Sparrow: coin control and labelling

Your wallet shows one number, and that number is a summary. Underneath it your bitcoin exists as separate chunks — one for each payment you have ever received — and every chunk carries the history of where it came from.

That matters because of one simple assumption anyone analysing the blockchain makes: if a single transaction spends two chunks, the same person owned both. It is a reasonable assumption and usually correct, which is exactly the problem. Spend an exchange withdrawal alongside a payment from a client, and you have just published a link between your identity-verified account and that client.

Coin control is choosing which chunks to spend, and it is the difference between a wallet that quietly assembles a map of your finances and one that does not.

Sparrow's UTXO tab on screen showing several coins with clear labels, one of them greyed out as frozen.

Image to come

1Look at your coins individually

Open your wallet's UTXO view. Instead of one balance you will see a list: each row a separate coin, with its own amount, its own age, and its own address.

This is what your wallet actually holds. The single balance figure on the main screen is the sum, and it hides everything that matters for the rest of this guide.

2Label everything, starting now

A label is a note attached to a coin, an address, or a transaction — where it came from, what it was for. Sparrow lets you label all three, and the habit is worth more than any single privacy technique.

The reason is practical rather than philosophical. In two years you will look at a coin from an exchange withdrawal and a coin from a private sale and be unable to tell them apart. Once you cannot tell them apart, you cannot make good decisions about which to spend, and coin control becomes guesswork.

• Label every incoming payment as it arrives: the source, and anything you will want to remember about it.
• Label the coins you already hold now, while you still remember where they came from.
• Be specific enough to be useful and vague enough that the file is not a dossier — exchange withdrawal March rather than a full account number.
• Export your labels regularly. Sparrow supports the BIP329 format, which other wallets can read, so your notes are not trapped in one piece of software.

3Choose your inputs when you spend

By default a wallet picks coins for you, optimising for fees. That is fine when it does not matter and quietly damaging when it does.

Sparrow lets you select which coins to spend before building a transaction. The rule to follow is simple: do not spend coins together unless you are comfortable with them being publicly linked.

• Spending to a merchant? Use a coin whose history you do not mind that merchant's payment processor seeing.
• Have coins from an identity-verified exchange and coins from elsewhere? Keep those two groups apart, permanently.
• Where possible, spend one coin rather than combining several. A single-input transaction reveals the least.
• If you must combine, combine coins that are already publicly linked — merging two exchange withdrawals from the same account gives away nothing new.

4Freeze what should never be spent by accident

Freezing marks a coin as unavailable, so automatic coin selection can never quietly include it in a transaction. It changes nothing on the blockchain — it is a note to your own wallet.

• Freeze coins you are deliberately keeping separate, so a hurried payment cannot merge them.
• Freeze anything whose origin you do not know or trust.
• Freeze dust — see below.
• Review your frozen coins occasionally, so you do not forget why something was set aside.

5Understand what change gives away

Spend part of a coin and the remainder comes back to you as a new coin, called change. This is where a lot of accidental linking happens, because change inherits the connection to everything that funded it.

Say you hold one large coin and pay a small amount from it. The transaction now shows a small payment and a large remainder, and it is generally obvious which is which. That remainder is still yours, still traceable to the original coin, and now also linked to that payment.

• Label your change outputs like anything else — they are new coins with new histories.
• Expect the amounts themselves to leak information. A round number is usually the payment; the awkward remainder is usually change.
• Where it matters, prefer spending a coin whose value is close to the amount you are sending, so the change is small or nonexistent.

6Dust, and coins you did not ask for

Occasionally tiny amounts arrive at your addresses unrequested. Sometimes this is a mistake or a test. Sometimes it is deliberate: the sender is hoping you will eventually spend that dust alongside your real coins, which would link the address they sent to with the rest of your wallet.

The defence costs nothing. Freeze it and leave it alone.

• Do not try to consolidate dust to tidy up your wallet. Consolidating is precisely the action the sender is waiting for.
• Do not follow instructions that arrive attached to unexpected coins. Messages embedded in transactions leading to a website are a scam without exception.

7Consolidate deliberately, if at all

Combining many small coins into one is sometimes worth doing — a wallet full of tiny coins becomes expensive to spend from, because every coin you include makes the transaction larger and therefore costlier.

But consolidation is the single most linking action you can take: it announces that every coin involved has the same owner. If you do it, do it knowingly.

• Consolidate only within groups that are already linked, never across them.
• Do it when fees are low — you are paying for size, and the mempool decides the rate.
• Never consolidate dust, and never consolidate coins you are deliberately keeping apart.

What this costs

Coin control is not free, and pretending otherwise would be dishonest.

• Higher fees, sometimes. Choosing a specific coin rather than the cheapest combination can mean a larger transaction. Privacy has a price measured in sats.
• More coins over time. Keeping groups separate means not merging them, so you accumulate more, smaller coins.
• Ongoing attention. Labels only work if you keep writing them. A wallet labelled thoroughly for six months and then neglected is a wallet you can no longer reason about.

What coin control does not do

• It does not undo existing links. Anything already spent together is already public and permanent. This changes your future, not your past.
• It does not hide you from your wallet's server. A public Electrum server sees which addresses you query together regardless of how carefully you spend — pointing Sparrow at your own node is a separate and complementary step.
• It does not make you anonymous. It stops you volunteering information. Someone who already knows one of your addresses still knows it.

None of that is a reason to skip it. Labelling and selecting inputs are cheap habits that prevent the specific, avoidable mistake of publishing links you never meant to publish — and unlike most privacy measures, they cost nothing but attention.

Menu names and views change between Sparrow releases. Confirm the current interface against Sparrow's own documentation if what you are seeing does not match.