Proposal: Unlocking Dust UTXOs as Miner Transaction Fees

Pieter Wuille has introduced a novel proposal aimed at addressing the issue of economically unviable dust UTXOs within the Bitcoin network. These small amounts of BTC, known as dust, are becoming increasingly difficult to spend due to their value being lower than the transaction fees required to move them. This situation not only affects fungibility but also contributes to the bloating of the UTXO set, presenting a challenge for the Bitcoin ecosystem.

Wuille's solution proposes a system where users can voluntarily allow their dust UTXOs to be used as transaction fees. This method involves cryptographic authorization, which permits miners to claim these UTXOs directly, bypassing the need for traditional spending mechanisms. The approach is designed to be a tripartite benefit: helping users recover value otherwise lost in dust, providing miners with an additional source of fee income, and reducing the overall size of the UTXO set.

Key features of this proposal include its voluntary nature, requiring explicit user consent through cryptographic signatures; implementation via a soft fork, ensuring backward compatibility; a simple security model that relies on signature verification without exposing private keys; a clear definition of the dust threshold aligned with Bitcoin Core's existing limit; measures to prevent race conditions and double-spending; and minimal impact on Bitcoin's consensus logic.

Economically, this initiative could significantly clean up the UTXO set, enhance Bitcoin's fungibility by allowing stranded satoshis to re-enter circulation, provide a new source of fees for miners especially as block rewards decrease, and complement existing strategies such as batching, consolidation, and the Lightning Network.

The technical aspect of the proposal leverages a special OP_RETURN output format in transactions to mark dust UTXOs for miner claiming. Miners would then be able to claim these designated UTXOs in their coinbase transaction, contingent upon the inclusion of the designation transaction within the same block.

Wuille also notes the historical context of the discussion around dust UTXOs, highlighting that previous considerations have included more forceful reclamation methods. This proposal seeks to navigate past controversies by insisting on user authorization, thus offering an economically rational avenue for clearing dust without compromising user autonomy or security.

The proposal document, hosted on GitHub, details the technical feasibility, security considerations, economic incentives, and potential impacts on user experience. This initiative represents a thoughtful response to the growing challenge of dust UTXOs, aiming to improve Bitcoin's efficiency and utility as it continues to evolve. Further feedback is sought from the community to refine and enhance the proposal. The full proposal can be read here.