Hello Bitcoiners, I'm excited to share a proposal addressing a long-standing Bitcoin challenge: economically unviable dust UTXOs.

As Bitcoin's value and transaction fees increase, more UTXOs become effectively unspendable because the cost to move them exceeds their value. This creates a growing dust horizon - small amounts of BTC permanently stranded from circulation, weakening fungibility and bloating the UTXO set.

I'm basically proposing a solution that enables users to voluntarily designate their dust UTXOs as transaction fees through cryptographic authorization, allowing miners to claim them directly without requiring traditional spending. This is a win-win-win solution for users (reclaiming otherwise stranded value), miners (additional fee income), and the network (reduced UTXO set size).

Key Features

1. Entirely Voluntary - Users must explicitly authorize any dust UTXO transfer with cryptographic signatures proving ownership
2. Implementation as Soft Fork - Backward-compatible with non-upgraded nodes
3. Simple Security Model - Uses familiar signature verification without exposing private keys
4. Clearly Defined Dust Threshold - Fixed at 546 satoshis, matching Bitcoin Core's existing dust limit
5. Race Condition Prevention - Comprehensive safeguards against double-spend and miner race conditions
6. Minimal Consensus Impact - Carefully designed to introduce minimal complexity to Bitcoin's validation logic

Economic Benefits:

1. UTXO Set Cleanup - Removing millions of dust UTXOs could significantly reduce the UTXO set size
2. Enhanced Fungibility - Provides a pathway for stranded satoshis to rejoin economic circulation
3. Long-term Miner Incentive - Creates an additional fee source as block rewards diminish
4. Complementary to Existing Solutions - Works alongside batching, consolidation, and Lightning Network

Technical Implementation:

The proposal uses a special OP_RETURN output format in transactions to designate dust UTXOs for miner claiming:

Copy OP_RETURN <DUST_FEE_PREFIX> <dust_utxo_txid> <dust_utxo_vout> <signature> 

Miners can claim these UTXOs in their coinbase transaction if and only if the corresponding designation transaction is included in the same block.

Historical Context & Contributions:

it seems that previous discussions on dust UTXOs have considered various approaches, including forced reclamation. This proposal avoids those controversies by requiring explicit user authorization while still providing an economically rational path for dust cleanup.

I'd appreciate feedback on:

1. Technical feasibility of the soft fork implementation
2. Security considerations and potential edge cases
3. Economic incentive alignment
4. User experience concerns for wallet implementations

Full Proposal

You can read the full proposal draft here: https://github.com/satoshinotebook/BIPs/blob/main/unlocking-dust-utxos-as-transaction-fees.md

With respect,

Nighttime Satoshi

[[email protected]](mailto:[email protected])

https://satoshinotebook.com