Looking back at the past decade of bitcoin custody, managing UTXOs has largely been thought of as an optional endeavor. After all, it’s safe to say that the majority of people holding bitcoin in self-custody are not yet familiar with what “managing UTXOs” means. Instead, UTXO management has been considered more relevant for intermediate or advanced bitcoin holders, as a form of granular control. It’s been seen as something that’s good to know about, but not necessarily critical to protecting bitcoin savings.
However, as the value of bitcoin rises, this is beginning to change. It’s becoming easier and easier to make UTXO-related mistakes that can damage your bitcoin savings down the road. In this article, we’ll explain what you need to know about this issue, and how to protect yourself.
If you’re not sure what a UTXO is, we created a previous article introducing the concept. As a brief review, a UTXO is a “chunk” of bitcoin. Whenever you receive bitcoin to self-custody, you get one UTXO that is worth the amount received, like a coin being added to a piggy bank. This means that two wallets could have the same bitcoin balance, but different numbers of UTXOs, depending on how many transactions were involved.
This matters for a couple of reasons. First, the UTXOs in a wallet affect the available options when building transactions, which can have privacy implications. Second, UTXOs are also a key element in determining the transaction fees, which is what we’ll be focusing on in this article. Each UTXO represents data, and the cost to send a transaction is directly connected to the amount of data the transaction uses. The more UTXOs that are being moved, the higher the transaction cost will be. In fact, the amount of bitcoin being spent is essentially irrelevant—a transaction moving 100 BTC in the form of 5 UTXOs will cost less than a transaction moving 0.5 BTC in the form of 10 UTXOs (assuming the same fee rate is used, which will be discussed more below).
Managing UTXOs means being mindful of the UTXOs in your wallet, so that you are aware of the privacy and transaction fee implications, and can make adjustments if needed. In particular, avoiding a large number of UTXOs (e.g., dozens) is important to help protect yourself from high transaction fees to move your bitcoin in the future. UTXOs of a relatively small value can be especially harmful.
A UTXO will have the same cost to be spent regardless of its bitcoin value, because the amount of data involved remains the same (the exception is UTXOs across different types of wallets; a UTXO in a singlesig wallet will use less data than one in a multisig wallet, and a UTXO in a segwit wallet will use less data than one without segwit). You can think of the data per UTXO as being a flat rate.
The remaining element of a transaction fee is the fee rate, which is the amount of satoshis being offered to bitcoin miners per byte of transaction data. If a transaction will use 500 bytes of data, a fee rate of 1 satoshi per byte (sat/vB) will mean the total cost is 500 satoshis. On the other hand, a fee rate of 20 sat/vB will mean the total cost is 10,000 satoshis. When creating a transaction, the sender gets to choose the fee rate they want to use, and it’s recommended to choose a fee rate that is competitive with what others around the world are currently paying, which you can learn more about here.
If the cost to move some bitcoin is 10,000 satoshis such as in the example above, but the UTXOs are worth 10,000 satoshis or less, then the UTXOs are “economically unspendable,” or “dust,” unless fee rates decline. This is because the value of those UTXOs would be completely eaten up by the transaction fees, and there would be no value remaining to reach the intended recipient. Or, if the value of the UTXOs are worth 50,000 satoshis, a fee of 10,000 satoshis is still a substantial 20% of the value. In other words, the sender might only have 80% of the purchasing power that they thought they did! This begins to describe the problem of small value UTXOs—the smaller the value, the more of the value will be eaten up by transaction fees down the road.
If fee rates are high enough, even larger UTXOs can start to become vulnerable to this issue. We took a deeper dive into the math behind this in our previous article titled How to prevent small UTXOs from becoming bitcoin dust.
In summary, many people consider 1,000,000 satoshis, or 0.01 BTC, to be a healthy minimum UTXO size for a typical segwit singlesig wallet. UTXOs that are worth at least 0.01 BTC offer substantial protection from having a large percentage of their value eaten up by transaction fees, even at the higher range of sustained fee rate environments that we’ve seen historically. However, a “large” percentage is a bit subjective, as are predictions surrounding future fee rate possibilities to prepare for. Therefore, the article mentioned above explains how individuals can make their own calculations and judgement calls regarding minimum UTXO sizes.
If you are using a multisig wallet (which unlocks massive security advantages), you should consider a higher minimum UTXO size, because these UTXOs have more data associated with them. The larger the multisig quorum, the more data it will use. Additionally, whether or not a wallet is using segwit also matters. Legacy wallets without segwit should consider higher minimum UTXO sizes. Below is a chart that compares the approximate data size of UTXOs from various types of wallets, and a possible minimum UTXO size recommendation that could be considered.
As a more technical side note, the full data size of a transaction depends on more than just the UTXOs being spent (the inputs which describe where the bitcoin is coming from). There is also data related to where the bitcoin is going, the size of which is dependent on how many destinations there are, and what address types are being used. For a typical transaction with two output destinations (payee and change), a conservative number to estimate the remaining transaction data is 97 vB. As an example, a 2-of-3 multisig segwit wallet spending 5 UTXOs is likely to use around 622 vB worth of data (105+105+105+105+105+97). The more UTXOs that are spent together, the more data efficient it will be.
If the recommended minimum UTXO size ranges from around 0.01 BTC to 0.06 BTC depending on the type of wallet, those numbers can be converted to dollars or other fiat currencies using the current bitcoin price. This is helpful to understand the cost of acquiring a UTXO above the recommended size.
In 2019 when bitcoin was around $5k per coin, a UTXO worth 0.01 BTC would have cost $50. This means most people in developed Western countries buying bitcoin and moving it to self-custody were getting UTXOs above the recommended size by accident, without even knowing the details of UTXO management.
In 2022 when bitcoin was around $20k per coin, a UTXO worth 0.01 would have cost $200. Still, the average person might have been withdrawing bitcoin from exchanges to self-custody in amounts averaging above this number, thereby receiving UTXOs above the recommended amount.
At the time of writing this article in 2025, with bitcoin at around $100k per coin, a UTXO worth 0.01 costs around $1,000. For many middle class Americans who buy bitcoin with their monthly paycheck, this situation is beginning to get precarious. The habit of buying a few hundred dollars worth of bitcoin and immediately moving it to self-custody no longer aligns with UTXO management recommendations.
In the coming months or years, with bitcoin price predictions of $250k, $1M, or higher, a UTXO worth 0.01 could begin to cost $2,500 or $10,000 or more. This will price many people out of owning properly sized UTXOs. If people aren’t informed about UTXO management and continue the same behavior of buying a little bit of bitcoin to move to self-custody, the resulting UTXOs may have a large portion (or all) of their value destroyed by future transaction fees.
There are a few things you can do to help protect yourself from transaction fees overpowering the value of your UTXOs.
At Unchained, we offer dedicated account management for collaborative custody, and we would be happy to assist you with managing UTXOs, security best practices, inheritance, and education surrounding other aspects of bitcoin custody.
