I'm excited to share a proposal addressing a long-standing Bitcoin challenge: economically unviable dust UTXOs.

As Bitcoin's value and transaction fees increase, more UTXOs become effectively unspendable because the cost to move them exceeds their value. This creates a growing dust horizon - small amounts of BTC permanently stranded from circulation, weakening fungibility and bloating the UTXO set.

I'm proposing a solution that enables users to voluntarily designate their dust UTXOs as transaction fees through cryptographic authorization, allowing miners to claim them directly without requiring traditional spending. This is a win-win-win solution for users (reclaiming otherwise stranded value), miners (additional fee income), and the network (reduced UTXO set size).

Key Features:

Entirely Voluntary - Users must explicitly authorize any dust UTXO transfer with cryptographic signatures proving ownership
Implementation as Soft Fork - Backward-compatible with non-upgraded nodes
Simple Security Model - Uses familiar signature verification without exposing private keys
Clearly Defined Dust Threshold - Fixed at 546 satoshis, matching Bitcoin Core's existing dust limit
Race Condition Prevention - Comprehensive safeguards against double-spend and miner race conditions
Minimal Consensus Impact - Carefully designed to introduce minimal complexity to Bitcoin's validation logic

Economic Benefits:

UTXO Set Cleanup - Removing millions of dust UTXOs could significantly reduce the UTXO set size
Enhanced Fungibility - Provides a pathway for stranded satoshis to rejoin economic circulation
Long-term Miner Incentive - Creates an additional fee source as block rewards diminish
Complementary to Existing Solutions - Works alongside batching, consolidation, and Lightning Network

Technical Implementation:

The proposal uses a special OP_RETURN output format in transactions to designate dust UTXOs for miner claiming:

OP_RETURN <DUST_FEE_PREFIX> <dust_utxo_txid> <dust_utxo_vout> <signature>

Miners can claim these UTXOs in their coinbase transaction if and only if the corresponding designation transaction is included in the same block.

Historical Context & Contributions:

It seems that previous discussions on dust UTXOs have considered many approaches, including forced reclamation. This proposal avoids those controversies by requiring explicit user authorization while still providing an economically rational path for dust cleanup.

You can read the full proposal draft here: https://github.com/satoshinotebook/BIPs/blob/main/unlocking-dust-utxos-as-transaction-fees.md

I'd appreciate feedback on:

Technical feasibility of the soft fork implementation
Security considerations and potential edge cases
Economic incentive alignment
User experience concerns for wallet implementations

Thank you for any feedback! I believe it offers a practical solution to a growing challenge that will only become more significant as Bitcoin continues to mature and evolve.

With respect,

Nighttime Satoshi

nighttimesatoshi@gmail.com

https://satoshinotebook.com