Misunderstanding UTXOs will lead to problems with spending your #Bitcoin in the future.
UTXO management for beginners:
(THREAD 👇)
UTXO management for beginners:
(THREAD 👇)
Eg. If you receive 0.01 BTC from Transaction A, and 0.02 BTC from Transaction B, you would have 2 UTXOs worth 0.03 BTC.
When you transact on the Bitcoin blockchain, the amount of BTC you move doesn't matter.
What matters is how much data you are adding to the blockchain.
When you transact on the Bitcoin blockchain, the amount of BTC you move doesn't matter.
What matters is how much data you are adding to the blockchain.
Each UTXO you move requires additional computing power and takes up more space on the Bitcoin blockchain.
In Bitcoin transactions with more UTXOs, you will pay much higher fees because the size/weight/cost of a transaction is based on how much data you are sending.
In Bitcoin transactions with more UTXOs, you will pay much higher fees because the size/weight/cost of a transaction is based on how much data you are sending.
In the transaction below, you see that there is only 1 UTXO (chunk of Bitcoin) being sent.
This person paid 83.2 Sats (Satoshis) per virtual byte of data they sent.
Sending 1 UTXO worth 3.929 BTC or $169,841 to 1 address cost 10,720 Sats ($4.63).
This person paid 83.2 Sats (Satoshis) per virtual byte of data they sent.
Sending 1 UTXO worth 3.929 BTC or $169,841 to 1 address cost 10,720 Sats ($4.63).
In the transaction below, you see that 80 UTXOs are being sent.
This person paid 87.2 Sats (Satoshis) per virtual byte they sent.
Sending 80 UTXOs worth 0.36 BTC or $15,562 to 1 address cost 635,364 Sats ($274.63).
This person paid 87.2 Sats (Satoshis) per virtual byte they sent.
Sending 80 UTXOs worth 0.36 BTC or $15,562 to 1 address cost 635,364 Sats ($274.63).
If transaction fees increase significantly, some UTXOs may not be worth sending due to the transaction fees related to sending them.
Sometimes transaction fees can cost more than the value of an individual UTXO!
Sometimes transaction fees can cost more than the value of an individual UTXO!
To protect yourself from this (unusable UTXOs) only withdraw from an exchange to your own wallet when you reach AT LEAST 0.01 BTC (1,000,000 Satoshis).
This ensures you have a lot more flexibility in the future when you are spending your BTC.
This ensures you have a lot more flexibility in the future when you are spending your BTC.
If you have less than 0.01 BTC, leave your coins on a custodial wallet to avoid fees, and don't withdraw to your own wallet - wait until you have accumulated 0.01 BTC.
Anything under 0.01 BTC may put you at risk of having too many UTXOs and having to pay much higher fees later.
Anything under 0.01 BTC may put you at risk of having too many UTXOs and having to pay much higher fees later.
Having small UTXOs will likely be a very big problem for some holders in the future.
Avoid this by consolidating your UTXOs when fees aren't too high.
Avoid this by consolidating your UTXOs when fees aren't too high.
To consolidate your UTXOs:
1) Create a fresh address in your wallet
2) Send multiple small UTXOs to that address to combine them. You will receive 1 larger UTXO.
Sending small UTXOs to a new address is like exchanging 100 $1 bills for 1 $100 bill, or 4 quarters for 1 $1 bill.
1) Create a fresh address in your wallet
2) Send multiple small UTXOs to that address to combine them. You will receive 1 larger UTXO.
Sending small UTXOs to a new address is like exchanging 100 $1 bills for 1 $100 bill, or 4 quarters for 1 $1 bill.
But watch out...
Each UTXO can be tracked and traced.
You can add labels to your UTXOs to avoid telling everyone how much BTC you have in total.
Each UTXO can be tracked and traced.
You can add labels to your UTXOs to avoid telling everyone how much BTC you have in total.
There are various ways you can do this to protect yourself.
Eg. If you received transactions from someone twice, you can combine them in the same UTXO to prevent them from seeing the rest of your holdings.
Eg. If you received transactions from someone twice, you can combine them in the same UTXO to prevent them from seeing the rest of your holdings.
If you have a lot of small UTXOs, wait until transaction fees are lower to consolidate them.
For example, when transaction fees are high, you could be paying ~600 Sats/VB, 81,000 Sats/~$37 minimum per transaction!
For example, when transaction fees are high, you could be paying ~600 Sats/VB, 81,000 Sats/~$37 minimum per transaction!
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