Topic: Consolidating UTXOs in wallets. (Read 681 times)

We need a way to differentiate between addresses of the same wallet and addresses of two completely separate wallets. They are all addresses, though. In your example with Electrum, you are talking about one wallet. Let's call it Wallet #1.

Let's say you have a business or hobby that pays you in bitcoin. You could use Wallet #1 and all its addresses to receive payments for that. That's what wallet #1 will be for.

Remember, Bitcoin has a public blockchain. Anyone can check the ledger and see the history of UTXOs. Why is it a good idea to create a second wallet or a second bitcoin account? Because you may not want to connect your business coins to other types of bitcoin activity. For instance, if you are gambling, or like me and you, we participate in paid signature campaigns. Your wallet #2 with a completely different set of addresses could be used exclusively for your gambling.   

That way, there is no way to connect those two activities like when you consolidate multiple inputs into one. If you only used one wallet, you would end up with coins from your business, your gambling, something you bought on a CEX, your signature earnings, some sats your friends gave you, etc., all in the same place. If you create multiple bitcoin accounts (wallets), that would no longer be a problem, unless you intentionally connect them. It's better for your privacy and separating different activities.   

No, I was refering to wallet accounts, as described in BIP-44, BIP-49 and BIP-84.

When you import a seed phrase (12-24 words) into a software that generates a wallet, it will essentially create a large structure behind the scenes. The wallet is not just a private key and an address. It is an extended private key and an extended public key. Each of them generates a set of child keys. Then each child in the set generates another set and so on. Please observe this picture to understand what I say:



Having said that, you can create multiple accounts from the same entropy (aka seed phrase). Each account has its own unique set of addresses. Brilliant, isn't it?

Please read this article to understand how extended keys work: https://learnmeabitcoin.com/technical/extended-keys
Please read this article to understand how derivation paths work: https://learnmeabitcoin.com/technical/derivation-paths#bip-84-m840000

I am not lazy to explain, but I believe this website is better at transmitting bitcoin knowledge.

When you say that instead of using different wallets, you can create different accounts which have the same seed phrases. I think the correct word for "Account" is the different wallet address as each wallet contains many different address ( if that is what you meant   )



Same question to you ? Why don't you call it different bitcoin addresses instead of accounts. Like in Electrum you have many addresses including the change address. We don't call them accounts. I hope you and me are on the same page  

That's exactly what I do, but in my previous message I didn't call them accounts so as not to create confusion and make people think of custodial accounts on exchanges for example. I see that it still created confusion, though. Hardware wallet users will be familiar with the term 'accounts' referring to a new Bitcoin account at a different derivation path (+1) than the previous one. It still feels weird sometimes using that terminology. 

The only problem I see here is that you have to manage multiple backups because each wallet has a different seed phrase

Alternatively you could use less wallets and create various accounts for each wallet. For instance Wallet A could be the payments wallets as you said and each account could be known to the "real life instance - company" that you pay or get paid from. Thus, Wallet A - Account 0 could be for payments with company A, Account 1 could be for company B etc.

Then you could use wallet B for different reason and also use various accounts of wallet B.


This is much easier to manage.

Saving the money is not a lone  motive for consolidation  especially when the issues at hand are UTXOs relevant to hardware wallets which generally have the limited size of memory allocated for transaction data. If the given transaction has a huge number of UTXOs to sign and associated data don't fit the memory of HW, the  latter will refuse to proceed with signing and stall out.

Many people even does not know that once they spend a certain bitcoin to a wallet, the rest of the coins are send to a change address. If this information is known to people, they may think of using the coin control feature much more than they are using it right now.

The only thing which the majority of people are concerned about the Tx fee they would need to spend and most of them even do not know the reason for the high transactions fee is that Bitcoin is stored in different UTXOs in a wallet and consolidating them at a time when mempool fee is low, can be a big money saver.

Coin control has same limitations depending on the user profile.
I use multiple wallets, the one I'm doing only deposits has no problem with it as I spend the entire output, makes no difference if I want to play around with $200 for a few bets on some Ascot festival or F1 circuit and I deposit $217, on that wallet I can safely control the coins perfectly.

But on my other messy wallet I use to buy cheap small things and pay vps and vpn subs, I end up with so many and so tiny outputs they are unusable, I batched them last week and 3 or 4 of them would have been a loss over 5sat/b

That aside I don't understand the privacy thing in this so-called conjoin.
Outputs a1,a2,a3,a4 which are let's suppose known are being consolidated into b1 2b b3, calling b1 a decoy...
How is that different from sending a1,a2,a3,a4 to c1 and then splitting that for payments?

If we assume ax are known everyone can see the trail of the coins, there is no privacy whatsoever, you could have just sent each output a1>b1, a2>b2 and then consolidated those it would have set the same level of privacy, which is approximately zero.


However they aren't at all in your example, there is a simple one tx link between them!


Mixers are not offering some complete secrecy, they are used to break the links, if you're not stupid enough to, quoting from your article:


However, the article also mentions:


Which is exactly the opposite of your claim!

BTW, FinCEN has issued  proposal to consider mixers as a threat to national security.  The  clauses from a) (page 8.) to f) (page 10) allow to get better view on how to obfuscate analyzing companies by building  transactions yourself rather by   looking up for mixer service. Particularly a) states :


This is where fake conjoin can help.

If you ask me, then I was not using the coin control until I knew about it. Even i may sometimes not use it for privacy reasons but it feels good to have full control over sending our coins from whichever UTXOs and it just creates a feeling that we know the most features than an ordinary Bitcoin wallet user. As i always check the mempool fee and manually select the fee, I will also manually select the address from which I will be sending the bitcoins.

Sometimes, you use the feature because you want to use it as it feels good to use it. I know most people won't understand or agree to me, but this is how I feel. Only bitcoin lovers can understand this feeling 

Isn't coin control obsolete thanks to advancements in coinjoin technology?  When I make a transaction, there's no labels necessary because any coins being spent are completely isolated from other transactions I did.

No you are not the only one. As I said, I also do it. My sparrow wallet is always opened on the "UTXO" tab. Just like I would do if I needed to get euros out of my physical wallet. It's not like a bank account, where your money is essentially a number on the screen and you just reduce it whenever you spend.

As far as consolidation is concerned, I do it only when the sizes of the UTXOs are so low that they can't be used for a payment. And even then, I do it manually.

Am I the only one who uses coin control as the default option? Whenever I want to make a payment, I start by selecting the UTXOs I wish to spend. There are lots of reasons you should do this over automatic selection. Privacy is the biggest one, as has been discussed already. I want to spend specific UTXOs for specific things, and I definitely don't want my wallet automatically consolidating UTXOs I don't want spent together. I also don't want my wallet to consolidate UTXOs in a transaction where I am paying an above average fee for a faster confirmation - I'll consolidate any UTXOs in a combination I choose, at a fee I choose, and at a time I choose. If I select UTXOs manually, I can select one(s) to create an appropriately sized change output and not be left with dust, or spend the change somewhere else simultaneously, or create no change at all in the first place. It saves me money and fees in the long run, and protects my privacy while doing so. Why would you not use it?

I wouldn't even dream of using a wallet which does not offer manual coin control, and I'd quite like to have the option to turn off automatic coin selection altogether to eliminate the risk of making a mistake.

I mean, at the end of the day, if you throw in social media apps into that list, this is basically what the majority of users are doing.

Similarly with a Bitcoin wallet, you're either looking at your balance, sending a transaction, or generating an address to receive money. Better if the address is already generated for you to copy. I don't think many people are using coin control, though I do.

Coin control is not important only for consolidating inputs. UTXO management is very important for privacy reasons too. Essentially coin control is like managing the dollar bills in your wallet. Would you pay for potatoes with a $100 bill? Probably not. What I mean is, it is much better to know how to do coin control rather than not. It doesn't suggest a bad future for the bitcoin, but rather a bad future for the coins' owner.

Luckily, Sparrow makes coin control a default feature via at- the-start-visible UTXOs tab on the left side of the main wallet window. Thus consolidation can be made manually  , but the opt via fake conjoin is preferable as it eliminates the need of  UTXOs selection in such  way that those outputs that were sitting as inputs in one of previous transaction were not separated between different addresses after end of consolidation.

Every wallet have different feature and it is not required that every user should know about each and every feature of the bitcoin wallets.
So if the user aren't aware of coin control and no nothing about Consolidating UTXOs, that will have no impact on the use and also this does not suggests a bad future for the bitcoin.

You can have an iPhone 15, use only its basic features like calling, messaging and Internet surfing, taking pictures and videos without getting into much details of all the advance features. Does it make the Apple future Dull ? No, it will not.

It is really easy to figure it out.  When you are going to sign a transaction, click on "Advanced" and it shows the inputs you spend.  If the majority of electrum users are not aware of coin control, then I predict a bad future for bitcoin. 

What I always found peculiar about Electrum was that the software doesn't have the Coins tab enabled by default and that you have to make it visible manually from the settings menu on first installation. It helps greatly with consolidation but unless you already know about it or find the option in the settings, you wouldn't know it's there.

I haven't used the sparrow wallet so i do not know how does it offer coin control in a more better way as i usually use Electrum for bitcoins.



You are right that we can use the Addresses 1 and 2 only or whichever address we want but my point of view was that most people do not know about this feature. They may even send some bitcoin to someone, and they won't even know that their rest of the UTXOs are already combined by the Electrum through change address.

Don't confuse the entire balance of the wallet to the balance of the addresses whose UTXOs are used in a new transaction. The change from the address/addresses used for sending a transaction will be consolidated into one new address, but the rest of the coins in the wallet remain where they are and would still need to be consolidated later if your ultimate goal is to merge them all together.

Let's say your wallet has 5 funded addresses.
Address 1
Address 2
Address 3
Address 4
Address 5

You use the coins from Addresses 1 and 2 for a transaction. Any leftover chance will go to a new change address. The coins in addresses 3, 4, and 5 remain where they are.

Reading this i thing that sparrow wallet have better coin control, you can avoid this easily in that wallet.


They should know that, Well at least users who take care about their privacy.

Yes, but still when an average user will send any amount of bitcoin to someone, electrum by default will create two outputs, one to send the amount that you send to the other address and the other output to send the entire balance of the wallet to the change address. So this will automatically combine all of your UTXOs to the change address.

Not everyone know about coin control feature and not everyone is techy (or even willing to) to do all these complications.

I prefer to just use multiple wallets for different things and not connect KYC coins with non-KYC coins, for example. Wallet creation is free, use a new one (and new addresses from it) only for a specific purpose. For instance, my Sinbad signature payments go into a new wallet that's got nothing to do with my non-public addresses, private investments or my other coins I am holding for whatever reason in completely different wallets. If I do consolidations and mixing, I will still not connect those "different-purpose" coins unless I have a reason why I am doing that or don't care.   

As I have already mentioned  the consolidation via mixer is overkill.  Fake conjoin does its job perfectly and never consolidates into single address. To be true I think the  used "fake conjon" term for such  Sparow's transactions is unsuitable and misleading. I would rather  call them  "fake batch" transactions, but, unfortunately, what already exists can’t be changed.


Fake two person coinjoin

That's called "remixing", those 262 inputs and 294 outputs gained even more privacy by participating in multiple coinjoin transactions.  It's not a flaw, it's an advantage, because someone trying to track the flow of someone's coins now have to consider inputs from previous transactions and spends from future transactions.


You are wrong, a mixer is a trusted third party, they do not provide you privacy.  The instances of mixers stealing their users confirm this fact, with the end result of having their users' transaction history given to government agencies: https://bitcoinmagazine.com/technical/how-authorities-found-bitfinex-bitcoin

I did not understand how this fake coinjoin could enhance privacy. All I see is an increase in fees and making your transaction resemble coinjoin (which is not a good thing, especially for those looking to hide their identity from their friends without using mixing services) without enhancing privacy.




Blockchain analysis services give a piece of information, and the agencies collect the necessary information to link everything to an account or service to which you provided your personal data. In the previous case, there is a high probability that wallet A and D are connected because they have the same value and the starting and ending points were the same. Information like this with information Others may lead to your identity being revealed if you make a mistake, even if it is simple.

There are 262 input and 294 output collaborators, 5 coinjoin exit merges and 3 address reuses.

Their business model depends on the latter. It is utter guesswork. If a criminal mixes their coins with several individuals in a coinjoin, you can't seriously claim that every single output is now considered tainted, unless you broke the coinjoin (i.e., you were all the other participants).

A mixer is a service with sole purpose to increase on-chain privacy. The required trust doesn't change that fact, nor do the instances of mixers which were either scams or were confiscated by the authorities.

A mixer wouldn't provide you any privacy since they are a trusted third party, you would just end up having your coins stolen.

Note that if you combine all of your UTXOs to one address using a single transaction, any blockchain analysis software will know that a single person owns all of the addresses.

It is probably better to leave them like that if the inputs are large enough, i.e. no 10000 sat outputs lying around, and to combine only the dust inputs (even better, send the consolidation transaction through through a mixer first)

People should never keep  questionable UTXOs with those ones that are not problematic in one wallet.

Isolate wallets differing by ether derivation paths or any other attribute suitable for given user must be used to separate UTXOs by their types.

Fake conjoin is exclusively for consolidation purpose with preserving privacy ( Sparrow traces UTXOs and make sure that those ones that were  in one of the previous transactions will never be separated between senders it mimics)  .

Don't forget that all transactions in the blockchain are permanently recorded and publicly available, meaning that an observer can know that someone used a mixer to create new anonymous output. When you create three of such outputs and send them one by one to separate addresses, it still looks like regular transfers from different people and can be considered relatively private transactions. But once these anonymous outputs appear in a single transaction, an observer concludes all those previous transactions were made by a single person, a person who used one or more mixers to anonymize his coins. Consolidation of coins almost always damages one's privacy and lowers the overall anonymity set, but this situation may change if we come up with a technology that will make multiparty transactions look like regular consolidations.

What you just explained is correct, if someone did exactly what you said there is no problem.

I suppose that @Kruw said if you merge some mixed or coin-join transaction with another transaction that hasn't been mixed before.

Let's say that you don't have enough experience with all this topic, but you want to enter in this (i am talking of a newbie user).

Example: you have some mix of sources in your UTXOs, some of them from mixing/coin-join and some other from a KYC source like some CEX.
In that case if the user mixes some of those KYC UTXOs with some coin-joined UTXO then all the previous work becomes useless.

I remember reading somewhere before that all the "chain analysis" that some companies do is not based on any reliable document or research. It is basically something like "I believe that those Utxos belong to the same person/entity" obviously there are some cases where there is no doubt, but there are also cases where there may be doubts

How is that even possible?

To help understand easily. let's suppose i have my Bitcoins in Wallet A, Wallet B and Wallet C and I created a new Wallet Wallet D.
I used mixers to mix my coins from Wallet A to Wallet D.  Also i mixed my coins from Wallet B and C into Wallet D.

Now Wallet D contains all my bitcoins with three UTXOs. Now I Consolidating UTXOs to a change address in my wallet. Since i have mixed my coins from three wallets to my new Wallet D, no one can know the source of these transactions. Now Consolidating UTXOs one can only see that these all bitcoin belongs to one person but they will not know that these coins were mixed before reaching the Wallet D.

Where's the flaw?  All those outputs are private.

I doubt a fake coinjoin provides beyond minimum privacy. It is relatively trivial for a chain analysis company to figure out you're faking the coinjoin when the time comes and you'll have to consolidate most of the outputs you created by the fake coinjoin.

Yeah, guys. You better off use flawed software that merges outputs together and funds the operation of chain analysis. What a sham.

I totally agree, people need to know what they are doing, if they start to merge utxos without any coin control, then all the previous mixers and coin-join transaction become useless and a waste of fees.

Fake coinjoins use the same amount of block space as regular coinjoins, there's no reason to limit the number of participants in your consolidation transactions to yourself.  Unfortunately, Sparrow's Whirlpool implementation does not offer private input consolidation like the WabiSabi coinjoin protocol does, so you reveal common input ownership when entering the pool: https://bitcointalksearch.org/topic/--5286821


No, it's literal: If you are trying to privately consolidate your inputs, each marginal input added to the transaction that doesn't belong to you increases your privacy.


It depends on your coin control.  If you merge your faked outputs in the future, then it doesn't help.

About better or not that is suggestive no? The point of a fake coinjoin is that it looks like a real coinjoin and only the people who participate on it can spot it as a fake coinjoin, all outside just can see a real coinjoin transaction.

Or can you spot the difference between them and tell us what is a fake coinjoin and what is a real one?

I don't think the  real conjoin is the optimal choice if you are aimed solely to consolidate UTXOs.  For privacy improvement,  it is likely  Yes, but for single consolidation purpose it would be overkill. Besides the more relevant techniques are in your arsenal the better. BTW,  if you lean towards real conjoin , Sparrow offers this option via mixing with wirlpool.

You'd be better off consolidating them in a real coinjoin using Wasabi Wallet, BTCPay Server, or Trezor instead.

Hi, I've using the wallet for some 3-4 months and it is really easy to use.
With excelent features like:

- RBF
- Integrated mixer
- Fake conjoin
- UTXO control

Along others, the only thing that the wallet is missing is the hability to import individual key, it only offer the option to sweep them.

Over time, a user's wallet may become cluttered with numerous UTXOs originating from various sources. At this point, the necessity arises to consolidate these UTXOs. I want to highlight a technique implemented in the Sparrow wallet that facilitates this process and, at the same time,  also preserving, and sometimes enhancing, user privacy. This technique is known as "fake conjoin."

Fake conjoin involves constructing a transaction within Sparrow wallet that imitates a typical batch transaction involving two parties. When consolidating funds in Sparrow, users should select a specific address to send funds, the value of which is slightly less than half the total sum of UTXOs held in the wallet. Then, by clicking the "Privacy" button located at the bottom-right corner of the Send window, Sparrow does the job.

Sparrow automates the creation of a "fake conjoin" transaction by grouping UTXOs into two sets, mimicking two independent parties. This transaction consists of five outputs: two with identical amounts (999,974 sats in example on below picture), individually directed to the user's chosen address and a decoy address. Additionally, two outputs simulate the change for each party involved in the transaction, while the fifth output represents the transaction fee.

 
The beauty of the "fake conjoin" UTXOs-consolidation-approach  with the use of Sparrow lies in its versatility; it can be applied to virtually any wallet. Personally, I have successfully utilized this technique to consolidate my holdings stored in Passport 2 hardware wallet, paired with Sparrow. Sparrow's intuitive interface guided me through the process effortlessly.

P.S. For above instance the testcoins were used.

Readings:
1. Spending Privately
2.Stonewall

UPD. People should never keep  questionable UTXOs with those ones that are not problematic in one wallet.