Excerpt
I explain the crucial skill of UTXO management in Bitcoin, showing how it saves you money on transaction fees by consolidating small amounts of bitcoin. Learn why managing your Bitcoin funds efficiently is more important than ever and how to do it, including tips on wallets that offer coin control. Don’t miss out on this guide to optimizing your Bitcoin transactions!
Transcript
UTXO management is getting more and more important as the use of Bitcoin is increasing and the more people are using Bitcoin. UTXO management basically means that you are consolidating small amounts of bitcoin that are scattered on many different unspent transaction outputs into one UTXO. U unspent, transaction outputs, UTXO. Why is this important? When you for instance have received an amount of 30,000 Satoshi which is $20 today then these 30,000 satoshi are sitting on the blockchain in one UTXO and then a little bit later you received 10,000 satoshi and it also sits in its own UTXO because you did great and you followed the first rule of privacy in Bitcoin which is always use a new Bitcoin address to receive a Bitcoin transaction. But now you have this different UTXOs with a small amount of bitcoin on it so in total you’ve got 40,000 satoshi and now you want to spend 35,000 satoshi. Now your wallet needs to use both UTXOs to construct the transaction for this. This is how Bitcoin works and that also means that the data size of the transaction is higher than if you had for instance a UTXO with 50,000 satoshi available in your wallet because then the transaction could have been taken from these 50,000 and only one UTXO would have been needed to send the 35,000 satoshi. You would get 15,000 back. So now the wallet has to make a transaction out of the two UTXOs and the higher the data size ,the higher the fees you have to pay. So in Bitcoin it’s not the amount of money that you send that is determining the fees you pay, like in the current traditional banking system, it’s the data size and so your fees are going to be higher and that’s the reason why with rising transaction fees on-chain I recommend that you don’t buy or receive small bitcoin on-chain amounts under 250,000 or 300,000 satoshi on-chain. Better use Liquid or Lightning for this and secondly start consolidating your UTXOs if possible. Wait for a time when the fees are lower, mostly on weekends the fees go down, you can use mempool.space to see the current transaction fees. And regarding your questions if I have a tutorial, a step to a step-by-step tutorial, I don’t but I recommend you look into the tutorial that my friend BTCSessions has made. You can find it on his website. I’m going to share this with you. So BTCSessions has great tutorials and he’s explaining UTXO management for the sparrow wallet in this video because not all wallets offer the possibility that you can do coin control but Sparrow does. And also it looks a little bit different in each wallet, sometimes it’s called coin control, sometimes UTXO management and you can find this video by searching for BTCSessions and then “Avoid Bitcoin fees UTXO”, then you should find it in your search engine. So the principles are the same in every wallet, only the user interface differs and that’s why I think you can learn a good deal with the tutorial from BTCSessions and it’s also important to take coin control into consideration when you open a new wallet, for instance, like with the mobile wallets, it’s Blue wallet and then I think Samurai offers coin control but I don’t know any other mobile wallets that offer coin control that I would trust. But if you have your bitcoin in cold storage already, I know you can use Sparrow wallet which is a I think one of the best if not the best desktop wallet for Bitcoin. You can use it with a Bitbox02, you can connect it with a Trezor, a COLDCARD or a Blockstream Jade. I think you also can connect it with a Ledger, you would need to go into the Sparrow wallet documentation and find out how that works.
