Consolidation transactions are recommended if your vault has received many deposits.
Over time, UTXOs (unspent transaction outputs) will accumulate in your vaults as you make bitcoin deposits—every deposit is a UTXO, which you can think of as a chunk of data representing a specific amount of bitcoin. You can check the number of UTXOs in your vault by clicking View details on your vault page.
If you are saving bitcoin for the long-term, you may not make many withdrawals from your vault. If you continue to make deposits, this results in UTXOs stacking up over time. A high number of UTXOs can lead to a few problems.
- Hardware wallets can have difficulty signing due to memory constraints.
- Your transaction will require high bitcoin network fees. UTXOs are data. The more data you need to move during a transaction, the more expensive the transaction will be.
To fix this, you can make occasional consolidation transactions. A consolidation transaction will take all of the UTXOs in your vault, and send them in a transaction back to yourself. By doing this, the smaller UTXOs are consolidated into one larger UTXO on a new vault address.
You can check out our articles by concierge technical director Tom Honzik, to learn more about why having a lot of UTXOs can end up costing you, and why small UTXOs in particular are best avoided.