What Is a UTXO? The Key to Bitcoin Privateness and Decrease Charges | by Henry Windle | Might, 2025

You could be questioning if that is even an issue for you proper now, and actually, it is dependent upon your state of affairs. The very fact is that it does impact everybody, so it's worthwhile to bear in mind. Nonetheless, should you’ve obtained a considerable amount of UTXOs (for instance, should you purchase a small quantity of bitcoin frequently and spend a number of bitcoin), it is best to start thinking about taking steps to handle your UTXOs sooner somewhat than later. Because the bitcoin you personal right this moment could also be price way more sooner or later, it’s higher to be cautious.

Now that we all know that managing these UTXOs is crucial, wouldn’t it's nice should you might manage them? Sure!

Let’s introduce the idea of UTXO consolidation: the method of mixing smaller UTXOs into one bigger UTXO by sending a transaction to your self. This can assist cut back charges and simplify your future transactions.

You'd normally solely need to consolidate UTXOs from the identical supply (for instance, retaining enterprise funds separate from private financial savings). This fashion, you may preserve your privateness whereas managing your UTXOs effectively and saving on future charges.

*It’s normally really helpful to keep away from combining all of your funds right into a single UTXO*

How do you do that?

First, wait till bitcoin charges are fairly low. Then, choose which UTXOs you need to mix and ship them to your self, creating a brand new, single UTXO. That is straightforward to do in Trezor Suite.

So in observe, you may consolidate UTXOs selectively, preserve your privateness, and keep away from greater charges.

Necessary: For those who’re not cautious, UTXO consolidation comes with a privateness danger. Though it should cut back future charges, should you merge UTXOs linked to completely different addresses, you would find yourself revealing your whole pockets steadiness on the blockchain.

Billy buys bitcoin month-to-month, and every time it’s despatched to a special handle.

He additionally receives common bitcoin funds for freelance work he does to the identical pockets.

Billy’s pockets incorporates UTXOs that aren’t linked, so his total pockets steadiness stays personal, however all these UTXOs will end in greater transaction charges. So Billy decides to consolidate his bitcoin by sending all of it to his pockets, creating a brand new, single UTXO.

By combining and consolidating all these UTXOs without delay, Billy is revealing his whole bitcoin pockets steadiness to the blockchain. Each the change that he was shopping for bitcoin from and anybody who was paying him in BTC can now see his whole pockets steadiness!

*That is irreversible*

When you do that, it can't be reversed. In case your holdings change into publicly identified, this might result in future safety points.