Reducing RAM requirements with dynamic dust

The concept of managing Bitcoin's Unspent Transaction Outputs (UTXO) set size through a feedback mechanism is introduced as a means to enhance the cryptocurrency's scalability and ensure its long-term decentralization. This approach, inspired by Proportional-Integral-Derivative (PID) control systems commonly used in engineering, aims to address the growing concerns around the unbounded accumulation of the UTXO set, which could lead to increased RAM requirements for nodes, potentially centralizing the network among well-resourced participants. The UTXO set, critical for transaction validation and wallet management, grows as transactions create new outputs, a process that, without constraints, could undermine the network's operational efficiency and accessibility.

The proposal suggests the implementation of a soft-fork mechanism to dynamically adjust a minimum value threshold below which UTXOs become ineligible for spending, thus deprecating them over time. This method intends to regulate the UTXO set's growth without imposing hard caps on usage or compromising Bitcoin's permissionless nature. By introducing a controlled variable—the target UTXO set size—and adjusting it based on actual measurements versus targets at each difficulty adjustment epoch, the system aims to maintain a balance between accommodating genuine monetary use and preventing excessive UTXO proliferation due to low-value output creation or bloat from external systems leveraging Bitcoin's security.

Key to this mechanism is the application of the PID formula, which adjusts the value floor based on the difference between the current UTXO set size and a predefined target trajectory. This trajectory would ideally grow sublinearly with time, reflecting organic adoption rates. The adjustment process involves calculations that account for immediate discrepancies, cumulative deviations, and rate of change, ensuring a balanced response to UTXO set size dynamics. To mitigate potential risks, such as network congestion from mass consolidations or unduly penalizing small holders, the proposal includes safeguards like clamps on adjustment levels and periodic reviews of system parameters through community governance.

This PID-inspired strategy represents a thoughtful attempt to preserve Bitcoin's foundational characteristics while adapting to changing demands and technological challenges. It underscores the importance of continuous research, detailed modeling, and open discourse within the community to refine and potentially implement such innovations, aiming for a more sustainable and resilient Bitcoin network. Further information on this topic can be explored in the detailed overview provided here.