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UTXO Consolidation Strategies

Consolidation is combining multiple UTXOs into fewer, larger ones. Done correctly, it reduces future transaction costs. Done incorrectly, it destroys privacy.

When to Consolidate​

Check the Fee Environment​

Before consolidating, check current fee rates at mempool.space:

Fee RateRecommendation
1-10 sat/vB🟢 Excellent time to consolidate
10-30 sat/vB🟡 Good, proceed if needed
30-100 sat/vB🟠 Wait if possible
100+ sat/vB🔴 Do not consolidate

Signs You Need Consolidation​

  • You have many UTXOs under 0.01 BTC
  • Your last transaction used 5+ inputs
  • You're paying high fees for simple sends
  • You've been dollar-cost averaging in small amounts

The Privacy-Preserving Consolidation Rule​

Critical Rule

Only consolidate UTXOs from the SAME source.

Never combine:

  • KYC with non-KYC
  • Different exchanges
  • Mixed with unmixed

Why This Matters​

When you consolidate, you create an on-chain record that says "all these UTXOs belong to the same person":

CONSOLIDATION:
────────────────────────────────────────────
0.01 BTC (from Coinbase)     ─┐
0.02 BTC (from Coinbase)     ─┼─→ 0.06 BTC (to yourself)
0.03 BTC (from Coinbase)     ─┘

✅ Good: All from same source, already linked to same identity
BAD CONSOLIDATION:
────────────────────────────────────────────
0.01 BTC (from Coinbase)     ─┐
0.02 BTC (from Kraken)       ─┼─→ 0.06 BTC (to yourself)  
0.03 BTC (non-KYC trade)     ─┘

❌ Bad: Now Coinbase, Kraken, and your non-KYC 
       coins are all linked together forever!

Step-by-Step Consolidation​

Step 1: Sort Your UTXOs by Source​

Open your wallet's UTXO view and categorize:

COINBASE UTXOs:        KRAKEN UTXOs:         NON-KYC UTXOs:
- 0.005 BTC            - 0.008 BTC           - 0.05 BTC
- 0.003 BTC            - 0.012 BTC           - 0.02 BTC
- 0.007 BTC            - 0.004 BTC
- 0.002 BTC

Step 2: Plan Each Consolidation Separately​

Each source gets its own consolidation transaction:

Transaction 1: Coinbase UTXOs
  0.005 + 0.003 + 0.007 + 0.002 → 0.017 BTC (minus fee)

Transaction 2: Kraken UTXOs
  0.008 + 0.012 + 0.004 → 0.024 BTC (minus fee)

Transaction 3: Non-KYC UTXOs
  0.05 + 0.02 → 0.07 BTC (minus fee)

Step 3: Execute During Low Fees​

  1. Wait for fees to drop below 15 sat/vB
  2. Use coin control to select only same-source UTXOs
  3. Send to a new address in your own wallet
  4. Set a low fee (since timing isn't critical)
  5. Label the new UTXO with its source

Step 4: Verify and Label​

After confirmation:

  • Check the new UTXO appears in your wallet
  • Label it with the source (e.g., "Coinbase consolidated 2024-01")
  • Verify old UTXOs are gone

Consolidation Math: Is It Worth It?​

Before consolidating, calculate if it saves money long-term.

The Calculation​

Cost to consolidate now:

Inputs: 10 UTXOs × 68 vB = 680 vB
Outputs: 1 × 34 vB = 34 vB
Overhead: 10 vB
─────────────────────────────────
Total: ~724 vB

At 10 sat/vB: 7,240 sats (~$7)

Future cost without consolidation:

If you spend these 10 UTXOs later at 100 sat/vB:
724 vB × 100 sat/vB = 72,400 sats (~$72)

Savings: ~65,000 sats ($65)

When NOT to Consolidate​

  • Privacy cost is too high — Don't consolidate different sources
  • UTXOs are already large — No benefit to combining 0.5 BTC UTXOs
  • Fees are high — Wait for a better time
  • You're mixing soon — Let CoinJoin handle it

Target UTXO Sizes​

After consolidation, aim for these sizes:

PurposeTarget SizeReasoning
Long-term holding0.1 - 1.0 BTCEfficient for large future spends
Regular spending0.01 - 0.1 BTCFlexible without revealing full stack
Minimum viable0.01 BTCStays economical in most fee environments

Example Target Portfolio​

After consolidation:
─────────────────────
1 × 0.5 BTC    — Long-term savings
3 × 0.1 BTC    — Medium transactions
5 × 0.02 BTC   — Small payments
─────────────────────
Total: 0.9 BTC in 9 UTXOs (was 47 UTXOs)

Advanced: Consolidation for Different Wallet Types​

Single-Signature Wallets​

Standard consolidation as described above. Each input costs ~68 vB (SegWit).

Multi-Signature Wallets (2-of-3)​

Multi-sig inputs are larger (~105 vB for 2-of-3). Consolidation is even more valuable:

10 UTXOs in 2-of-3 multisig:
- Without consolidation: 10 × 105 vB = 1,050 vB of inputs
- After consolidation: 1 × 105 vB = 105 vB of inputs
- Savings: 945 vB per future transaction

Hardware Wallet Considerations​

When consolidating with hardware wallets:

  • You'll need to sign the transaction on the device
  • Large consolidations (50+ inputs) may take time to sign
  • Some hardware wallets have limits on inputs per transaction

Timing Your Consolidation​

Best Times to Consolidate​

  • Weekends — Typically lower fees
  • Holidays — Less trading activity
  • After major fee spikes — Mempool clears out
  • When mempool is nearly empty — Check mempool.space

Worst Times to Consolidate​

  • During market volatility — High trading = high fees
  • After Bitcoin halving events — Historical fee spikes
  • When mempools show backlog — Wait for it to clear

Consolidation Checklist​

Before each consolidation:

  • Fees are below 20 sat/vB
  • All selected UTXOs are from the SAME source
  • I'm sending to a fresh address in my own wallet
  • I've calculated the fee savings to confirm it's worthwhile
  • I have the new UTXO labeled with its source
  • I'm not in a hurry (can wait for confirmation)

Related: Learn about coin control to properly select UTXOs for consolidation.