Coin selection in Bitcoin transactions is the process of choosing which specific coins (unspent transaction outputs or UTXOs) to use as inputs for a new transaction. The goal of coin selection is to minimize transaction fees while still meeting the required payment amount.
When creating a Bitcoin transaction, the sender's wallet software will typically select a combination of UTXOs that add up to at least the amount being sent, plus any transaction fees. The impact of coin selection on fees can vary depending on factors such as the number and size of UTXOs that need to be used.
Efficient coin selection can help reduce transaction fees by minimizing the number of UTXOs needed to create a transaction, thus reducing the overall size of the transaction data and decreasing the fee required to have it confirmed by miners. On the other hand, if inefficient coin selection leads to a large number of small UTXOs being used as inputs in a transaction, it can increase the size of the transaction and result in higher fees.
In summary, effective coin selection is important for optimizing transaction fees in Bitcoin transactions by choosing UTXOs efficiently to minimize costs.
