When the mempool is empty, the transaction costs on the Bitcoin network are relatively low. If you regularly buy bitcoin, you can take advantage of the low miner’s fees by merging transactions, which can save you transaction costs in the future. Here you can read how to do that.

If you have many incoming transactions in your bitcoin wallet, you can use low miner’s fees to save on your transaction costs in the future. By consolidating your funds at one address at a convenient time, you benefit from the favorable rates and prevent higher costs in the future.

Bitcoin transactions

Bitcoin does not work on the basis of addresses, but on the basis of transactions. Although wallets and block explorers show you a nice and easy-to-understand balance of bitcoin addresses, only the transactions actually exist on the blockchain. The balance is simply calculated by offsetting all incoming and outgoing transactions from a specific address.

UTXO

The technical term for bitcoin transactions is Unspent Transaction Output (UTXO) . Every UTXO is an output , but at the same time also the input for a new UTXO.

Sometimes it is said for convenience that bitcoins are at a certain bitcoin address. Conceptually, however, it is rather that bitcoins are in a transaction to a certain address . The person whose address it is has access to the transaction and can allocate the funds to a new transaction.

Bitcoins therefore do not only move from Bitcoin address to Bitcoin address, but mainly from Bitcoin transaction to Bitcoin transaction.

A balance on a single bitcoin address can therefore consist of one transaction on the blockchain, but also of several transactions. For example, because you receive funds at that address more than once.

When you send a balance that is made up of multiple transactions, it is therefore possible that not one transaction takes place on the blockchain, but several. The transaction costs are then higher.

Example

For example, if you buy a small amount of bitcoin every month and have it sent to a bitcoin address, the balance at that address after a year will consist of twelve different incoming bitcoin transactions.

When you then send the full balance to a new bitcoin address, twelve bitcoin transactions will also take place behind the scenes. The bitcoins then move from the twelve incoming bitcoin transactions to which they were linked, to a single outgoing bitcoin transaction directed to the new bitcoin address. The miner’s fees are therefore relatively high, because it is actually several transactions.

However, if you send the same funds again, only one transaction will take place. After all, all funds were previously merged from twelve to one incoming transaction. As a result, the balance is in one place, so to speak, and therefore only one outgoing transaction is needed to move the funds again. Although they are the same funds, the miner’s fees for this transaction will therefore be lower.

Consolidate funds

For this reason, if you have many different incoming transactions, it can be interesting to merge your incoming transactions when the average miner’s fees are low. This way you can avoid more expensive miner’s fees in the future. This is also known as consolidating funds.

Mempool

You can view the mempool on various websites and estimate the miner’s fees. For example on the website Mempool.space or on the site of Jochen Hoenicke.

It works quite simply. You simply generate a new bitcoin address from your wallet app and send your funds there when miner’s fees are low. If the transaction is successful, your funds are merged and you will then have only one incoming transaction to one address.

Some wallet apps include coin control functionality that gives you more control. You will then see an overview of all incoming transactions and you can select which incoming transactions you want to use to create an outgoing transaction. This allows you to specify which funds you do and do not want to merge.

If you are consolidating funds, consider a Native SegWit address, as miner’s fees are up to 80% lower than old-fashioned addresses.

Note: pooling funds to save miner’s fees is especially useful if you have many and relatively small incoming transactions, because the transaction costs are relatively high. However, if you have few incoming transactions or if they are very large transactions, then it is a lot less interesting.

Privacy

Pooling funds can affect your privacy. Merging multiple incoming transactions to one bitcoin address does not result in a loss of privacy, but merging transactions to different bitcoin addresses into a new transaction to one bitcoin address does.

After all, when you make a bitcoin transaction, the recipient can see which address(es) you used. Using a block explorer, they can then look up how many bitcoins you still have at the address, how much you had, where the bitcoins came from and where else you sent them.

It is therefore better for your privacy not to consolidate all your savings at one address, because otherwise everyone to whom you pay will have access. At the same time, countless small incoming transactions are also expensive and inconvenient. Perhaps the golden mean is a solution: spread your funds over a number of addresses of average size.

Also read our article about how you can see in the mempool what you have to pay in transaction costs. Do you want to know why we pay fees at all? You can read that here.