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What is Consolidating - Printable Version

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What is Consolidating - mjstrand - 04-15-2018

Quote:Can you explain what you mean consolidate, everyone keeps mentioning this, but I'm not understanding. Consolidating means to combine, what are people combining?
Happy to...  I am going to put this on the forum too - because it is an important concept.

When you transfer your currency, you need to pay a transaction fee to "grease" the process.  The higher the fee you pay per byte, the quicker miners will add your transaction into the next mining block.  If you have lots of small transactions, this can become a bit of a cost.  For that reason, it is best to consolidate your small transaction into a bigger one by transferring everything from your mining address into another address once a month or so.  

Unlike banking or credit card fees that are often a percent of the dollars you transfer, crypto currencies (including BitCoin) have a fee for the number of bytes you "send" to someone.  So if you are a miner, you will receive lots of small transactions - each of which are roughly 190 bytes if you pay someone with BTC.  So if you have 20 payments that you received for mining (it could be .0001 BTC or 1 BTC for each payment), it is roughly 3,800 bytes or a little under 4k of data.  When BitCoin is heavily in the news and the price is going up, it can cost $30 to $50 per kb to have a transaction complete in an hour or two.  So in this example, it could be $200 to send these 20 blocks to someone.  If you have a week or two to wait, you can probably get it to transfer for around $10 to $15 during these popular times.

In times when the hype is lower, you can get by with the minimum mining fee of .00001 BTC per KB, so it is a great time to turn those 20 blocks into 1.  To consolidate your mining, you create another receiving address in your wallet (usually simple by clicking the receive funds button and clicking on a button or link similar to "create a new address".  I usually name it consolidate1 (and I also have a consolidate2 that I alternate the payment to).  Then go to the send BTC button and paste in this new address.  Put in your total wallet value so that everything gets sent back to yourself.  Set the miner fee to the minimum and check the box to allow that fee to be changed at a later time (just in case it is too low and has not happened in a couple weeks).  Once the "payment" to yourself is made, that changes it from 20 transactions into a single one.

If you cannot set the fee directly to .00001 BTC per KB (the lowest value), there may be a configuration setting to use low mining fees.  I know that jaxx has this option - which still will cost more than .00001 BTC per KB, but it helps.  If your wallet does not have the ability to specify the miner fee, you should consider having your mining proceeds go to a different wallet that does.  I usually consolidate my rewards each month and once I get about .1 BTC, I transfer everything to my hardware wallet (again using the lowest miner fee).

Remember that you must not use automatic mining fees to get the best benefit - although even the automatic ones will be much lower now than when BitCoin is popular.  In order to know when is a good time to consolidate, you can setup a weekly email with a free account at minergain.com.  You can also check out the recommended miner fees at https://www.minergain.com/faq.html#btctxfees.