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

From: Nighttime Satoshi <[email-masked]>
Date: Sat, 8 Mar 2025 10:23:28 -0800 (PST)

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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