Glossary

Coin Selection

1 min read

Coin selection is the process of choosing a subset of the UTXOs owned by a wallet in order to create and fund a transaction. When creating a transaction on behalf of a user, a wallet must select specific UTXOs as inputs in the transaction.

For example, if Alice wishes to pay Bob 1 BTC and her wallet contains 5 BTC in various amounts, her wallet must determine which UTXOs to spend. This decision is not trivial, and depends on the priority of the user. Some coin selection methods prioritize spending smaller outputs to avoid dust accumulation while others spend large outputs to pay lower fees. Still others prioritize privacy or avoiding change outputs.

Coin selection is usually dictated by an algorithm built into a wallet, but some wallets allow users to dictate their own coin selection preferences to suit their needs.

Related Terms
Unspent Transaction Output (UTXO)
A UTXO is a discrete piece of bitcoin. Bitcoin does not use accounts and balances. Instead, individual pieces of bitcoin are owned by individuals, analogous to physical coins or cash.
Learn more.
Bitcoin Transaction Fee
All Bitcoin transactions must pay a fee to be included in the blockchain. The fee is paid to the miners. The higher the fee, the faster the transaction will be confirmed. Fees are measured based on the data size of the transaction.
Learn more.
Dust
If a piece of bitcoin, a UTXO, is small enough, it may cost more in fees to spend it than it is worth. What constitutes dust is determined by the size of the UTXO and the current fee market.
Learn more.
Wallet
A wallet is a piece of software which generates and stores public and private keys, allowing users to send, receive, and store bitcoin.
Learn more.
Explore More Terms →