Draft BIP: DustSweep – policy-only UTXO dust compaction

This initiative proposes a category of transactions that nodes would relay and miners include, specifically during periods when both mempool and block space utilization are low. The goal is to provide a reliable method for wallets to consolidate dust without introducing potential spam vectors or necessitating changes to the consensus mechanism. DustSweep transactions distinguish themselves by several key characteristics: they exclusively utilize "dust-class" UTXOs, adhere to standard transaction scripts, limit to one output without additional metadata, require a minimum of five inputs to effectively reduce the UTXO set, and implement a minimal fee policy.

There has been a dialogue around potentially modifying the DustSweep proposal to increase its effectiveness and applicability. Suggestions were made to lower the requirement from 100% dust-class UTXOs to 80%, and to relax the restrictions on the number of outputs, allowing for better aggregation of dust outputs into more significant monetary values. This adjustment aims to optimize the Bitcoin network's transaction capacity utilization while maintaining incentives for efficient block space use, especially during low demand periods. The collaboration between community members reflects a continuous effort to address scalability and efficiency challenges within the Bitcoin ecosystem.

Defenwycke's response to feedback highlights an openness to revising the proposal to ensure it remains beneficial for real-world wallet operators, focusing on making the tool safe, predictable, and economical. This adaptability underscores a commitment to enhancing the Bitcoin network's efficiency without compromising its core functionalities. The conversation also delves into the practicalities and necessity of a separate sub-mempool for managing these transactions, raising concerns about its feasibility and the potential impact on miner incentives and network bandwidth usage.

Criticism of the DustSweep proposal points to the recent reduction of the default minimum relay fee rate, suggesting that most consolidation activities have become economically viable without the need for specialized mechanisms. The critique argues that the proposal might not provide sufficient benefits over existing practices, particularly at higher fee rates where it becomes irrational for miners to participate. This feedback prompts a reconsideration of the approach to incentivizing UTXO consolidation, emphasizing the importance of aligning incentives for all network participants.

In summary, the DustSweep proposal seeks to address the inefficiencies caused by dust in the Bitcoin UTXO set through a specialized transaction type that facilitates the consolidation of small-value outputs. However, discussions within the development community reveal complexities and challenges in implementing such a scheme, including questions about economic incentives and the practicality of separate mempool management. Feedback and critiques from the community are leading to a reevaluation of strategies for improving network efficiency and scalability while ensuring that any new mechanisms introduced align with the broader goals and operational integrity of the Bitcoin ecosystem.