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/
You are welcome.
