Topic: UTXO Management Best Practices (Read 306 times)

UTXO management is a primary task for possessors of hardware  wallets due to the limited size of inner memory allocated by these devices for transaction's data. If transaction has many outputs to sign, then  the size of relevant data may not fit this memory and hardware wallet will fail in attempt to sign it. Thus. it is always better to keep no more than two dozens of UTXO on a single address, consolidating them at the low mempool level.

Use both features. The mixer will make your coins private, and coin control will allow you to choose where to spend the mixed outputs best, without inadvertently placing them in transactions that they're not supposed to be in there.

Coin control by itself is not very useful unless you have a specific use case for it, e.g. you have donation addresses that should not be mixed up.

The first step is to separate anonymous UTXOs (with coins that you obtained without providing any personal information) from so-called KYCed coins (coins that came from platforms requiring providing documents and other personal data). This step is not necessary for privacy but rather for adhering to the principles of financial literacy: you should always remember that money loves silence, which means you don't want your employer, for instance, to know you have other sources of income. The second step is to understand what you need cryptocurrency for, the sizes of your UTXO and their quantity will depend on your personal daily/monthly/yearly expenses and area of interest. While assessing these parameters, you should also take into account the continuous volatility and especially the growth of Bitcoin's price. For example, if you pay for a monthly subscription to some service with Bitcoin, you have two options: you either prepare a certain amount for each month or you create a big UTXO once and then gradually reduce its size. In the first case, you need to track the price and prepare the exact amount to send (you don't want to create a bunch of small UTXO with change), and in the second, you don't need to do anything.

You cannot send 10 BTC in a single 0.01 pool. Your maximum input can be 0.7 BTC: https://docs.samourai.io/whirlpool/basic-concepts. You'll have to split that 10 BTC into 15 pieces, which would cost you 7.5 mBTC, so in that case, you'd be better of with 3 splits using the 0.05 pool, as that'd come at 5.25 mBTC, and you would saved a lot in mining fees as you'd have 5 times less outputs; with 0.01 pool, you have 1000 UTXO, but with 0.05 only 200.

Also, be careful when spending toxic change.

I would use CoinJoin to consolidate your UTXOs for a couple of reasons.

1. When you use CoinJoin to consolidate, you will increase your own privacy as well as the privacy of other users in the CoinJoin. The more people that use CoinJoin, the greater the anon set becomes and everyone has more privacy as it becomes more difficult to know for sure who controls which addresses. If you consolidate all of your sats into one UTXO of 10 bitcoin, then you will give away a lot of personal information about your holdings to everyone that you spend with in the future as well as create one massive peeling chain as you spend it over the life of the UTXO and all of the change UTXOs that you create.  

2. Whirlpool has fixed UTXO sizes. The most common ones are 1,000,000 sats and 100,000 sats so not only do you have more privacy after you CoinJoin but you also have UTXOs that are nice round numbers. That you can spend in the future. If you send all 10 bitcoin into the 1 million sat UTXO pool, it will take a long time to CoinJoin it all but you will have ~1,000 UTXOs that are all 1,000,000 sats each and when you spend, you can just spend one at a time or maybe use a few of them to make larger payments. If you don't spend any bitcoin until the price is $500,000 per coin, then a single 1,000,000 sat UTXO will be worth $5,000 and I don't know anyone who walks around with that kind of money in their wallet. You could send a single 100k sats UTXO to your wallet for most of your daily spending and use a 1 million sat UTXOs for larger things like buying cars, or making house payments and the like.  

If you decide to consolidate some UTXOs, I would strongly encourage you to use Whirlpool to CoinJoin to increase your privacy, the privacy of others, and have UTXOs that are all consistently sized so you can spend them easier in the future without giving away personal information about your holdings by creating a massive peeling chain as you slowly spend large UTXOs over a long period of time.

I hope that helps you make the best decision for you.

It's kind of contradictory to ask for advice on best practices and completely disregard privacy. The best practice would be to only consolidate coins that come from the same source. If you only want to minimize your fees as much as possible then having the fewest amount of coins is the ideal way to go.

For an average person spending 1 full BTC would take a really long time so I would consider sending 1 BTC to 10 addresses in a pay-to-many transaction to avoid it being identified as a self-send and having a bit of plausible deniability.

Warning is using mixer means your bitcoin will likely be marked as tainted coins by exchanges and centralized platforms. It can trigger their bots to mark your accounts on their platforms as suspicious and your accounts can break their Terms of Service, AML policy. Your account even can be frozen, terminated by AML violation and you have to think carefully before deciding to use a mixer.

If you don't want to have issue and you don't need too high privacy, you don't actually need to use mixers. Use a wallet software with Coin control feature to control your UTXOs is good enough and no mixer will be needed.

  High quality UTXO way  of managing can lead to not high fees, quicker process and enhance security online,a UTXO is a processed output which can be employed as input in a new transaction , the basic nature of UTXO explain where every blockchain transaction begins and ends.
  
  The UTXO model is a forming element of Bitcoin and various cryptocurencies. Managing your UTXO starts with a fundamental knowledge of Bitcoin fees and dust ,bringing down these two particular skillfull actions to effective capital  management.
  
  In moving in smooth flow without any disturbances, the management of fund and minimise fees a special skill called UTXO consolidation can be used. This skill include coming together multiple U TXOs in a single one, giving benefit such as improved privacy and to make smaller transaction size on blockchain . Blockchain like Bitcoin , LTC, DASH and others rely on Unspent transaction output  (UTXOs) to keep  part of account balance and extremely important and necessary funds gotten by and available for a wallet.

Yes, just like when you want to buy an item of $50 with a $100 bill, the seller would return a change of $50 back to you, but they know at that moment that you have $50 in your pocket. Coin control is important for privacy reasons and you should use it to select UTXO's that you want to spend. Or you can send the UTXO through a mixer and receive in it in new and unused address before making the payment you want to make.
Different wallets actually does the trick, one wallet can hold the majority of your funds, you would not want to use a wallet hodling 10 BTC to make a small payment to a friend or to buy coffee, and another wallet can hodl smaller amount of funds.

UTXOs are what you receive from incoming transactions or as left-overs of your past sending transactions. Are you able to control number of UXTOs in your wallet?

You can and you can not.

You can because you can consolidate your inputs (UTXOs) as your preparation for your outputs later.

You can not because you can not control what people send coins to you, the more time you receive coins, a more UTXOs you will have if you don't consolidate them.

To save fees for consolidations and for sending transactions, you should pick times when mempools are clear to enjoy low, cheap fee rates.

[Guide] Consolidate your small inputs
https://mempool.space/
https://jochen-hoenicke.de/queue/#BTC%20(default%20mempool),24h,weight
[Telegram Bot] Bitcoin Fees - fees and tx tracker

I think you could solve it in the following way: Try to imagine what kind of transactions you will do in the future? For example, lets say you have 10 BTC total. I dont think there is any problem to consolidate your UTXOs, each containing 1 BTC. Most of your future transactions will probably not exceed 1 BTC in value. This means that when you use one UTXO, you will not immediately expose your entire stash, and on the other hand, you still enjoy the benefits of low transaction fees. If you have to spend more than 1 BTC at once, I dont think you will have a problem with a slightly higher transaction fee.

So, in short, I would recommend dividing your total stash into tenths and using only one of those UTXOs for small transactions.

Thank you, that is actually helpful. It raises a privacy concern that I had not considered before. I had considered backwards looking privacy issues, but not forwards looking. If I have a UTXO of any meaningful amount in the future and make a transaction, the recipient can see the change and know to some extent how much bitcoin I have, right? Therefore it may be prudent to have UTXOs of a decent size for cost savings but not large enough to reveal meaningful holdings.

Recommendations I've come across somewhere suggest an optimal UTXO size of 1,000,000 sats. This figure seems to be  consistent with the  current Bitcoin distribution.




Large-sized UTXOs add threat  to privacy   due to 1) keen interest in addresses that hold them 2) the substantial  size of  possible change if such UTXOs are  in transactions.

On the other hand, too small UTXOs may result in increased transaction cost due to the fee needed to cover  the extra inputs

I have no plans to spend any coins anytime soon, which is why I am toying with the idea of consolidating now given the relatively low transaction fees assuming the fees will go up in the future. I was considering consolidating into multiple uniform UTXOs, e.g. ten 1 bitcoin UTXOs. That way in the future if I need to spend, I am not breaking apart one ten bitcoin UTXO, etc. Again, setting aside the privacy issues, these are all UTXOs linked to KYC information from various exchanges over the years. I have played around with coinjoins in the past, but not interested in it at this time.

How large? Did you reffer to the amount to put in each utxo?
Well in that case it depents of how much are you willing to spend in the future,  for example right now 100 USD are like  ~296000 sats



So if you are going to expend less than 100 USD  you can use utxos less  around that amount, And maybe some 1 or 2 utxos with some x2  or x3 of that amount, just to get some options at the spending time.
All of this is upto you and you are going to receive a lot of mixed opinions, so try to read all of them and form your own opinion


Thank you i am going to test it later

UTXO can hold any amount of bitcoin, if you say 10 BTC then clearly you can fit 10 BTCs into one UTXO by consolidating it and it can be cheaper to transact compared to two 5 BTC UTXOs.

How large it should be depends on your preference, for example, if you are going to hold it for the long term and will sell all 10BTC at once when the desired price reached then holding it in one address is the wise choice but if you are someone who wants to spend BTC for purchases then don't hold more than 1 BTC in my opinion or the receiver can find how much your balance.

Thanks everyone for your feedback. It seems to me there are no clear answers to my questions since the issue is so personal to everyone.

I understand all the privacy considerations with UTXOs. I understand how fees play a role with various UTXOs. I understand how consolidation and change works, etc. My wallet has coin control features. I was simply wondering if there is a general idea of how large a UTXO should be.

Thanks everyone for your input.

Bluewallet wallet has coin control. Available both on Android and iOS. Also on MacOS. On mobile and other online wallets, little amount of coins is advised.

This is some kind of repetitive topic, There are some two or three opions for this.

If you care about your privacity then some wallet like Samourai wallet can help you to automatically construc some Stonewall transaction but this may be some expensive when fees are high

If you are more worried about savings then you can use only one or two inputs in each transactions to one or two destinations (One of them your change address)

If you are using PC you can use Sparrow wallet that have a really good coin control, But also some other wallets can be helpful like electrum.

You know about privacy and if you do not want to link your UTXOs together in a transaction, do not go for this: if you want your future transaction to be of the lowest fee, you need only one UTXO. Set the fee to 2 sat/vbyte and send it all to only one address that belongs to you. But this is about no privacy.

The more UTXO's you have, the more fees you will pay when you want to spend your coins, that is why you are advised to consolidate your smaller inputs/utxo's whenever transaction fees is low, so that you can save fees for yourself when you want to spend your coins later.
If you are concerned about the fees you'll pay when spending, then one UTXO. If you want to separate your coins for security reasons and to remove the chance of a single point of failure, then different UTXO's in different wallets, if you are concerned about your privacy, use coin control to spend specific UTXO's.

I am wondering if anyone here has any recommendations for UTXO management best practices. Setting aside privacy issues (I am aware of those), and focusing only on future cost savings, how big should my UTXOs be? For example, if I have 10 bitcoins in cold storage, should I make one 10 bitcoin UTXO? Two 5 bitcoin UTXOs? Ten 1 bitcoin UTXOs? I am sure the answer is different for everyone base don their preferences and needs, but am wondering what people think. Thank you for your opinions.