Dust Expiry: Clean the UTXO set from spam

The discussion revolves around the implementation of a dust expiry mechanism in Bitcoin, aimed at efficiently managing unspent transaction outputs (UTXOs) that impose a cost on the system without providing proportional value. The proposed system targets UTXOs with minimal value—referred to as "dust"—which do not significantly contribute to Bitcoin's worth due to their small size. These UTXOs are considered more of a liability than an asset to the network because they burden the system without offering sufficient utility or security enhancement reflective of their holder's conviction in Bitcoin.

A key aspect of the proposal is the introduction of an accumulator scheme designed for updating the state of UTXOs by using inclusion proofs. This method is favored over alternatives that require knowledge of the entire set of UTXOs, which would introduce unnecessary overhead. By focusing on just the "spentness" bit of UTXOs, the proposal aims to streamline the process, making it both efficient and effective in managing the state of UTXOs without incurring significant computational costs.

Furthermore, the concern regarding the potential bulkiness of the dataset comprising expired UTXOs is addressed through innovative encoding and compression techniques. It is estimated that location pointers—which indicate the position of each UTXO in the blockchain—can be encoded in less than 8 bytes. Given the approximately 100 million spam UTXOs created in recent years, the total size is projected to be around 800 MB. However, through sorting and leveraging the low entropy of certain UTXO attributes, such as block_height and output_index, significant compression can be achieved. This could potentially reduce the size to 4 bytes per entry or even less, further mitigating concerns about data manageability and efficiency.

By implementing these measures, the proposed dust expiry mechanism not only aims to reduce the burden of low-value UTXOs on the Bitcoin network but also seeks to disincentivize spam attacks that generate such UTXOs. This approach reflects a balanced principle that recognizes the cost imposed by every UTXO while ensuring that only those whose costs outweigh their contributions are penalized. Through strategic data management and innovative technical solutions, the proposal offers a promising pathway to enhance Bitcoin's scalability and operational efficiency.