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

These are identified as a significant contributor to the expansion of the UTXO set, raising concerns among node operators and leading to proposals like BIP 444. The solution proposes a dynamic threshold for defining "tiny" transactions, initially set at 4096 satoshis and designed to halve approximately every four years until it reaches a minimum of 1 satoshi. This adjustment mechanism aligns with Bitcoin's value appreciation and technological advancements, ensuring the ongoing relevance of what constitutes "bulk dust."

The criteria for identifying a transaction as "bulk dust" involve having 100 or more outputs that fall below the dynamically established tiny transaction threshold, with these small outputs making up 60% or more of all transaction outputs. Depending on its implementation, such transactions could be considered nonstandard or invalid, either through a relay policy or by integrating it into Bitcoin's consensus rules via a soft fork. This strategy seeks to discourage practices leading to UTXO set bloat without negatively impacting legitimate blockchain uses like user transactions, Lightning Network operations, multisig spends, and batched exchange payouts. These typically include a considerable proportion of larger outputs.

Moreover, the proposal anticipates potential repercussions on use cases reliant on creating numerous small outputs, such as blockchain-based data embedding, digital art distribution, and specific token issuance or airdrop mechanisms. By increasing the costs associated with these activities, the aim is to balance blockchain efficiency with the flexibility for future innovation. It also prompts consideration of possible effects on the fee market, privacy tools, and any unintended consequences, inviting community feedback on these issues.

The technical aspects of the proposal include detailed code sketches for both the relay policy filter and consensus rule changes, suggesting necessary amendments to the Bitcoin Core software. These sketches demonstrate methods for identifying and rejecting "bulk dust" transactions based on the outlined criteria, incorporating a gradual activation process to facilitate community consensus and adaptation.

In essence, this proposal lays out a carefully crafted strategy to mitigate the adverse effects of bulk dust transactions on the Bitcoin network by introducing dynamic thresholds for tiny transactions and clear criteria for flagging problematic transactions. Its goal is to maintain the network's efficiency and scalability while minimizing disruption to legitimate blockchain functionalities.

Links to the original GitHub post and additional resources are provided for those interested in delving deeper into the technical specifications and rationale behind this proposal: Original GitHub post, Bitcoin Stack Exchange discussion, and Pastebin code.