Bitcoin dust is something that not many people are aware of, and lesser people understand what it is. In order to understand, here is a very simple analogy: Imagine that you have a crisp $50 note in your wallet. Not that hard to imagine having it in your wallet, right? Now imagine having $50 worth of pennies. There. The difference between the two is that the latter is spare change. Same is the case with Bitcoin dust.
Why Is Bitcoin Dust Problematic?
Bitcoin dust is one of those relatively unknown but highly annoying things about Bitcoin. Just like the example shown, sometimes the protocol demands that there be very small divided units formed from Bitcoins during the course of transactions. The issue with smaller divided units is that the cost of processing transactions in those values is actually going to be more than the value of the Bitcoin dust itself.
Because of the fact that the blocks on the blockchain network have the same size for every transaction, transacting with Bitcoin dust can still take up the same amount of space in the block as a big transaction can. If there is a lot of Bitcoin dust being processed on the blockchain network, it can lead to problems with the overall performance of the blockchain network.
Bitcoin dust is not something that is new in any way. It’s always been there. Bitcoin dust has only started becoming a problem in recent times because the transaction fees have gotten higher and higher with the rising popularity and common usage of Bitcoin.
Getting Rid Of Bitcoin Dust
The fact that the Bitcoin dust can become a problem for the performance of the blockchain network means that Bitcoin dust should be eliminated at the earliest convenience. All of the Bitcoin dust that a user has should be consolidated into the form of one transaction. To put it in simpler terms, all of the pennies that you have, making up a total of $50, should be exchanged for a single note of $50. The ease with which the consolidation of all the Bitcoin dust can be done depends on individual case basis. Using a simplified payment verification system like Electrum can help make the ordeal easier.
There is one minor hiccup in the whole process of eliminating the Bitcoin dust. The thing is that when you have collected a lot of Bitcoin dust from a number of different accounts that you have, consolidating them in a single transaction means you are putting your privacy at risk. A lot of users have to go through the KYC process with certain exchanges. That’s a necessary aspect which will help in eliminating the problem of criminal activity in the crypto ecosystem.
If your real identity is associated to even one of the accounts that you will be consolidating the transaction from, it means that when you do accumulate all the Bitcoin dust into the form of a single transaction, your identity can be linked to all those accounts.
It’s about weighing the benefits and the losses of consolidation. Right now, the transaction fees for Bitcoin are relatively much lower than they were at its peak. It’s better to consolidate the Bitcoin dust before the transaction fees gets high. Otherwise, it suffices to say that the Bitcoin dust will amount to a number of Bitcoin tokens which are useless for all intents and purposes for the user. It’s the choice between potentially losing those Bitcoins or privacy for the user.
Charlie Shrem is a Bitcoin pioneer, a social economist and digital currency trader. His work in this field is legendary. In 2011, at the dawn of the crypto era, he founded BitInstant, the first and largest Bitcoin company. In 2013, he founded the Bitcoin Foundation and serve as its vice chairman. Since then, Charlie has advised more than a dozen digital currency companies, launched and managed numerous partnerships between crypto and non-crypto companies, and is the go-to guy for some of the world’s wealthiest entrepreneurs. In short, he is the ultimate insider at the epicenter of the crypto universe.
Crypto.IQ is a premier advisory firm providing expert research, education and advice in the world of cryptoassets. The company is unique in that it combines the unparalleled expertise of crypto pioneer Charlie Shrem with the unparalleled market knowledge of three Wall Street experts with more than a century of combined financial industry experience. Together, they have managed and traded more than $1 billion in assets. In a world of “instant experts,” who have little knowledge or trading experience, the Crypto.IQ team offers the proven depth, insight and knowledge to help their clients achieve success.
Raise your Crypto.IQ…and profit! Crypto.IQ gives you the insider knowledge you need to succeed as a cryptocurrency investor.