Ethereum: What is the coin selection algorithm?

Ethereum’s Coin Selection Algorithm: A Deep Dive

Choosing the right combination of unspent outputs (USO) is key to making transactions on the Ethereum network. This process, known as coin selection or the spending algorithm, determines which unspent inputs are used to pay out transactions. In this article, we’ll look at how Ethereum’s coin selection algorithm works and whether it has changed over time.

The Standard Client

In the standard client, transactions are created using the Ethereum Virtual Machine (EVM). When creating a transaction, the user selects one or more unspent outputs from their account balance as inputs. The EVM then uses this information to determine which USOs to use to select a coin.

Coin Selection Algorithm

The coin selection algorithm is based on the concepts of “coin generation” and “spending.” According to the Ethereum white paper, the algorithm works as follows:

• Identifying unspent outputs from user account balances.

• Using these inputs to determine which coins to spend (i.e., to pay out transactions).

• Assigning priorities to coins based on available supply and mining difficulty.

In other words, the algorithm selects the rarest and hardest-to-mine coins first, ensuring that they have a good chance of being spent in large amounts.

Change History

Interestingly, Ethereum’s coin selection algorithm has changed since the original version. The 2015 version was based on a simple linear sorting algorithm, where all unspent outputs were sorted by their availability and then assigned to the rarest coins first. This approach had some limitations, such as allowing for extremely low priority coins.

In response to these criticisms, Ethereum developers introduced the current coin selection algorithm in June 2016. The new algorithm uses a more sophisticated sorting method based on the “spending priority” (SP) value of the coin, which also takes into account factors such as the available supply of the coin and the difficulty of mining.

Current coin selection algorithm

The current coin selection algorithm is as follows:

• Sort all unexpendable outputs by their availability.

• Assign a spending priority (SP) value to each output based on its availability and difficulty of mining.

• Sort the sorted list by SP values, with more expensive coins given higher priority.

Conclusion

The Ethereum coin selection algorithm is a complex mechanism that ensures the fairness and efficiency of transactions on the network. Using a combination of sorting and ranking, the algorithm selects the rarest and most difficult-to-mine coins first, reducing the likelihood that high-priority coins will be spent in small quantities.

While some critics have raised concerns about the simplicity of the algorithm, Ethereum developers argue that this approach provides a good balance between fairness and computational efficiency. As the Ethereum network continues to evolve, it will be interesting to see how future updates refine and improve this coin selection algorithm.