresby OP 12 Apr

This link is excellent. Thanks for finding it.

27 sats \ 0 replies \ @WeAreAllSatoshi 12 Apr

Like most things, perspective is everything

27 sats \ 0 replies \ @nym 12 Apr

Yep

27 sats \ 3 replies \ @siggy47 12 Apr

I agree completely, but I know many here don't.

85 sats \ 2 replies \ @Scoresby OP 12 Apr

I think the argument against this line of thought is as follows:

If the fiat to btc exchange rate is $70k, then paying a miner $5 to mine a 3000 sat utxo makes less sense than just buying 3000 sats at market rate.

So this only becomes a reasonable attitude if there is no way for you to buy bitcoin at market rates.

27 sats \ 1 reply \ @kepford 12 Apr

Interesting angle to think about. But I still don't want small UTXOs :)

43 sats \ 0 replies \ @Scoresby OP 12 Apr

Yeah, it may be a "how many angels can fit on a pinhead" case.

17 sats \ 3 replies \ @random_ 13 Apr

0 sats \ 2 replies \ @Scoresby OP 13 Apr

Wait till you see the tip of the sword:

There are no dust utxos if you sell them to non-kyc buyers who are willing to pay the consolidation fees in fiat to miners.

0 sats \ 1 reply \ @random_ 13 Apr

excellent self own sir

0 sats \ 0 replies \ @Scoresby OP 13 Apr

Yes, well I am so ignorant I don't see how it is a self own. Why is it a bad idea?

17 sats \ 0 replies \ @CruncherDefi 13 Apr

I agree.

Money that competes for blockspace is mostly denominated in fiat:

Miner costs are denominated in fiat
Opportunity cost of using bitcoin is denominated in fiat.

Opportunity cost of using bitcoin is a function of bitcoin competition with meatspace entities.

For example:

If it costs me 1$ to send 10000$ of remittance with bitcoin I will use bitcoin.
If it costs me 1000$ to send 10000$ of remittance with bitcoin I will use western union.

If most economic decisions of "should I used bitcoin or $SOME_MEATSPACE_COMPETING_PRODUCT" are denominated in fiat, the competition for blockspace will be a function of fiat-denominated value (and not bitcoin-denominated value).