Bitcoin Dust: Overview, Disadvantages, and Example

What Is Bitcoin Dust?

Bitcoin dust refers to the very small amounts of bitcoin leftover or unspent in a transaction that is lower in value than the minimum limit of a valid transaction. Thus, processing the transaction is impossible, trapping a tiny amount of bitcoin (perhaps 0.00000012 BTC, for instance), in a wallet or address.

Understanding Bitcoin Dust

The Bitcoin blockchain does not transfer values using accounts like banks and some blockchains. Instead, it uses unspent transaction outputs (UTXOs). To understand dust, it's best to start at the beginning with UTXOs.

UTXOs

When a user receives a bitcoin, it is recorded on the blockchain as an unspent transaction output with an assigned value. This value cannot be changed because of the blockchain's design—it has to create new UTXOs to use in transactions.

For example, imagine a user has a UTXO worth 1.0 BTC and wants to send another user 0.5 BTC. The way the blockchain works is that it destroys the UTXO worth 1.0 BTC, and then creates two new UTXOs, one for 0.5 BTC (assigned to the recipient) and another for 0.5 BTC (assigned to the sender).

As each of the users spend their bitcoin (UTXOs), new and smaller ones emerge. If transactions are larger than the value of a UTXO, more than one is used to total up to the full amount of the transaction. So, you might use several UTXOs in one transaction.

Other participants spend their UTXOs, and the process continues with some UTXOs getting smaller and smaller in value. Someone could have hundreds of UTXOs of various values assigned to them, but what they see in their wallet is a total amount of bitcoin.

Fees

Bitcoin fees are generally calculated using satoshis per virtual byte (s/vb), and each UTXO has a weight unit based on its size. The UTXOs used in a transaction are added together, and the minimum required fee is calculated based on the size of the transaction—the more UTXOs you have in a transaction, the higher the fees will be because each UTXO requires storage space. The larger the digital footprint (in bytes) of your transaction, the higher the fees.

Dust

Fees on the Bitcoin blockchain vary with network traffic and demand, so they rise and fall constantly. Occasionally, the fees will rise high enough that a user might not have enough UTXO to pay for a transaction.

When the minimum cost of your transaction is higher than the value of UTXO you have, you have Bitcoin dust, and the transaction is impossible to process at that time.

Example of Bitcoin Dust

Unspent transaction outputs are somewhat confusing, so it's best to see an example. Imagine you buy something for 0.0045 BTC. You need to pay a network fee plus the 0.0045 BTC. We'll say the minimum fee at the time is 0.00009 BTC, making your total transaction .00459 BTC.

The blockchain has stored all of your previous transactions, resulting in hundreds of UTXOs; however, for some reason, the lowest UTXO you own is .0001 BTC. The network cannot send your transaction because you don't have a UTXO with a low enough value, so your wallet throws a dust error.

Dealing With Bitcoin Dust

For the most part, Bitcoin dust errors are avoidable. The best method for preventing Bitcoin dust is to make sure you consolidate your UTXO regularly. Most wallets have an option to do this. But, it's important to consolidate when fees are low so you're not paying too much.

If you're stuck with a dust error and can't consolidate your UTXO due to the network fees at the time you're trying to make a transaction, you have a few other options. You can import your seedphrase to another wallet or wait for network fees to drop.

You might be to convert your dust to another cryptocurrency if your exchange allows it. For example, Crypto.com allows users to convert dust to CRO so that it can be used.

Lastly, you can try adjusting your fee lower, but the issue with doing this is transactions with lower fees take longer to process because miners queue transactions based on fee values.

Disadvantages of Bitcoin Dust

The most prevalent disadvantage of Bitcoin dust is that you may have money you can't spend until fees drop or you consolidate your UTXO.

There is a slight and theoretical risk of de-anonymization, which could occur when a person's identity can be linked to their Bitcoin transactions if they have dust. In the past, hackers used a tactic called a dust attack, where micro amounts of Bitcoin dust were sent to an unsuspecting user's wallet. When the user spent the dust, hackers tried to analyze the user's other transactions and develop an identity profile for malicious purposes.

The Bottom Line

Bitcoin dust is leftover amounts of UTXO that are too small to be used because they are lower than the minimal transaction fee. Dust is generally not a concern unless you have too many small UTXO. These can add up when bitcoin's market value is high, and become problematic when fees are up. The best solution is to regularly consolidate your UTXO when fees are low.