Take this transaction for example:http://blockchain.info/tx-index/10949621/c4a0c86c955ba357de698ec5d7aea20a471e2185d5ebd4463eca55c7e1776388
Is it possible to consolidate all the "previous" outputs so that your transaction size isn't enormous like this? It seems that if each transaction is a summation of the largest previous outputs, transaction size/fees will only continue to grow in the future.
1) 1 BTC (address A) -> [ 0.5 BTC (B), 0.5 BTC (A) ] - 0.5 BTC from A to B
2) 1 BTC (C) -> [ 0.5 BTC (B), 0.5 BTC (C) ] - 0.5 BTC from C to B
3) [ 0.5 BTC (B), 0.5 BTC (B) ] -> 1 BTC (D) - 1 BTC from B to D
4) [ 0.5 BTC (D), 0.5 BTC (D) ] -> 1 BTC (E) - 1 BTC from D to E
Both transactions 3 and 4 require 2 previous outputs, whereas 1 and 2 only require 1. How can 3 and 4 be consolidated to prevent all prior transaction BTC amounts from being very tiny in the future?