Highlander · April 30, 2025

Understanding UTXO Fees

Name: KeepKey Hardware Wallet
Brand: KeepKey
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Understanding UTXO Fees

The fee on a Bitcoin transaction is not a percentage of the amount being sent. It's a function of how many bytes your transaction takes up — and that depends on which historical chunks of Bitcoin (called UTXOs) your wallet picked to assemble it. A fee slider in your wallet is the very tip of an iceberg of decisions made on your behalf. This guide walks through the iceberg.

Glossary

UTXO — Unspent Transaction Output. A chunk of Bitcoin that was sent to one of your addresses by a previous transaction and hasn't been spent yet. Your "balance" is the sum of all your UTXOs.
Input — A UTXO selected to fund a new transaction.
Output — A new chunk of Bitcoin produced by a transaction (sent to a recipient or back to yourself as change).
Mempool — The pool of pending, unconfirmed transactions waiting for a miner to include them in a block.
Vbyte / Weight unit — The unit fees are denominated in. SegWit and Taproot transactions are smaller in vbytes than in actual bytes — that's where the fee discount comes from.
Dust — A UTXO so small that the cost to spend it exceeds its value at current fee rates.
RBF — Replace-By-Fee. The mechanism for upgrading a stuck transaction's fee.
CPFP — Child-Pays-For-Parent. An alternative fee-bump mechanism using a follow-up transaction.

How UTXO selection drives fee size

When you tell your wallet "send 0.01 BTC," the wallet doesn't have a single "0.01 BTC" to work with. It has a bunch of UTXOs of various sizes, scattered across your addresses. To send 0.01 BTC it must:

Pick some UTXOs whose values sum to at least 0.01 BTC (plus the fee).
Construct a transaction with those UTXOs as inputs.
Add outputs: one for the recipient (0.01 BTC), one for the change (whatever's left after the fee), and broadcast.

Each input added to a transaction increases its byte count by ~140 bytes (Legacy) or ~70 vbytes (SegWit / Taproot). So a transaction that consumes one big UTXO is much smaller — and cheaper — than a transaction that consumes ten small ones.

This is why the same "send 0.01 BTC" can cost different fees on different days, even at identical fee rates per vbyte. The cost depends on how many UTXOs your wallet selected.

Coin selection algorithms

Wallets implement different strategies for picking which UTXOs to spend. The popular ones:

Branch and Bound — used by Bitcoin Core. Tries to find an exact-match combination of UTXOs that avoids producing a change output (the most efficient case).
Knapsack / "Blackjack" — pre-Branch-and-Bound default. Picks UTXOs to get close to the target without overshooting, then adds change.
Largest First (Greedy) — picks the biggest UTXOs available. Minimizes input count but consolidates your wallet quickly.
Smallest First — picks the smallest UTXOs. Cleans up dust at the cost of a larger transaction.
Random — picks randomly. Usually a privacy-motivated choice.

Modern wallets (Bitcoin Core, Sparrow, Electrum, KeepKey-via-Vault-Desktop) generally use a Branch-and-Bound primary algorithm with one of the others as a fallback. The smaller the resulting transaction, the lower the fee — so a wallet's coin-selection quality directly shows up in your fee bill.

Address format also affects fees

The script type of your UTXO determines how compact it is on-chain:

Format	Approx. input size	Why
Legacy ( `1...` )	~148 bytes	No SegWit discount
P2SH-SegWit ( `3...` )	~91 vbytes	Wrapped SegWit discount
Native SegWit ( `bc1q...` )	~68 vbytes	Full SegWit discount
Taproot ( `bc1p...` )	~57 vbytes	Smallest spend size

If your wallet has been receiving to legacy

1...

addresses for years, every transaction you send pays a "tax" on those legacy inputs. Taproot UTXOs have the lowest spend cost. See Taproot Addresses 101 for the full breakdown.

Dust and unspendable UTXOs

A UTXO is dust when the fee to spend it costs more than the UTXO is worth. At a fee rate of 30 sat/vB, spending a single SegWit input costs ~2,040 sats — so any UTXO smaller than 2,040 sats is unprofitable to spend. The market dust threshold floats with fees: in low-fee periods, smaller UTXOs become spendable again; in high-fee periods, more UTXOs slip below the line.

Dust matters because:

It artificially inflates your "balance" — you have funds you can't actually use without paying more than they're worth.
It's a privacy attack vector — known as a forced-address-association or "dust attack," where an attacker sends you tiny UTXOs hoping you'll consolidate them with larger UTXOs and reveal that they all belong to the same wallet.

Best practice: leave dust alone. Don't consolidate dust into large transactions during low-fee periods unless you've thought through the privacy implications. If you must consolidate, do it intentionally and not as part of a normal spend.

How miners pick transactions

The mempool is a competitive auction. Miners (the computers building blocks) earn block rewards plus the fees of every transaction they include. Their goal is to maximize fees per block subject to the 1MB (4M weight unit) block-size limit. They almost always do this by selecting transactions with the highest fee-per-vbyte first until the block is full.

Critical implications:

The flat fee doesn't matter — the rate does. A 0.0005 BTC fee on a 200-vbyte transaction is a great deal. The same 0.0005 BTC fee on a 2,000-vbyte transaction is below market.
Your transaction competes against everything else in the mempool right now. If a sudden surge in activity (an NFT mint, an exchange deposit rush, a market crash) pushes the median fee rate above what you paid, your transaction sits unconfirmed until the mempool clears.
There is no SLA. Even at the "high" fee level, an unlucky transaction can wait an hour or more if a particular miner happened to bundle competitors first.

The fee estimators in your wallet (or in mempool.space) are predictions about future mempool dynamics. They're educated guesses, not guarantees. Pick a fee level that matches the urgency of the transaction and accept that "guaranteed in 10 minutes" is not a thing in Bitcoin.

When in doubt, set a high fee. You can always send less in the future; you can't always recall a stuck transaction.

Stuck transactions and how to fix them

A "stuck" transaction is one that's been broadcast but is too low-fee to clear the current mempool. It will eventually either:

Confirm, when fee pressure eventually drops below your fee rate.
Drop out of the mempool, when most miners purge it for newer higher-fee transactions (typical mempool retention: 14 days).

If you don't want to wait, you have two unstucking tools.

RBF (Replace-By-Fee)

If your transaction was originally broadcast with the RBF flag set, you can replace it with a new transaction spending the same UTXOs but with a higher fee. Miners prefer the new version; the old one drops out.

Vault Desktop and most modern wallets ship with RBF enabled by default for outgoing transactions. To use it:

Go to your transaction history.
Find the unconfirmed transaction.
Click Bump fee (or the equivalent in your wallet).
The wallet rebuilds the transaction at a higher fee rate and rebroadcasts.

CPFP (Child-Pays-For-Parent)

If the stuck transaction is one you received (so you can't replace it — you don't own the inputs), you can spend its output in a follow-up transaction with a high enough fee that miners include both together to capture the bundled fee rate. The "child" pays the "parent's" way into a block.

CPFP is more involved than RBF and most wallets only expose it via advanced options. It's a tool for the cases where you need a stuck incoming transaction to clear (e.g. an exchange deposit you actually need access to).

Practical takeaways

Your fee depends on your transaction's vbyte size, not the amount you're sending. A wallet with poor coin selection costs you money on every transaction.
Consolidate UTXOs during low-fee periods. A bunch of small UTXOs costs more to spend later if fees rise. But avoid consolidating dust if you care about privacy.
Use modern address formats. Legacy
1...
addresses cost noticeably more to spend than SegWit or Taproot. Migrate over time.
Always send with RBF enabled. It's free insurance against fee-market spikes.
Don't trust fee estimators absolutely. They're guessing about the future. In urgent cases, overpay; in non-urgent cases, underpay and wait.

Taproot Addresses 101 — why address format affects fees
How to Swap Assets on a KeepKey — fees in the THORChain swap context
mempool.space — the canonical live view of fee market dynamics

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Understanding UTXO Fees

Understanding UTXO Fees

Glossary

How UTXO selection drives fee size

Coin selection algorithms

Address format also affects fees

Dust and unspendable UTXOs

How miners pick transactions

Stuck transactions and how to fix them

RBF (Replace-By-Fee)

CPFP (Child-Pays-For-Parent)

Practical takeaways

Related

Understanding UTXO Fees

Glossary

How UTXO selection drives fee size

Coin selection algorithms

Address format also affects fees

Dust and unspendable UTXOs

How miners pick transactions

Stuck transactions and how to fix them

RBF (Replace-By-Fee)

CPFP (Child-Pays-For-Parent)

Practical takeaways

Related