Why is "consolidating inputs" considered to be profitable?

[larry_vw_1955]

1) Everytime you consolidate your UTXOs, your total balance in BTC goes down.
2) The chances of fees going up or down at any point in time is pretty much 50/50.
3) Miners love it when people consolidate their inputs since that's how they get paid by people submitting transactions.
4) Consolidating inputs carries a risk of loss from either making a mistake and sending the bitcoin to the wrong address or being hacked.

Based on the above, I don't see why someone would think that consolidating UTXOs provides them with any substantial benefits. Just use your coins when you are actually making a real purchase/transaction.

[ranochigo]

It is not profitable, you can't make more Bitcoins this way. Your consideration seems to revolve around user error or looking at it from a short term and constant fee perspective.

Barring the human error, which shouldn't be a factor in your consideration, your main consideration would be if you're able to save more on fees when the network is experiencing bouts of high fees. Consolidating numerous inputs when the fees are low allows the user to spend less when the fees are high. Consolidating inputs essentially means that instead of spending from 10 of them, you only need to spend from 1 of them.

Note that people who are using Bitcoin aren't always able to spend as and when they need. By doing so, they can save more on the fees if they need to transfer them when the fees are high. You can do your calculation in the following scenario and come up with the cost:

Given 10 inputs and a period where fees are 2sat/vbyte and another where the fees are 10sat/vbyte:

Consolidation Transaction (721.5vbytes): 1430sat
Actual Transaction (140.5vbytes) 1405sat

Total: 2835sats

Vs:
Actual Transaction (721.5vbytes): 7215sats.
 
Total: 7215sats.

[Catenaccio]

1) Everytime you consolidate your UTXOs, your total balance in BTC goes down.

You don't do consolidation every time you receive one new UTXO. Consolidation is for many UTXOs and as your preparation for transaction out in future.

If you don't consolidate your UTXOs when fee is cheap, you will have to pay more transaction fee later when mempools are loaded more, fee rates are more expensive.

Assume you consolidate your UTXOs today with 6 satoshi/byte as fee rate. If you don't consolidate now but wait for time when fee rate on tip of mempools is 60 sat/vbyte, you will pay x10 more in transaction fee, with same number of UTXOs and same transaction size.

[Frankolala]

 

1) Everytime you consolidate your UTXOs, your total balance in BTC goes down.

Yea, your total balance will be reduced with a little amount because you have to pay for the transaction fee for consolidating those many small outputs of yours to one input. It is best to consolidate your small output when the blockchain is not congested and transaction fees are very low so that it will only cost you little amount.

2) The chances of fees going up or down at any point in time is pretty much 50/50.

Yea, since nobody knows when the network will be congested and fees will be high, it is better that you are prepared for high transaction fee than low transaction fee in the future by consolidating your transaction so that you can have a big amount of bitcoin output so that when you want to spend from it you pay very little amount for transaction fee even if the fees are high in future.

3) Miners love it when people consolidate their inputs since that's how they get paid by people submitting transactions.

Miners get very little amount of money from this because not everyone that is using the bitcoin do consolidate their transactions, but only those who buy bitcoin with small amount using DCA or folks that are being paid with bitcoin when they render services, like forum member in signature campaigns. Miners benefits more when a new block is mined and when the blockchain is congested. In fact miners benefits from all transactions carried out in the blockchain. To consolidate your transactions, it happens once in a while when there is low fee, meaning it is peanut that the miners get from consolidating of transactions.

4) Consolidating inputs carries a risk of loss from either making a mistake and sending the bitcoin to the wrong address or being hacked. [/size]

It is not true, that depends on the carelessness of the person who wants consolidate his small outputs. You should not forget that even if you want to make a realtransaction, and you did not recheck the address that you are sending your coins to over and over again, you can still mistakenly send it to a wrong address, especially if you keyboard is infected with malware.

Based on the above, I don't see why someone would think that consolidating UTXOs provides them with any substantial benefits. Just use your coins when you are actually making a real purchase/transaction.

It provides benefits of saving you from spending too much on transaction fee in future when you want to spend your bitcoin. This is because nobody knows how high the transaction fee will be in 10 years time, it might be very high that the profit you have made from your bitcoin investment might be eaten up by high transaction fee if you don't consolidate those many small input into one, making you to lose out from the profit that was generated by your bitcoin investment. As long as BRC-20 token and Runes have not being eliminated from bitcoin blockchain transaction fees might not be affordable in future for people with many small output.

[larry_vw_1955]

You don't do consolidation every time you receive one new UTXO.

i never said you did.

Assume you consolidate your UTXOs today with 6 satoshi/byte as fee rate. If you don't consolidate now but wait for time when fee rate on tip of mempools is 60 sat/vbyte, you will pay x10 more in transaction fee, with same number of UTXOs and same transaction size.

i think one of the assumptions people make is that you HAVE to spend your bitcoin when the fees are at 60 sat/vbyte and that the only alternative would have been to consolidate utxos when fees had been lower. i call that an incorrect assumption. someone that didn't plan ahead like that has another option: wait until the fees go back down to a reasonable level. thus keeping their total BTC balance intact.

It provides benefits of saving you from spending too much on transaction fee in future when you want to spend your bitcoin.

why would you be so worried about the future? isn't the point of having money to not have to worry about the future?

This is because nobody knows how high the transaction fee will be in 10 years time,

so are you saying that you don't want to pay the going rate for bitcoin transaction fees if they happen to be higher one day? that doesn't sound too supportive of the bitcoin network to me...

it might be very high that the profit you have made from your bitcoin investment might be eaten up by high transaction fee if you don't consolidate those many small input into one, making you to lose out from the profit that was generated by your bitcoin investment.

fiat is for spending. maybe bitcoin is for hodling. you can't have it both ways though. i don't know how to solve your problem there!

Given 10 inputs and a period where fees are 2sat/vbyte and another where the fees are 10sat/vbyte:

Consolidation Transaction (721.5vbytes): 1430sat
Actual Transaction (140.5vbytes) 1405sat

Total: 2835sats

Vs:
Actual Transaction (721.5vbytes): 7215sats.
 
Total: 7215sats.

that's a very tiny difference currently. maybe $2 vs $5. the time it takes to actually go through the entire consolidation process and attention given to it by the user, maybe their time is worth more than that. maybe they get paid $30 per hour at their job.

[Apocollapse]

someone that didn't plan ahead like that has another option: wait until the fees go back down to a reasonable level.

What if Bitcoin price down 20% in a day and you want to sell it ASAP, but the fees is still high? don't say wait till Bitcoin price recover or anything that related to "wait". You will be forced to spend high amount of fees because you didn't consolidate your inputs.

4) Consolidating inputs carries a risk of loss from either making a mistake and sending the bitcoin to the wrong address or being hacked.

This one is really unreasonable, it's actually a risk when you get involved with Bitcoin, not necessary only for consolidating inputs.

[larry_vw_1955]

What if Bitcoin price down 20% in a day and you want to sell it ASAP, but the fees is still high? don't say wait till Bitcoin price recover or anything that related to "wait". You will be forced to spend high amount of fees because you didn't consolidate your inputs.

well if you took at 20% hit on your bitcoin portfolio, i seriously doubt your main concern for bailing would be how much it costed to "sell". you would just be willing to get out at any price to stop further bleeding am i right?

This one is really unreasonable, it's actually a risk when you get involved with Bitcoin, not necessary only for consolidating inputs.

anytime you do a transaction there is a risk of something going wrong like clipboard malware which can cause total loss of funds.

[FatFork]

Given 10 inputs and a period where fees are 2sat/vbyte and another where the fees are 10sat/vbyte:
<snip>

that's a very tiny difference currently. maybe $2 vs $5. the time it takes to actually go through the entire consolidation process and attention given to it by the user, maybe their time is worth more than that. maybe they get paid $30 per hour at their job.

What time? You mean that ten-second blink of an eye moment you need to create a single transaction in your Bitcoin wallet?  Yeah, real nail-biter.  Definitely not something mere mortals like us would consider time-consuming.

Besides, ranochigo only offered one example to support his point. You can absolutely scale the numbers up as needed. Instead of 10 inputs, imagine a hundred, or more.

edit:

2) The chances of fees going up or down at any point in time is pretty much 50/50.

Probably true, but not a very valid argument. You don't have the same chance at any point in time that the fees could increase tenfold or be ten times less.  Therefore, consolidating your inputs makes perfect sense if you want to eliminate the very real possibility of losing more money in fees in the future.

[AVE5]

Based on the above, I don't see why someone would think that consolidating UTXOs provides them with any substantial benefits. Just use your coins when you are actually making a real purchase/transaction.

Consolidation UTXOs may literally not profit miners as may think but to me, the reminants of those UTXOs are accumulates to serve as greasing the mechanism of the exchange for executing flexible transaction because those particles of UTXOs are reservoir to enhance further transaction services.

[Catenaccio]

i think one of the assumptions people make is that you HAVE to spend your bitcoin when the fees are at 60 sat/vbyte and that the only alternative would have been to consolidate utxos when fees had been lower. i call that an incorrect assumption. someone that didn't plan ahead like that has another option: wait until the fees go back down to a reasonable level. thus keeping their total BTC balance intact.

You, me and others are free to choose how we choose our UTXOs, fee rate and when to broadcast our transactions. It's freedom.

Nobody can say others HAVE TO do anything with Bitcoin. The math is only simple that if you don't plan your transaction and consolidate your inputs when fee rates are cheap, you will have to broadcast your transaction with higher fee rates.

I said with same number of UTXOs for one transaction, if fee rates are different, transaction fees are different.

Same number of UTXOs, same transaction size, so will you choose to use 6 sat/vbyte fee rate or 60 sat/vbyte fee rate. Consolidation is only one solution but there is other solutions like storing your bitcoin on centralized exchanges, leaving it there for months or years. If you do this, no fee from consolidation but the bigger risk is you will lose all your bitcoin.

I don't argue more here, it seems you stick with your opinion and don't want to listen.

[HeRetiK]

2) The chances of fees going up or down at any point in time is pretty much 50/50.

Sure, if you'd consolidate your coins at a random point in time. But the thing about consolidating your inputs is that you actively choose to time your consolidation in a way that the chance of fees going up is much higher than the chance of the fee going down. At 2sats/vbyte the chance of fees rising is much larger than the chance of fees falling and vice versa for e.g. 200sats/vbyte. You can't necessarily time when you need the coins for a purchase though, so depending on how many inputs you consolidate in a low-fee environment beforehand you can save quite a bit.

[ABCbits]

1) Everytime you consolidate your UTXOs, your total balance in BTC goes down.
2) The chances of fees going up or down at any point in time is pretty much 50/50.
3) Miners love it when people consolidate their inputs since that's how they get paid by people submitting transactions.
4) Consolidating inputs carries a risk of loss from either making a mistake and sending the bitcoin to the wrong address or being hacked.

1. That's true, although it's something people rarely do.
2. What is basis of 50/50?
3. Although based on example stated by @ranochigo, miner earn less in long run.
4. Sending BTC to wrong address is very unlikely since you just copy-paste address on wallet you already opened. Risk of getting hacked isn't that high, unless someone usually download pirated content.

Given 10 inputs and a period where fees are 2sat/vbyte and another where the fees are 10sat/vbyte:

Consolidation Transaction (721.5vbytes): 1430sat
Actual Transaction (140.5vbytes) 1405sat

Total: 2835sats

Vs:
Actual Transaction (721.5vbytes): 7215sats.
 
Total: 7215sats.

that's a very tiny difference currently. maybe $2 vs $5. the time it takes to actually go through the entire consolidation process and attention given to it by the user, maybe their time is worth more than that. maybe they get paid $30 per hour at their job.

It's true the differences is small, but i expect people who bother perform consolidation have hundred or more UTXO. And $3 difference in the example isn't small for those who live in developing country. I also expect it took less than 10 minutes, even if you select UTXO and choose fee manually.

[ranochigo]

i think one of the assumptions people make is that you HAVE to spend your bitcoin when the fees are at 60 sat/vbyte and that the only alternative would have been to consolidate utxos when fees had been lower. i call that an incorrect assumption. someone that didn't plan ahead like that has another option: wait until the fees go back down to a reasonable level. thus keeping their total BTC balance intact.

The truth is, I probably have to at times. I do certain deals with other people both on and off the forum. Not paying them immediately, and using fees to justify so is a good way to lose business.

that's a very tiny difference currently. maybe $2 vs $5. the time it takes to actually go through the entire consolidation process and attention given to it by the user, maybe their time is worth more than that. maybe they get paid $30 per hour at their job.

Simple example, and it's probably worse as we see periods of high peaks and drops throughout. Regardless, that wouldn't be a good assumption to make. I would love to save $3 if it takes seconds of my time. I hate to pay so much for small transactions.

I believe that a lot of your points are founded on mistakes when making transactions. Those can happen anytime and if you think that it may happen to you, then you might need to be more careful with how you pay.

- Clipboard malware or any malware is going to steal your Bitcoins even if you don't make any consolidation transactions.
- You can copy and paste an address wrongly whenever you're making payments.

Even if you speculate that fees may drop to 1sat/vbyte instead of remaining at 2sat/vbyte, that is fine the loss vs benefits is fairly small. Besides, we don't tell people to consolidate when fees are high. We tell them to do so when it is relatively low.

[promise444c5]

4) Consolidating inputs carries a risk of loss from either making a mistake and sending the bitcoin to the wrong address or being hacked.

Depends on how you handle your wallet right form the onset, there're alto of people who don't consolidate and they still got hacked... consolidation is just a normal transaction just like every other transaction just that the idea is just only when the fee is low / very low (consolidators choice ).
If you prioritized cold storage right from onset I don't see you getting hacked unless you comprise it yourself (which can be in different ways) About the wrong address, If you feel a malware could hijack your info on clipboard before pasting then try crosschecking the whole address twice or thrice before sending (its a good habit) besides you're dealing with funds here you should always  check over and over to be rest assured

[NeuroticFish]

Based on the above, I don't see why someone would think that consolidating UTXOs provides them with any substantial benefits. Just use your coins when you are actually making a real purchase/transaction.

Then don't consolidate your small inputs and instead, wait for one of the days the fees are a bit high and make then a test:
* try to make a payment from one (bigger) input
* try to make a payment from all those small inputs
You don't have to actually sign the transactions, you have to only check/compare the total fee (at identical sat/vbyte fee).

Of course, you can simulate this with specialized websites too, but imho the real feeling is when you do have to spend and realize that you didn't consolidate and the fees eat up a too big chunk of your funds.



A small extra: many simply don't need to consolidate funds because they don't receive so small inputs. You know, never over-generalize anything.

[larry_vw_1955]

Consolidation is only one solution but there is other solutions like storing your bitcoin on centralized exchanges, leaving it there for months or years. If you do this, no fee from consolidation but the bigger risk is you will lose all your bitcoin.

if the solution was as simple as storing it on a centralized exchange then i would have mentioned that. you're not holding real bitcoin when you have it on an exchange for one thing.

Then don't consolidate your small inputs and instead, wait for one of the days the fees are a bit high and make then a test:
* try to make a payment from one (bigger) input
* try to make a payment from all those small inputs
 

i believe you so why not just make payments using one or two bigger inputs? if you happen to need to make a payment. no need to mess with all those smaller ones. that avoids churning your bitcoin account.

What time? You mean that ten-second blink of an eye moment you need to create a single transaction in your Bitcoin wallet?  

i think if someone wants to be careful they need to take more than just 10 seconds. you must be someone who holds their entire balance in hot storage on some android app. i don't trust android apps with lifetime savings. android apps are for everyday expenses and so there would be no need to consolidate things like that since you're using the utxos on a regular maybe even daily basis.

to me doing a transaction involves alot of attention and time. at least 30 minutes. just to save $5 or $10 i probably have better things to do. but to each their own.

[ranochigo]

i believe you so why not just make payments using one or two bigger inputs? if you happen to need to make a payment. no need to mess with all those smaller ones. that avoids churning your bitcoin account.

That is what most wallets do for you, and it is a very good way of doing so. However, most people won't have unlimited amount of money and the way that change works is that you're bound to end up with a whole bunch of inputs which makes little sense to spend when fees are high. More often than not, it is necessary to spend those when paying.

Let's say I've got a client that pays me regularly for a server hosting that I do. When I'm paying someone else, the entire transaction amount would be far higher than any of my largest inputs. Hence, I'd have to spend all of them or I won't be able to pay them.

i think if someone wants to be careful they need to take more than just 10 seconds. you must be someone who holds their entire balance in hot storage on some android app. i don't trust android apps with lifetime savings. android apps are for everyday expenses and so there would be no need to consolidate things like that since you're using the utxos on a regular maybe even daily basis.

to me doing a transaction involves alot of attention and time. at least 30 minutes. just to save $5 or $10 i probably have better things to do. but to each their own.

30 minutes is probably one of the longest I've heard of anyone making a payment... But yes, to each their own and I've never heard of anyone taking more than a minute even if they're going back and forth to check the transaction 

[buwaytress]

It's not about profit, it's about keeping things lean. Yes, transacting a lot of data in peak costs a lot of satoshi, but consolidation during low periods (or using spend opportunities to consolidate) costs you a few sats.

4) Consolidating inputs carries a risk of loss from either making a mistake and sending the bitcoin to the wrong address or being hacked.

This is incredibly unsound logic. Every transaction carries this same risk of wrong address. Besides, consolidating to your own wallet has no risk of mistaken address, if you're only opening your own wallet. If you're risking being hacked every time you use Bitcoin, you're using it wrong.

[larry_vw_1955]

This is incredibly unsound logic. Every transaction carries this same risk of wrong address. Besides, consolidating to your own wallet has no risk of mistaken address, if you're only opening your own wallet. If you're risking being hacked every time you use Bitcoin, you're using it wrong.

i haven't used every bitcoin wallet out there but the ones i have used required copying and pasting payment addresses. which is something i don't like to do. i think it's very risky because i heard of malware that will change the address. then you have to manually check if the address is correct or did it get changed. maybe after you check the address and click submit that's when it might try and change it, you never really do know. that's why i don't like doing unnecessary transactions personally. it's a pain having to go through all that.

but if you know of a wallet that has a button called "consolidate all my utxos" and does it automatically i'd be interested to know what desktop software that is. not android or iphone app.

[ranochigo]

i haven't used every bitcoin wallet out there but the ones i have used required copying and pasting payment addresses. which is something i don't like to do. i think it's very risky because i heard of malware that will change the address. then you have to manually check if the address is correct or did it get changed. maybe after you check the address and click submit that's when it might try and change it, you never really do know. that's why i don't like doing unnecessary transactions personally. it's a pain having to go through all that.

You'd be surprised to know what malware can do. If you've got a malware that can change your clipboard, then you'll probably have other malware to worry about. The lamest malware will copy your clipboard and the normal ones would have gotten your private keys already. If you're scared of making Bitcoin transactions, then use a hardware wallet where you have visual confirmation on the device themselves.

Regardless, if you're this paranoid, then you probably should re-evaluate what your security practices are. This shouldn't be discouraging people to consolidate inputs, because this wouldn't be a concern for most.

but if you know of a wallet that has a button called "consolidate all my utxos" and does it automatically i'd be interested to know what desktop software that is. not android or iphone app.

Just send all the funds to another address that you control, it shouldn't be complicated enough for you to have to implement another function.