Proposal: Unlocking Dust UTXOs as Miner Transaction Fees

The email from Pieter outlines technical reasons why a proposed change to Bitcoin's transaction rules cannot be implemented as a soft fork, highlighting the intricacies involved in modifying blockchain protocols. Firstly, it addresses the current limitation within Bitcoin's protocol that mandates coinbase transactions to have exactly one input for simplicity's sake. The suggestion to allow coinbase transactions to also spend certain outputs would necessitate a hardfork due to this existing rule. This is because any alteration enabling a coinbase transaction to spend outputs, which isn't currently permissible, would introduce new legal behavior rather than restricting existing ones, deviating from the nature of soft forks.

Additionally, Pieter points out the impracticality of attempting to use miners to spend outputs marked as dust, as changing this rule would also require a hardfork. The essence of softforks is to make previously valid actions invalid, not to introduce entirely new capabilities into the system. The proposal under discussion seemingly aims to circumvent the limitations on spending dust outputs by incorporating them into coinbase transactions with additional requirements such as separate signatures in the same block. However, Pieter critiques this approach on economic grounds, arguing that the costs associated with this method, including the fee for the OP_RETURN output and the coinbase transaction input, would likely exceed the value of the dust output itself. He suggests that directly spending the "dust" output, despite the witness discount, might still be more economical than employing the proposed mechanism.

This analysis underscores the complexity and potential economic inefficiencies of modifying Bitcoin's transaction protocols, especially when considering the balance between innovation and the constraints of existing rules. It serves as a reminder of the careful considerations required in the ongoing development and governance of blockchain technologies.