Having thousands of utxos floating around for a single address is clearly a bad thing - it creates a lot of memory load on bitcoin nodes. 

However, having only one utxo for an address is also a bad thing, for concurrent operations. 

Having "several" utxos available to spend is good for parallelism, so that 2 or more tasks which are spending from the same address don't have to line up single file waiting for one of the tasks to publish a tx first so that the next task can spend the (unconfirmed) change output of the first. Requiring/Forcing/Having a single output carry the entire balance of an address does not work at scale. (Yes, this presumes that the tasks are coordinated so that they don't attempt to spend the same outputs. Internal coordination is solvable.)

In multiple replies, you push for having "all" utxos of an address spent in one transaction.  Why all?  If the objective is to reduce the size of the utxo pool, it would be sufficient simply to recommend that wallets and other spenders consume more utxos than they create, on average.  

I'm ok with "consume more utxos than you generate" as a good citizen / best practices recommendation, but a requirement that all prior outputs must be spent in one transaction seems excessive and impractical.

-Danny

On Sat, May 9, 2015 at 10:09 AM, Jim Phillips <jim@ergophobia.org> wrote:
Forgive me if this idea has been suggested before, but I made this suggestion on reddit and I got some feedback recommending I also bring it to this list -- so here goes.

I wonder if there isn't perhaps a simpler way of dealing with UTXO growth. What if, rather than deal with the issue at the protocol level, we deal with it at the source of the problem -- the wallets. Right now, the typical wallet selects only the minimum number of unspent outputs when building a transaction. The goal is to keep the transaction size to a minimum so that the fee stays low. Consequently, lots of unspent outputs just don't get used, and are left lying around until some point in the future.

What if we started designing wallets to consolidate unspent outputs? When selecting unspent outputs for a transaction, rather than choosing just the minimum number from a particular address, why not select them ALL? Take all of the UTXOs from a particular address or wallet, send however much needs to be spent to the payee, and send the rest back to the same address or a change address as a single output? Through this method, we should wind up shrinking the UTXO database over time rather than growing it with each transaction. Obviously, as Bitcoin gains wider adoption, the UTXO database will grow, simply because there are 7 billion people in the world, and eventually a good percentage of them will have one or more wallets with spendable bitcoin. But this idea could limit the growth at least.

The vast majority of users are running one of a handful of different wallet apps: Core, Electrum; Armory; Mycelium; Breadwallet; Coinbase; Circle; Blockchain.info; and maybe a few others. The developers of all these wallets have a vested interest in the continued usefulness of Bitcoin, and so should not be opposed to changing their UTXO selection algorithms to one that reduces the UTXO database instead of growing it.

From the miners perspective, even though these types of transactions would be larger, the fee could stay low. Miners actually benefit from them in that it reduces the amount of storage they need to dedicate to holding the UTXO. So miners are incentivized to mine these types of transactions with a higher priority despite a low fee.

Relays could also get in on the action and enforce this type of behavior by refusing to relay or deprioritizing the relay of transactions that don't use all of the available UTXOs from the addresses used as inputs. Relays are not only the ones who benefit the most from a reduction of the UTXO database, they're also in the best position to promote good behavior.

--
James G. Phillips IV  
"Don't bunt. Aim out of the ball park. Aim for the company of immortals." -- David Ogilvy

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