BA-05 · LESSON 05

Coin selection

KEY DEFINITIONS

Terms used in this lesson

UTXO: Unspent transaction output: one discrete chunk of bitcoin that can be used as a transaction input.

Wallets trade off fees, privacy, change, consolidation, and future spending cost when selecting UTXOs.

35 min Difficulty 2/5 Not started

VISUAL MODEL

See the whole mechanism before going step by step

Use the diagrams to orient yourself. Then the guided explanation below teaches every part in depth.

4 explanatory views

CONCEPT-SPECIFIC MAP · transaction bytesA transaction consumes prior outputs and commits new onesSelect any state to inspect its exact role.

RELATIONSHIP MAPInputs, rule, and outputs

01
OUTPOINTSTxid : output index
Every input references one specific prior transaction output.
02
AUTHORIZATIONWitness or scriptSig
Spending data satisfies the prior output's locking condition.
03
SERIALIZATIONCoin selection
The Coin selection mechanism determines which transaction fields or identifiers matter.
04
NEW OUTPUTSAmount and script
Payment and change outputs are newly created state.
05
IDENTIFIERSTxid and wtxid
Double-SHA256 identifiers commit to defined byte regions.

Rule shown: Inputs name exact outpoints; outputs allocate value; signatures authorize the committed spending context.

STAGE 1 OF 5OUTPOINTS: Txid : output index

Every input references one specific prior transaction output.

Governing relationship: Inputs name exact outpoints; outputs allocate value; signatures authorize the committed spending context. Complete path: 1. OUTPOINTS, Txid : output index. Every input references one specific prior transaction output. 2. AUTHORIZATION, Witness or scriptSig. Spending data satisfies the prior output's locking condition. 3. SERIALIZATION, Coin selection. The Coin selection mechanism determines which transaction fields or identifiers matter. 4. NEW OUTPUTS, Amount and script. Payment and change outputs are newly created state. 5. IDENTIFIERS, Txid and wtxid. Double-SHA256 identifiers commit to defined byte regions.

1. State transitionWhat exists, what changes, and what results

BEFORE

Pay 70,000 sats. At the estimated feerate, each selected input costs 1,000 sats and a change output costs 500 sats now. Available UTXOs are 71,000, 40,000, and 35,000 sats.

MECHANISM

The wallet applies network, confirmation, coin-control, script, timelock, and spendability requirements before optimizing.

AFTER

The numerically smallest excess is not the only objective; effective value and privacy labels matter.

Text equivalent: Starting from Pay 70,000 sats. At the estimated feerate, each selected input costs 1,000 sats and a change output costs 500 sats now. Available UTXOs are 71,000, 40,000, and 35,000 sats. The mechanism begins when The wallet applies network, confirmation, coin-control, script, timelock, and spendability requirements before optimizing. The resulting lesson is The numerically smallest excess is not the only objective; effective value and privacy labels matter.

2. Mechanism pathSelect a stage to inspect its job

STAGE 1 OF 5

Filter eligible UTXOs

The wallet applies network, confirmation, coin-control, script, timelock, and spendability requirements before optimizing.

Complete path: 1. Filter eligible UTXOs: The wallet applies network, confirmation, coin-control, script, timelock, and spendability requirements before optimizing. 2. Estimate effective value: A UTXO's effective value is its amount minus the estimated fee to spend that input at the chosen feerate. Small inputs can contribute little or become uneconomical. 3. Compare candidate sets: Candidates must cover payment and fees. The wallet compares waste, number of inputs, change amount, future cost, and privacy consequences. 4. Create or avoid change: An exact or near-exact set can avoid a change output. Otherwise the wallet creates change if it exceeds applicable dust and economic thresholds. 5. Record intentional links: Combining coins from separate identities or activities can permanently link them on chain. Manual coin control may outweigh small fee savings.

3. Rule and failure boundaryWhat accepts the result and where it can stop

ACCEPTED PATH

Every candidate uses only eligible UTXOs and computes input fee, change cost, future spend cost, waste, and privacy-domain links before selection.

CHANGED CONDITION

An ineligible coin, uncovered payment, uneconomical change, or undisclosed cross-domain input link rejects that candidate without silently substituting another set.

Important distinction: A wallet should always choose the fewest UTXOs. Fewer inputs often reduce current fees, but privacy, change, consolidation timing, confirmation needs, and future costs can justify another set.

Text equivalent: The accepted path is enforced by Every candidate uses only eligible UTXOs and computes input fee, change cost, future spend cost, waste, and privacy-domain links before selection. If the required condition changes, An ineligible coin, uncovered payment, uneconomical change, or undisclosed cross-domain input link rejects that candidate without silently substituting another set.

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Learn the idea

Coin selection is the wallet process of choosing which UTXOs fund a payment. It balances current fee, change creation, future spending cost, privacy, confirmation status, and policy. Consolidation combines multiple UTXOs, while exact-match selection can avoid change. Linking inputs can reveal that one entity likely controlled them.

GUIDED EXPLANATION1/5 ideas inspected

Filter eligible UTXOs

The wallet applies network, confirmation, coin-control, script, timelock, and spendability requirements before optimizing.

The worked example follows the explanation

Inspect every idea above to open it.

Important distinction“A wallet should always choose the fewest UTXOs.”

Fewer inputs often reduce current fees, but privacy, change, consolidation timing, confirmation needs, and future costs can justify another set.

FINISH LEARNING FIRST

The questions unlock after every required learning activity

Inspect every guided idea, open the worked example, rebuild its mechanism, and complete the deterministic lesson tool. Your progress is saved automatically.