What Is Coin Selection?
Coin selection is the process by which a Bitcoin wallet chooses which UTXOs to spend when creating a transaction. Different selection algorithms optimize for various goals like minimizing fees, enhancing privacy, or reducing future wallet complexity.
Why It Matters
Your wallet might have dozens or hundreds of UTXOs from previous transactions. The selection algorithm determines which ones to use as inputs, affecting transaction size, fees, privacy, and future wallet management.
Common Strategies
Fee Optimization
Strategies like "Branch and Bound" aim to create transactions with exact change or minimal change outputs, reducing overall transaction size and fees. Some algorithms consolidate dust UTXOs when fees are low.
Privacy Considerations
Poor coin selection can leak privacy by linking UTXOs from different sources. Advanced users may manually select coins to avoid linking addresses or to control which transaction histories get associated together.
Bitcoin Core and other wallets implement sophisticated coin selection algorithms. Some wallets offer manual coin control, letting advanced users choose specific UTXOs. Understanding coin selection helps optimize both costs and privacy in Bitcoin transactions.
Quick Facts
- •Different algorithms: First-In-First-Out, Last-In-First-Out, Branch-and-Bound
- •Affects transaction fees and privacy
- •Can consolidate or avoid dust