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LESSONS

Managing UTXOs

Your wallet is a pile of UTXOs. Many small ones cost more to spend and leak privacy. Consolidate when fees are low; keep KYC and non-KYC coins apart.

5 MIN READ
COURSE · Self-custody essentialsSTAGE 3 · OWN ITLESSON 9 OF 13
Two panels comparing many small UTXOs with a few large ones.
LEVEL · Intermediate
IN THIS LESSON · 9 OF 13
BY THE END YOU WILL BE ABLE TO ANSWER
  • Why do many small UTXOs cost more to spend?
  • What is the privacy risk of combining UTXOs?
  • When should you consolidate UTXOs?
  • You have 30 UTXOs. A transaction with 30 inputs and 1 output is about 2,100 vbytes. At 3 sat/vB, what does consolidating cost in sats?

Then prove it: a 3-question quiz · a challenge. The lesson marks itself complete at 100%.

After this lesson you can: open your wallet's UTXO list, label every coin, and decide whether to consolidate this month.

From the Under the hood course: your balance is a set of unspent outputs. Each has a size and a history. How you manage them affects your fees and your privacy.

Fees

A transaction's fee depends on its size in bytes, and each input adds bytes. Spending twenty small UTXOs costs far more than spending one large one. If you DCA weekly into self-custody for years, you accumulate hundreds of small outputs. When fees are high, spending them is painful; a few are "dust", worth less than the cost to move them.

Bar chart of the fee to spend one, five and twenty inputs at the same fee rate.
Same fee rate, more inputs, bigger bill. Twenty small outputs cost ten times one large one.

Consolidation: when fees are low (a few sat/vB), send many small UTXOs to one new address of your own in a single transaction. You pay once, cheaply, to have one large output later.

Privacy

Every input in a transaction is assumed to belong to the same person (the common-input heuristic). Combine a coin bought on an exchange under your name with a coin you earned privately, and the two histories are now linked. Wallets with coin control let you choose which UTXOs to spend. Keep coins from different sources in separate accounts or wallets, and label them.

Merging a coin bought with ID and a coin earned privately links both histories.
One transaction, two histories joined forever.

Habits

  • Label every UTXO with where it came from.
  • Consolidate in quiet fee periods, within one source.
  • Do not merge KYC and non-KYC coins.
  • Do not send dust; leave it or consolidate it when fees allow.
Bitcoin Mastery - Understanding UTXOs And How To Manage Them · BTC SessionsWatch on YouTube ↗
MINI CHALLENGEConsolidation math

You have 30 UTXOs. A transaction with 30 inputs and 1 output is about 2,100 vbytes. At 3 sat/vB, what does consolidating cost in sats?

sats
CHECK YOURSELF
1/3 Why do many small UTXOs cost more to spend?
2/3 What is the privacy risk of combining UTXOs?
3/3 When should you consolidate UTXOs?
pick an answer for each question

SOURCES

  1. What is a UTXO? (River Learn)
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