Labeling (UTXO Tagging)

How It Works

Every time you receive bitcoin, a new UTXO is created in your wallet. Without context, these UTXOs are just amounts — you don't know which came from an exchange, which were earned, which were received from a CoinJoin, or which came from a friend. When you spend bitcoin, your wallet selects UTXOs as inputs, and if it combines UTXOs from different sources, the blockchain permanently records that link. Chain analysis uses these links to trace funds and build identity profiles.

Labeling solves this by attaching metadata to each UTXO when you receive it. A good label includes the source (exchange name, person, service), the privacy status (KYC, no-KYC, post-CoinJoin), and any relevant notes. For example: "Bisq purchase - no KYC - Jan 2024" or "Kraken withdrawal - full KYC" or "CoinJoin output - Whirlpool round." When you later spend bitcoin, these labels tell you at a glance which UTXOs are safe to combine and which should remain separate.

Wallet software that supports coin control and labeling — like Sparrow Wallet, Electrum, and Bitcoin Core — makes this practical. You label incoming transactions as they arrive, and when constructing outgoing transactions, you manually select which UTXOs to include based on their labels. The rule is simple: never combine UTXOs with different privacy profiles. Keep KYC-sourced UTXOs separate from no-KYC coins. Don't mix CoinJoin outputs with unmixed funds. Labels are the map that makes these decisions possible.

Key Points

• Tag every incoming UTXO with its source, privacy status, and any relevant context
• Never combine UTXOs from different privacy profiles in the same transaction
• Prevents accidental linking of KYC and no-KYC bitcoin on the blockchain
• Supported by Sparrow Wallet, Electrum, Bitcoin Core, and other coin-control-capable wallets
• Labels are stored locally in your wallet — they are private metadata, not recorded on the blockchain