[Edu] Bitcoin Wallet UTXO and Consolidation V2

[Igebotz]

Decided to share this post here too...


Whats UTXO and why should I care?.


40,000 Sats = $10.63

UTXOs is very common and some of you don't know why you're always paying high fees anytime you send out bitcoin from your wallet, I will explain. Assume you're going to buy Bitcoin on an exchange. Assume you buy 40.000 Sats per day, therefore you purchased 40,000 Sats. The next day, you buy another 40,000 Sats at the exchange and transfer it to your hardware wallet. The next day, you buy another 40,000 sats at the exchange and transfer them to your hardware wallet, giving you 120,000 sats of Bitcoin in your hardware wallet that is safe and secure. That's fantastic. But there's a small problem here. So, every time you sent Bitcoin from the exchange to your hardware wallet, you generated a UTXO (unspent transaction output).


Consider this to be a tiny fraction of Bitcoin; in essence, you have three pieces of Bitcoin here. The trouble is, if you want to send out these three chunks of Bitcoin, you'll have to pay a reasonable amount in fees because each chunk of Bitcoin takes up space in a block on the blockchain, and you have to pay money for the space you're taking up in those blocks. So if you have a lot of UTXOs, you'll take up a lot more space in the block and you'll have to charge for each of these UTXOs in order to send your Bitcoin out.

Bitcoin doesn't care how much Bitcoin you transferred; you can send a million Bitcoin, but if it's all within one UTXO, you'll just be charged a little fee.


Practical.



1. I transferred 3 chunks of Bitcoin; 40,000. 40,000, 40,000 sats (120,000 sats total) from my first sparrow wallet to my second sparrow wallet and in the process i created 3 UTXOs in my wallet, I took three block space on the blockchain in the process.

1a. Then I transferred another 120,000 sats in a single transaction to my second wallet thus creating only 1 UTXO




Sending the Bitcoin.


2. I started with the first transaction, I marked the 3 chunks of bitcoin input of 40,000, 40,000, 40,000 sats a total of 120,000 sats and send at the current network fee of 14.14sats/Vb (as of when I tried it) and the total fees to send out this 120,000 sats was $0.91 beacuse I was charged for the 3 UTXOs I created, now lets compared this fee to that of the single transaction of 120,000 sats (1 UTXO)





2a. I transfer the second transaction of 120,000 sats at the same network fees of 14.14 Sats/Vb and the total fees to send out this bitcoin was $0.41 I saved $0.5 on fee for the same amount of Bitcoin.




Conclusion.



For every bitcoin you send to your wallet you are renting a space in the block if you're sending maybe $100 worth of bitcoin, and you have it spread across 6 UTXOs, thats $10, $10, $10, $10, $10, $50 well, you're going to be eaten alive by fees cause you're going to be paying for each of the block space you rented. So instead of spreading across 6 UTXOs you should wait till you accumulate your $100 Bitcoin and send it to your wallet in a single transaction. 

For those of you saving your signature payment, you will receive 1 UTXO every week and as network fees rise, you will have to pay high fees to get those out. If the network becomes congested again, you may not have enough to cover the amount of UTXOs in your wallet, preventing you from withdrawing your coins.



UTXO Consolidation.


Okay, I've already created a bunch of UTXOs from my signature earnings and daily bitcoin transfers from CEX to my wallet. What do I need to do to get rid of these UTXOs and consolidate my UTXOs into one?


1. Copy your receiver address from the same wallet ( where you sent your coins) and



2. Click UTXO on your sparrow wallet and press Command on your Keyboard and select all the UTXOs and click send



3. Paste the receiver address you copied as the recipient, set your fees and click send and broadcast the transaction and as you can see on the screenshot I've already consolidated 5 UTXOs in my wallet into 1 UTXO.




Dowload verified Sparrow wallet here https://sparrowwallet.com/download/

Supported wallets
Electrum
Bluewallet
Unstoppable

Verify before downloading...


Ignore the rates ...
You are welcome.

[Charles-Tim]

Worth knowing that there are other wallets that has coin control which can make consolidation easy. It is not only on Sparrow wallet. Wallet like Electrum and Bluewallet have the feature. Unstoppable wallet added the feature recently.

Dowload verified Sparrow wallet here https://sparrowwallet.com/download/

If you are referring to verification, you will need to also to download the wallet signature and use tools like Kleopatra or any other good PGP tools for the verification to know that the download file comes from the right source. Just a link to the official website download is no enough to be mentioned as verified.

[dkbit98]

Dowload verified Sparrow wallet here https://sparrowwallet.com/download/

I would just add that it would be better to do consolidation when transaction fees are lower, that is usually weekends.
Better to check mempool.space website for confirmation.

Worth knowing that there are other wallets that has coin control which can make consolidation easy. It is not only on Sparrow wallet. Wallet like Electrum and Bluewallet have the feature. Unstoppable wallet added the feature recently.

Correct, but this is much easier to understand in Sparrow wallet because it have graphical elements integrated.
After you initially set Sparrow wallet at start it's easier and better to use it than Electrum.

[yhiaali3]

For those of you saving your signature payment, you will receive 1 UTXO every week and as network fees rise, you will have to pay high fees to get those out. If the network becomes congested again, you may not have enough to cover the amount of UTXOs in your wallet, preventing you from withdrawing your coins.

Thank you for this really fun tutorial, great effort.

I have a question why these UTXOs are not automatically accumulated in the wallet upon accumulation, I mean why are all these UTXO payments not considered as one after they have accumulated in the wallet?

Also, is the UTXO unification feature only present in the Sparrow wallet or is it present in another wallet such as Electreum?

[Igebotz]

Worth knowing that there are other wallets that has coin control which can make consolidation easy. It is not only on Sparrow wallet. Wallet like Electrum and Bluewallet have the feature. Unstoppable wallet added the feature recently

NOTED. I will add other wallets with coin control to the list, I didn't think it was necessary at first and most of these wallets as of the time I made this post were without coin control feature. Good to see other wallets are seeing the benefit of this features.

Dowload verified Sparrow wallet here https://sparrowwallet.com/download/

I would just add that it would be better to do consolidation when transaction fees are lower, that is usually weekends.
Better to check mempool.space website for confirmation.

Yeah. Could add this somewhere in the OP . This is very important.

Thank you for this really fun tutorial, great effort.

I have a question why these UTXOs are not automatically accumulated in the wallet upon accumulation, I mean why are all these UTXO payments not considered as one after they have accumulated in the wallet?

Also, is the UTXO unification feature only present in the Sparrow wallet or is it present in another wallet such as Electreum?

Different Tnx, different block space, different UTXO- every Bitcoin you receive takes a block space( see it as you renting a space so it's your duty to pay for such space when you want to move out). The only way to accumulate all UTXOs into one is by  Consolidation. Check OP.

2. There are other wallets with the coin control features not only Sparrow wallet. I will add them to the OP.

[NotATether]

It's not just very common, it's everywhere in a transaction.

All transactions must have at least one input and one output. That "output" is going to be someone's (or your) new UTXO, and those inputs are your UTXOs that you are spending.

The increase in fees when you spend multiple UTXOs in one transaction is going to be a little larger than when it only has one UTXO, but it will be cheaper than spending each of those UTXOs separately.

[gunhell16]

Thanks for this wonderful illustration tutorial. I've been hearing about this sparrow wallet for a long time; it's recommendable. Although I believe that's why I probably just got used to electrum, But since you did this, I decided to download this sparrow wallet.

This UTXO, I can read it, and because of the explanation you made, it adds a little clarity to me, so I will repeat it. Thanks for the information you provided.

[Igebotz]

Thanks for this wonderful illustration tutorial. I've been hearing about this sparrow wallet for a long time; it's recommendable. Although I believe that's why I probably just got used to electrum, But since you did this, I decided to download this sparrow wallet.

This UTXO, I can read it, and because of the explanation you made, it adds a little clarity to me, so I will repeat it. Thanks for the information you provided.

Electrum wallet also have this features now except for Dustin attack feature ( can't verify this ) but I've only seen this feature on Wasabi wallet. You can't prevent Dustin attack on Sparrow wallet and Electrum but you can manage it using the coin control feature to freeze unwanted Dustin attack.

I have a topic on this.

[NotATether]

Thanks for this wonderful illustration tutorial. I've been hearing about this sparrow wallet for a long time; it's recommendable. Although I believe that's why I probably just got used to electrum, But since you did this, I decided to download this sparrow wallet.

This UTXO, I can read it, and because of the explanation you made, it adds a little clarity to me, so I will repeat it. Thanks for the information you provided.

Electrum wallet also have this features now except for Dustin attack feature ( can't verify this ) but I've only seen this feature on Wasabi wallet. You can't prevent Dustin attack on Sparrow wallet and Electrum but you can manage it using the coin control feature to freeze unwanted Dustin attack.

I have a topic on this.

(if this was a double post then excuse me)

A really dedicated wallet would allow you to edit the UTXO set of your wallet and basically delete or otherwise blacklist the really small dust outputs so that they do not get spent. While I have not seen any wallet offer this feature (I have not and will never use Wasabi), it doesn't seem too hard to implement given that transaction fees in BTC are constant. So maybe just 1000 sats. Or if the halving makes the price cycle go up again then the limit can be made customizeable.

[Igebotz]

Thanks for this wonderful illustration tutorial. I've been hearing about this sparrow wallet for a long time; it's recommendable. Although I believe that's why I probably just got used to electrum, But since you did this, I decided to download this sparrow wallet.

This UTXO, I can read it, and because of the explanation you made, it adds a little clarity to me, so I will repeat it. Thanks for the information you provided.

Electrum wallet also have this features now except for Dustin attack feature ( can't verify this ) but I've only seen this feature on Wasabi wallet. You can't prevent Dustin attack on Sparrow wallet and Electrum but you can manage it using the coin control feature to freeze unwanted Dustin attack.

I have a topic on this.

(if this was a double post then excuse me)

A really dedicated wallet would allow you to edit the UTXO set of your wallet and basically delete or otherwise blacklist the really small dust outputs so that they do not get spent. While I have not seen any wallet offer this feature (I have not and will never use Wasabi), it doesn't seem too hard to implement given that transaction fees in BTC are constant. So maybe just 1000 sats. Or if the halving makes the price cycle go up again then the limit can be made customizeable.

Yes other wallets allow you to edit but in Wassabi wallet your chances of getting attacked is zero - all you do is turn on the dust attack feature and set certain amount of Output to blacklist - this way you dont have to worry about dust attack coming into your wallet.

Your second post about wasabi - saw one on BTT and now here. What's bad about wassabi?

[Charles-Tim]

Your second post about wasabi - saw one on BTT and now here. What's bad about wassabi?

Many experts said that they are feeding Chainanalysis with users information and censoring UTXOs. Wasabi was a very good wallet before. But there was a news recently that the wallet will be banned from United States. I do not know how true it is. The only thing I do not like about the wallet before the allegations was that it can make newbies confuse that passphrase is password as they represent it with password which is very wrong.

[Igebotz]

Your second post about wasabi - saw one on BTT and now here. What's bad about wassabi?

Many experts said that they are feeding Chainanalysis with users information and censoring UTXOs. Wasabi was a very good wallet before. But there was a news recently that the wallet will be banned from United States. I do not know how true it is. The only thing I do not like about the wallet before the allegations was that it can make newbies confuse that passphrase is password as they represent it with password which is very wrong.

I'm not convinced about it; it appears that the SEC is peddling the fake News to rally the Bitcoin community against self-custody wallets, just as they do with mixers. Chainanalysis collaborates with the US government, and if Wassabi wallet actually feeds users information to them, they will not leave the US market. Sooner or later, the US will flush out all self-custody and mixers, as well as anything else related to privacy with the help of the Bitcoin community

They've already created choke in the Bitcoin community to shoot themselves in the head.

[dkbit98]

Electrum wallet also have this features now except for Dustin attack feature ( can't verify this ) but I've only seen this feature on Wasabi wallet.

First time I hear about this, but I never had dust attack in any of bitcoin wallets I used.
I wonder if this feature will work after they stop doing Coinjoin in June, but Wasabi will soon become useless, unless some new coordinator appears.

What's bad about wassabi?

I am sure other members have lot of things to complain about this wallet, but only thing I don't like it's new interface they introduced since version 2.0

[bitmover]

UTXO Consolidation.
[/b][/size][/color]

Okay, I've already created a bunch of UTXOs from my signature earnings and daily bitcoin transfers from CEX to my wallet. What do I need to do to get rid of these UTXOs and consolidate my UTXOs into one?

Remember that you should consolidate only if the fees are really low.
Like sub 10. (Personally, I consolidate only at 1 sat vB)

Consolidation is expensive, and it won't save money in fees if fees are high. If fees are high , choose the minimum utxo possible to spend.

[Charles-Tim]

Remember that you should consolidate only if the fees are really low.
Like sub 10. (Personally, I consolidate only at 1 sat vB)

The last time I saw the fee rate at 2 sat/vbyte was in November 2023. It has always been high. Although, the mempool became less congested like 1 or 2 months ago and 4 sat/vbyte transactions got confirmed. Even during the 2023 November that 2 sat/vbyte fee rate transactions got confirmation, but the low fee transactions that were to get confirmed were still many and we knew it was not going to 1 sat/vbyte at the time. I think bitcoin tokens that are spamming the network can not make 1 sat/byte fee rate possible anymore.