Author: Pieter Wuille 2015-05-09 19:06:13
Published on: 2015-05-09T19:06:13+00:00
The issue of UTXO growth and its impact on transaction fees and privacy is a complex trade-off that is hard to optimize for all use cases, as it requires larger transactions and results in more linkage between coins/addresses used, leading to lower privacy. One way to guarantee an economical reason to keep the UTXO set small is by having a consensus rule that punishes increasing its size. However, Jim Phillips suggests dealing with this issue at the source of the problem - wallets - by consolidating unspent outputs. Rather than selecting only the minimum number of unspent outputs when building a transaction, wallets could select them all and send the rest back to the same address or a change address as a single output. This method could limit the growth of the UTXO database over time. The developers of popular wallet apps have a vested interest in the continued usefulness of Bitcoin and should not be opposed to changing their UTXO selection algorithms to reduce the UTXO database instead of growing it. Miners benefit from these types of transactions as they reduce the amount of storage they need to dedicate to holding the UTXO and are incentivized to mine them with higher priority despite low fees. Relays could also enforce this behavior by refusing to relay or deprioritizing transactions that don't use all available UTXOs from input addresses. Overall, this proposed solution could help mitigate the issues of UTXO growth while maintaining transaction fees and privacy.
Updated on: 2023-05-19T20:20:16.934155+00:00