By: Doctorbuzz1 {GitHub} Limit "Bulk Dust" with a default filter or consensus.

The proposal under discussion introduces a novel approach to mitigating the issue of UTXO (Unspent Transaction Output) set bloat in Bitcoin by focusing on limiting transactions that generate a large number of small outputs, commonly referred to as "bulk dust" transactions. These transactions are identified as the primary cause of the long-term growth of the UTXO set, prompting concerns among node operators and influencing proposals like BIP 444. The proposed solution involves establishing a dynamic threshold for what constitutes "tiny" transactions, which decreases over time based on the block height, starting at 4096 satoshis and halving approximately every four years until it reaches a hard floor of 1 satoshi. This mechanism is designed to keep pace with Bitcoin's value appreciation and technological evolution, ensuring that the definition of "bulk dust" remains relevant.

The criteria for labeling a transaction as "bulk dust" include having 100 or more outputs, each below the dynamically defined tiny transaction threshold, and these tiny outputs constituting 60% or more of all outputs in the transaction. Transactions that meet these criteria could be deemed nonstandard or invalid, depending on whether the policy is implemented as a relay policy or through a soft fork into consensus. This strategy aims to disincentivize practices that contribute to UTXO set bloat without affecting legitimate use cases, such as normal user transactions, Lightning Network channel opens, multisig spends, and batched exchange payouts, which typically feature a significant proportion of larger outputs.

The proposal also examines potential impacts on various use cases that rely on generating numerous small outputs, including embedding data in the blockchain through fake public keys or scripts, the distribution of digital art or other payloads across many dust outputs, and certain token issuance or airdrop schemes. By making these activities more costly, the proposal seeks to balance the need for blockchain efficiency with the flexibility to support future innovations. Furthermore, it raises questions about possible effects on the fee market, privacy tools, and any unintended consequences, inviting feedback from the community on these points.

The technical implementation of this proposal includes code sketches for both the relay policy filter and consensus rule changes, suggesting modifications to several components of the Bitcoin Core software. These sketches outline how to identify and reject "bulk dust" transactions based on the defined criteria, incorporating a gradual activation mechanism to allow for community consensus and adaptation.

In summary, this proposal offers a thoughtfully designed approach to reduce the negative impact of bulk dust transactions on the Bitcoin network by introducing dynamic thresholds for tiny transactions and specific criteria for identifying problematic transactions. It aims to preserve the network's efficiency and scalability while minimizing disruptions to legitimate uses of the blockchain.