📚 [Analysis] Consolidation of UTXOs – Bitcoin Optech

When your average outgoing payment is either larger than your average incoming payment, you'll need to combine UTXOs in order to fund an outgoing transaction. This increases the size of transactions and hence the fees one pays. By consolidating UTXOs in advance, you can combine inputs ahead of time when fees are low, it allows you to reduce costs substantially. Additionally, consolidation allows you to update the addresses you use for your UTXOs and make it easier to run a full node. Two metrics to watch to avoid the risk of your consolidation transactions increasing the fees are 1. whether or not the mempool is full 2. how much empty space there has been in recent blocks.