UTXO Consolidation: Benefits, Risks, and Best Practices.

A few days ago, Bitcoin's mempool fees were at rock bottom, with almost no transactions. This made it a perfect time to consolidate UTXOs.

However, I feel like not many people talk about the risks of consolidation, so I’ll share a couple of basic tips.

Try using coin control to carefully select which UTXOs to consolidate and which ones to keep separate. If you’ve bought BTC with KYC and BTC without KYC, consolidating them is a terrible idea since your KYC BTC will "contaminate" the non-KYC ones. Always keep them separate.

Keep in mind that if you use a hardware wallet, your public key (not your private key) can be exposed when you spend. These wallets typically generate different public addresses to receive Bitcoin, but once you consolidate and spend, blockchain analysts can link all those addresses together and associate them with you.

Whenever possible, use CoinJoin to mix your UTXOs and make tracking more difficult. Avoid withdrawing all your BTC at once— instead, make multiple withdrawals of varying amounts.

Stay SAFU!