Subject: Re: [bitcoindev] Proposal: Unlocking Dust UTXOs as Miner Transaction Fees

From: Light <[email-masked]>
Date: Sat, 08 Mar 2025 17:13:56 -0500

Hi Nighttime,

Several questions come to mind:

1. Why fix the limit at 546 sats? Why not allow any UTXO to be spent this way?

2. What about "dust" UTXOs owned by scripts rather than keys? e.g. multisig

3. The size of this OP_RETURN output could be a barrier, both technical and economic:

Technical: Based on the metadata contained in this output, this may be larger than the current 80-byte OP_RETURN standardness limit. Is that correct? If so, does this imply a need to increase this standardness limit, or require an assumption that the user will find their own way to circumvent this limit? e.g. using Libre Relay

Economic: Depending on the size of this OP_RETURN output and the current market fee rate, the value of the dust may still be uneconomical for the miner to claim. For example, if the OP_RETURN output is 100 vB and the current fee rate is 6 s/vB then a 546 sat dust output will not be economical for the miner to include in their block.

4. Given the above considerations, I wonder how this proposal is an improvement over the status quo at all. Does this method of spending a UTXO via OP_RETURN actually save any onchain bytes relative to "traditional spending"? And even if it does result in onchain byte savings in some or all cases, is it really worth all of the effort of a soft fork and wallet updates etc to allow them to become spendable this way if economic realities could make them uneconomical to spend anyways should we permanently transition to a paradigm of sufficiently high fee rates?

Regards,

Light

On Sat, Mar 8, 2025, at 1:23 PM, Nighttime Satoshi wrote:
> Dear fellow Bitcoin developers,
>
> I'm excited to share a proposal addressing a long-standing Bitcoin 
> challenge: economically unviable dust UTXOs.
> As Bitcoin's value and transaction fees increase, more UTXOs become 
> effectively unspendable because the cost to move them exceeds their 
> value. This creates a growing dust horizon - small amounts of BTC 
> permanently stranded from circulation, weakening fungibility and 
> bloating the UTXO set.
>
> I'm proposing a solution that enables users to voluntarily designate 
> their dust UTXOs as transaction fees through cryptographic 
> authorization, allowing miners to claim them directly without requiring 
> traditional spending. This is a win-win-win solution for users 
> (reclaiming otherwise stranded value), miners (additional fee income), 
> and the network (reduced UTXO set size).
>
> Key Features: 1. *Entirely Voluntary* - Users must explicitly authorize 
> any dust UTXO transfer with cryptographic signatures proving ownership
>  2. *Implementation as Soft Fork* - Backward-compatible with 
> non-upgraded nodes
>  3. *Simple Security Model* - Uses familiar signature verification 
> without exposing private keys
>  4. *Clearly Defined Dust Threshold* - Fixed at 546 satoshis, matching 
> Bitcoin Core's existing dust limit
>  5. *Race Condition Prevention* - Comprehensive safeguards against 
> double-spend and miner race conditions
>  6. *Minimal Consensus Impact* - Carefully designed to introduce 
> minimal complexity to Bitcoin's validation logic
> Economic Benefits: 1. *UTXO Set Cleanup* - Removing millions of dust 
> UTXOs could significantly reduce the UTXO set size
>  2. *Enhanced Fungibility* - Provides a pathway for stranded satoshis 
> to rejoin economic circulation
>  3. *Long-term Miner Incentive* - Creates an additional fee source as 
> block rewards diminish
>  4. *Complementary to Existing Solutions* - Works alongside batching, 
> consolidation, and Lightning Network
> Technical Implementation:
> The proposal uses a special OP_RETURN output format in transactions to 
> designate dust UTXOs for miner claiming:
>
> OP_RETURN <DUST_FEE_PREFIX> <dust_utxo_txid> <dust_utxo_vout> <signature>
>
> Miners can claim these UTXOs in their coinbase transaction if and only 
> if the corresponding designation transaction is included in the same 
> block.
>
> Historical Context & Contributions:
> It seems that previous discussions on dust UTXOs have considered many 
> approaches, including forced reclamation. This proposal avoids those 
> controversies by requiring explicit user authorization while still 
> providing an economically rational path for dust cleanup.
>
> You can read the full proposal draft here: 
> https://github.com/satoshinotebook/BIPs/blob/main/unlocking-dust-utxos-as-transaction-fees.md
>
> I'd appreciate feedback on:
>
>  1. Technical feasibility of the soft fork implementation
>  2. Security considerations and potential edge cases
>  3. Economic incentive alignment
>  4. User experience concerns for wallet implementations
> Thank you for any feedback! I believe it offers a practical solution to 
> a growing challenge that will only become more significant as Bitcoin 
> continues to mature and evolve.
>
> With respect,
>
> Nighttime Satoshi
>
> [email-masked]
>
> https://satoshinotebook.com
>
>
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