What is Bitcoin Dust?

Bitcoin and blockchain, despite their impact on currency, have their fair share of annoyances. Developers actively try to fix them, but these issues are not solved overnight. One such issue that tends to get overlooked is called ‘dust.’

This article will explain what it is and how to mitigate it before it causes any serious damage.

What is it?

‘Bitcoin dust’ refers to the microscopic amount of bitcoin that’s lower than the minimum limit of a valid transaction. To provide further elaboration, it is the smaller amounts of bitcoin within a particular wallet or address. The monetary value here is so tiny that it is even lower than the amount of the network fee of the bitcoin.

It basically results in making a transaction next to impossible to process. Like actual dust, it is a nuisance.

In addition, it is often a tool for certain types of attacks. In order to track additional transactions, large quantities of dust are sprinkled in throughout the network. Doing so will effectively target a large number of addresses. It is the attacker’s hope that the tiny amount of funds mixes together with an ‘unspent transaction output’ (UTXO). This way, when it is spent as an input in a new transaction, it can be trackable.

This is merely a basic definition of what bitcoin dust is. A more comprehensive explanation would be using a recognizable enough situation as an example. Suppose you have a $50 bill in your pocket. Now imagine instead of that bill, you have 50 pennies in your pocket. This paints a much clearer picture, so from here, let’s go into more
detail.

The origins of bitcoin dust

Whenever a transaction – any transaction – occurs on the Bitcoin Network, it needs to receive validation for authenticity. This way, the transaction can go through processing within a reasonable length of time. Miners validate the transaction and include it to the blockchain network. For their services, they are paid a mining fee, which can typically range from theoretically zero to an incredibly high amount.

Due largely in part to the network’s functioning mechanism, the mining fee is usually higher than the actual transaction amount. Bitcoin dust refers to the bitcoin transaction amounts where the fee is higher than the transaction amount. As previously mentioned, this makes it very difficult for the transaction to properly carry out.

Such diminutive transactions, should they be initiated, are eventually dropped. Afterwards, the sender and the receiver will have to resume its execution. This kind of
dust can exist in different wallets, which makes it a worthless holding. That is, at least until the mining fee comes down or more bitcoin is added to the wallet. In the latter
case, it will enable the processing of a much larger transaction.

Blockchain

With every cryptocurrency system, there comes a list of shortcomings with how it works. Whether that list is short or long, it is what keeps these platforms from achieving peak perfection. Bitcoin is no exception, and if you have read my previous article about the “Lightning Network,” you’d know that one of bitcoin’s issues pertains to its ‘scalability.’ Basically, bitcoin has its fair share of kinks that, while not completely disastrous, are distracting at best.

The tiny pieces of Bitcoin dust are arguably a much smaller kink than the scalability issue. Going back to the dollar to pennies analogy, the Bitcoin Protocol usually needs to generate tiny outputs of coin whenever users send bitcoin. These amounts are so small in value that they require more fees to spend than they’re actually worth.

This raises an issue surrounding blockchain capacity which has a limit. Small value transactions of, let’s say, $0.01 can still take up just as much room as larger transactions. In this sense, too many of these smaller coin pieces can lead to performance issues throughout the system.

Fees & Transactions

In the past, dust was not really a problem for bitcoin users. This reception, however, became much more negative due to fees growing higher and higher. This, in turn, led to smaller value transactions becoming more expensive to send. To sum up, some developers argue that it’s the ideal time to get rid of bitcoin dust now that fees are down again.

DApp developer, Greg Slepak, just like others in the field, are thinking ahead. Specifically, a time where bitcoin adoption and transaction rates increase; something
that may or may not happen. If that does happen, it is more profitable to move these data pieces while fees are relatively low. This is especially true if a user ends up
collecting a lot of them.

Mitigation

In order to get rid of the dust, users will need to combine all their transactions into one. This essentially means sending one transaction that effectively lumps them all together.

Once again, we look back on our dollar to pennies analogy. It is similar to trading a bunch of pennies, nickels, and dimes for a new dollar bill. How and whether or not users can identify and get rid of the dust depends entirely on their wallet.

Slepak recommends the use of Electrum. This is a long-standing ‘simplified payment verification’ (SPV) wallet that certifies transactions with fewer data. Thus, it is much more common to use it on a mobile device. A user is able to select a number of “change addresses” that are holding dust. Then they select the “send from” button to create one transaction combining the dust particles into a singular transaction output.

How about privacy?

Bitcoin News writer, Jamie Redman, writes that:

“Bitcoin transactions are not anonymous but users can still add a layer of privacy by using different addresses and other techniques to confuse blockchain surveillance. However, a de-anonymization method known as a dust attack is on the rise. If the microtransactions that characterize a dust attack go unnoticed, they can potentially be used to identify cryptocurrency users.”

Something important to note is that some wallets might not offer this level of control. This applies especially to custodial wallets such as Coinbase. This particular wallet
manages these sort of details themselves behind the scenes, essentially choosing whether to keep or remove the dust. The Blockchain bitcoin wallet offers a variation of
this feature as well.

There is something you should take precautions against if you choose to extinguish dust this way. This method can potentially reveal more about your financial history than you would probably like. To explain this, let’s assume you have a collection of dust in a number of different accounts. In cryptocurrencies, it is a smart idea as far as financial privacy goes to not reuse bitcoin addresses. Although, in hindsight, not a lot of people actually do this since it isn’t that convenient.

More on privacy and alternatives

If this is the case, consolidating dust from multiple accounts at once can compromise a user’s privacy. Seeing as how the blockchain is public, it’s easy to tell that all of these transactions might very well have come from the same user. This is applicable if a user goes through ‘Know Your Client’ (KYC) filters at a bitcoin exchange. Here, users have to confirm their identity as a way to repress financial crime in the cryptocurrency world. If a user’s address includes a real-world identity, then all other addresses holding dust in the consolidation transaction will know it.

Slepak points out that it is like saying “Yes, and those other addresses are mine, as well.” Moreover, he mentions that this, above all else, is why people should use Monero instead. He suggests this cryptocurrency because it is a privacy coin by default and managing it is not that big of an issue.

Overall, these privacy concerns are up in the air and really depend on the dust status. That is to say, if a user’s dust already ties to the same account, then the dust links
together anyway. So mashing the dust together into a single transaction will not harm the user’s financial privacy in this case. Slepak is of the belief that people should move to stamp out their dust if they do not wish to lose funds. However, he adds that they should do so if these “privacy implications” don’t bother them.

Potential obstacles

A blockchain data software engineer provides a differing perspective. Antoine Le Calvez, who is also an avid data tracker for the blockchain, argues about the dust levels. He states that they are beginning to decrease quite a bit. This is due largely in part to much bigger bitcoin businesses. Because of high fees, larger bitcoin companies began to adopt more efficient transaction technologies – including the removal of dust – to reduce fees.

Le Calvez says that Coinbase cleaned their wallets and was a massive contributor. Ever since the end of the consolidation, the creation of dust has been decreasing dramatically.

Users are able to combine transactions in order to potentially save money in the future. That is if they desire to do so. However, bitcoin companies may have a much larger impact on overall dust levels. Not unlike Slepak, Le Calvez is focusing on what the future holds. There’s a chance that fees will get worse if bitcoin ever garners more attention on a larger scale. This could occur if – and when – the Lightning Network eventually gains traction. The network is touted as being the future of bitcoin payments since they’re cheap, so this is a real possibility.

Slepak thinks that anything resulting in more blockchain usage can lead to higher fees. Not only that but the fees are considerably higher than the dust itself. Le Calvez adds to this by saying it’s an easy task to clean up dust when payments aren’t coming in at high volume. Though this might not be the case if the transaction level “heats up” once again.

Conclusion

Hopefully, this guide provided enlightenment on this lesser-known kink in bitcoin’s system. By understanding it better, we can easily recognize it and know how to prevent its harmful effects.