Bitcoin Core Version Upgrade: 0.17.0.1 – Better Coin Selection, Cheaper Fees
How Will the New Bitcoin Version Upgrade Affect Traders?
On 2018-10-30 the new Bitcoin Core version was released. It includes a patch that will improve something called the ‘Coin Selection’ used in the Bitcoin algorithm. The improved algorithm is called the ‘Branch and Bound’ algorithm, or BnB for short. The patch improves the network and has practical consequences for traders as it can cut transaction fees. Coin selection can be summed up as ‘the way the Bitcoin algorithm selects the sets of coin transactions to send, in order to total the sum needed’.
Your wallet is comprised of many different Bitcoin transactions, that add up to the total in your Bitcoin wallet. For example, you may have transactions equal to 0.2 + 0.3 + 0.4 + 0.1 Bitcoin for a total of 1.0 Bitcoins. In reality these transactions themselves will be further split into the sub transactions lead them into your wallet. These small transactions can be thought of as similar to the way that one receives small amounts of change at a store, adding up to more and more small change (or sets of transactions). Except these bitcoin transactions wear down quickly so eventually you will be left with dust, not cents.
This dust is essentially useless for transactions. It costs more to send than the fees for sending, so it is not spendable and stuck in your wallet. Some exchanges, such as Binance have a way of pooling together all of your Bitcoin dust and exchanging it for their native token. Whilst this is a useful get around, it is limited to a few exchanges. The new BnB algorithm release promises cheaper fees through more efficient coin selection.
‘The new BnB algorithm release promises cheaper fees through more efficient coin selection’
The current algorithm makes far more mistakes and is inefficient compared to your typical cashier, effectively making it rubbish at giving you back accurate change. For example, it often selects sets of transactions to total the sum of transactions that do not fit perfectly to give you the total. Some transactions will be sent back to your wallet too, creating further splits. This means in effect that you end up having to pay a larger transaction fee a lot of the time.
The cherry on the cake is that besides the users funds being depleted by the inefficient transactions, the network also suffers. These unspent transactions are known as unspent output from bitcoin transactions or UTXO’s. With so many UTXO’s being created needlessly, more data is taken up on the blockchain.
Still feeling confused about Coin Selection? Check out Sarah Rothrie’s article explaining it in depth here!
Transaction fees are continuing to rise on the Bitcoin network. In order to stay viable as a currency the Bitcoin developers will need to implement changes to streamline their coin selection process so as to reduce transaction fees.
The Branch and Bound algorithm is one of these changes. It should streamline inefficient data add ons to the network, and reduce transaction fees. A very welcome result at a time when fears are looming over the networks ability to stay viable as a currency.