Hello Yanmaani,
Incentives for UTXO consolidation already exists IMO.
1.If UTXO consolidation is done when fee rates are low (less congestion in
mempool), it helps in saving money in lot of cases. Example:
https://bitcoin.stackexchange.com/a/100811/
2.If running full node for Bitcoin, it will help in a smaller UTXO set.
In few cases it affects privacy though like post coinjoin.
TBH I couldn't understand everything you mentioned including the part in which
fees decrease is mentioned because of smaller block. Fees should increase if
such blocks are regularly mined and are predictable IMO. Not sure if everyone
will agree to the other things mentioned in the proposal.
--
Prayank
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