Proposal: Unlocking Dust UTXOs as Miner Transaction Fees

The discussion revolves around the proposal to address the issue of Bitcoin dust, focusing on economically unviable outputs. The initial suggestion employs a 546-satoshi threshold for identifying dust, which is not fixed but based on the current dust threshold in Bitcoin Core for P2PKH outputs. A dynamic approach is favored, allowing wallet software to adapt the threshold based on mempool conditions, thus providing flexibility with changing network circumstances. Users can designate any UTXO as "dust," but it's anticipated that only those below the spendable threshold will be chosen by economically rational users.

The proposal primarily targets simple key-controlled UTXOs, such as P2PKH and P2WPKH, due to their straightforward verification process and significant representation in dust UTXOs. This focus is intended to keep the initial implementation manageable by avoiding the complexities associated with extending the mechanism to complex scripts like multisig. However, there is an openness to future expansions that could incorporate more complex script types once the basic mechanism proves effective.

A concern highlighted is the potential for metadata requirements to exceed the standard 80-byte limit, suggesting alternative storage in SegWit witness data or the use of new witness versions for efficient encoding. Another possibility is implementing Schnorr or aggregated signatures to reduce signature sizes, which would help maintain economic viability even during high-fee periods by significantly reducing transaction weight.

The proposed mechanism differs from traditional spending methods by eliminating the need for full input scriptSig/witness data, as miners would directly claim the designated dust UTXOs in their coinbase transactions. This approach is seen as efficient, especially when multiple dust UTXOs are designated in a single transaction, thereby questioning the necessity of a soft fork. The benefits outlined include addressing the growing issue of Bitcoin dust, unlocking trapped value in dust UTXOs without upfront user fees, providing an additional revenue stream for miners, enhancing Bitcoin's scalability through UTXO set cleanup, and improving fungibility by reintegrating stranded satoshis into the economy.

Finally, it is clarified that when miners "claim" dust UTXOs, these are permanently removed from the set, transferring their value directly into the miner's coinbase output as newly spendable satoshis. This process is restricted to miner coinbase transactions to simplify consensus rules and minimize risks associated with extending this capability to regular transactions.