What does consuming utxos mean?

Spending Bitcoin

It's complicated. A transaction output: * is stored in the UTXO set until spent, * has to be maintained by validating nodes, * contributes to the state that nodes need for future validation. By contrast, when that output is eventually spent, much of the data required to authorize the spend—especially signatures—is transient validation data. Once the spend is confirmed, the old UTXO can be deleted from the UTXO set. So there is a desirable incentive structure: UTXO creation should be relatively expensive and UTXO consumption should be relatively cheap The witness discount moves Bitcoin in that direction. Example: P2WPKH A typical native SegWit P2WPKH input is roughly: * 41 non-witness bytes → 41 x 4 = 164 WU * about 107 witness bytes → 107 WU Total: 271 WU / 67.75 vbytes A P2WPKH output is 31 bytes, all non-witness: 31 x 4 = 124 WU = 31 vbytes So consuming a UTXO still costs more than creating one, but the difference is much smaller than it would be if the signature received no discount. Without the witness discount, that same input would be roughly: 41 + 107 = 148 bytes versus only 31 bytes for the newly created output. That would give users a fairly strong incentive to create lots of outputs because creation looks cheap, while later consolidation looks expensive. With the discount, the ratio is closer to 68 vB input : 31 vB output rather than 148 : 31. Why this matters for UTXO growth: Suppose you receive ten small payments. Later, you want to combine those ten UTXOs into one. A consolidation transaction has: * many inputs, which **destroy UTXOs** * few outputs, which **create UTXOs** Bitcoin arguably wants such transactions to be reasonably cheap because they reduce the global UTXO set. The witness discount helps enormously here because most of the bulky part of each input—the authorization data—is discounted. Conversely, a transaction with: * one input * twenty outputs creates nineteen additional UTXOs. Those twenty outputs receive **no witness discount**. Their bytes count at the full 4 WU/byte rate. So the weight system implicitly taxes UTXO proliferation more heavily than it otherwise would.