How to consolidate your UTXOs

It is important to consolidate your UTXOs because if the fee for moving a UTXO is more than the UTXO itself, it effectively becomes unspendable or “stranded.”

This means combining small UTXOs that may become unspendable in the future into larger UTXOs that are more immune to high fees.

(BTC Sessions made a great video on this here)

The optimal UTXO size depends on your total Bitcoin stack.

Some people say a 1,000,000 sat UTXO minimum is a good size to aim for.

Sparrow Wallet makes it very easy to do this:

1) Select all the UTXOs you want to combine.

2) Send them to your own address (preferably when fees are low).

This is a good practice to ensure your UTXOs are not stranded during high-fee environments.

You can do this on any wallet that allows you to use multiple Bitcoin addresses.

It is difficult to confidently predict where transaction fees will go in the future. 

Yet, as Bitcoin adoption increases and its technology provides more value to application builders, a greater demand for blockspace is inevitable.

And when blockspace is a hot commodity, transaction fee bids will go up.

If you expect the price of Bitcoin to go up, consolidate your UTXOs.