The end of the year is approaching and you may be on vacation right now. A great time to spend your free time managing UTXO! If you do this at the right time, you can save a lot of money if you want to sell your Bitcoin in the future.
Please note: do you only have your Bitcoin on BLOX? So you can skip this article, UTXO management is only important if you have your coins elsewhere.
What is UTXO in Bitcoin?
UTXO stands for Unspent Transaction Output. This is a technical term that describes how much Bitcoin is left after a transaction.
Suppose you have 10 Bitcoins in your Bitcoin address. You want to send 5 Bitcoins to your friend. To do this, you must create a transaction. The input for this transaction is the 10 Bitcoin you have in your address. The result of the transaction is the 5 Bitcoins you send to your friend and the 5 Bitcoins you left at his or her address.
The transaction is then processed by the Bitcoin network. The 10 Bitcoin insertion disappears and the 5 Bitcoin you send to your friend is added to the blockchain as a new UTXO. The remaining 5 Bitcoins at your own address will also be added to the blockchain as a new UTXO.
Now you still have 5 Bitcoin at your address. Your address balance is determined by the sum of all UTXOs associated with that address. In this case, your address balance is 5 Bitcoin.
Sell all your Bitcoins
The more trades you make, the more UTXOs you will have. So if you buy Bitcoin through DCA every month and send it to your wallet, one UTXO will be added every month.
At some point you decide that you have enough Bitcoin and that the price is high enough to sell it. If you want to sell everything at once, this is not considered a transaction, but each UTXO associated with your address is a separate transaction.
Miners are paid, among other things, to record these transactions on the blockchain. Mining fees are calculated based on data size and network activity (read: number of UTXOs), not based on the value of the amount transferred.
Each UTXO added to a transaction increases the transaction fee.
Save transaction costs
Once you’ve collected a lot of UTXOs, there are a number of things you can do to reduce these costs. One trick is to send your Bitcoin to yourself. Such a transaction consumes all UTXOs, deducts transaction fees, and sends the rest back to your receiving address as one UTXO.
While it may seem counterintuitive to pay to save money, doing so ensures that your Bitcoin is ready for future sales. It makes sense to do this when transaction costs are low.
The graph above shows the evolution of transaction costs. You can often manage your UTXOs for virtually free (now is not one of those times).
Another option is to send your Bitcoins to BLOX when transaction fees are low. If you are sure that you want to profit from your Bitcoin, you can also send it to a trusted person in a timely manner. So you can wait patiently for a good time to immediately convert your Bitcoin into euros, without having to worry about UTXOs and miners.
Source: BTC Direct
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Barry Siefert is an accomplished journalist and author at The Nation View. He is known for his expertise in the field of cryptocurrency, and has written extensively on the topic. With a background in finance and economics, Barry has a deep understanding of the underlying technology and market forces that drive the crypto industry.
