I've seen the term "dust" used to describe small transactions that might be considered as spam by the Bitcoin network. Is there is a generally accepted definition of this term?
I'm not sure there is an exact definition of dust. The Armory client wiki says:
Sending less than 0.01 BTC to any recipient — The network considers these small outputs to be “dust,” and discourages them by requiring a fee. If it was not discouraged, someone could take 1.0 BTC, and create 1,000,000 transactions of 0.000001 BTC each, for free, which would clog the network. So, that's one definition of dust.
Another definition of dust is the new 5.46uBTC minimum output size that is being added to 0.8.2.
This pull defines 'uneconomic dust' as 5.46 uBTC (546 satoshis, about $0.007 at current prices), and treats any transaction with outputs less than 546 satoshis as non-standard (won't be relayed, won't be mined). 546 satoshis is derived from the cost (in fees) to spend a TxOut/TxIn.
I don't think the definition of dust fundamentally changes the gist of the answer though.
In general, the exact definition of dust, and the threshold for what is considered dust may change over time with the transaction volume (and therefore competition for space in the blockchain) and exchange rates.
The definition of dust is client-specific and not a network rule.
Bitcoin Core considers a transaction output to be dust, when its value is lower than the cost of spending it at the
dustRelayFee rate. The default value for
dustRelayFee is 3,000 satoshi per kilobyte, which results in the same dust values as the dust definition used before Bitcoin Core 0.15.0. The previous dust definition tied the dust limit to the minRelayTxFee rate and the spending cost of an output exceeding 1/3 of its value.
At the default
dustRelayFee of 3,000 satoshi per kilobyte, the size of a P2PKH input being 148 bytes, and the size of a P2PKH output being 34 bytes, P2PKH outputs of 546 satoshis or smaller are being considered dust by Bitcoin Core. For P2WPKH (native segwit) outputs, the default dust limit computes to 294 satoshis as outputs are about 31 vbytes and inputs are about 67 vbytes.
dustRelayFee can be set with the hidden command line option
Additionally, Bitcoin Core 0.15.0 added a
discard_rate matches the longest target fee rate estimate (currently the 1,000 block fee rate estimate), but is bounded to be between at least
dustRelayFee and at most 10,000 satoshi/kB. Any change output that would be dust at the
discard_rate, i.e. would cost more to spend than its value at the
discard_rate, will automatically be dropped to the fee instead of being created as a change output.
To understand 'dust' you must understand a few things:
Firstly, a UTXO is an unspent transaction output. This is essentially a piece of bitcoin somewhere on the blockchain that is unspent.
To create a transaction, 1 or more UTXOs are used to form the inputs, and 1 or more UTXOs are "born" in the process. After the transactions are confirmed, the UTXOs that formed the inputs are now just "TXOs" (ie. they've been spent).
To ensure a transaction is confirmed, a fee must be added, that fee is proportional to the overall size of the transaction, which is the number of bytes the transaction takes up on the blockchain. The more UTXOs are used as the inputs, the bigger the transaction will be, thus the higher the fee that needs to be paid.
If I have 1 BTC stored in 1 UTXO, it will cost me less to sent that than 1 BTC spread across 10 UTXOs of 0.1 BTC, and it will cost me less to send that than 100 UTXOs of 0.01 BTC.
The fees are calculated as satoshis per byte, and the fees fluctuate depending on how busy the network is.
Every UTXO you want to use in a transaction will incur an increase in fee.
Every UTXO takes up a number of bytes in the transaction.
If you multiply fee per byte by the number of bytes taken by the UTXO and it exceeds the value held in the UTXO, then this UTXO is said to be 'dust'.
So a 'dust' UTXO is a UTXO that isn't worth including in a transaction because to to so would incur a fee increase higher than the value of the UTXO.
Dusty outputs are really small sized outputs from a transaction. Bitcoin transactions are 0 sum so what goes in must come out. When you make a transaction to send some money from your address to another address, any remainder gets sent to a change address that you'll be in control of. Now if that remainder is really small then it becomes "dusty." Then if you try to make another transaction with that dusty unspent output (UTXOs) miners will reject the transaction and it won't get confirmed, ergo the bitcoin won't move.
The bitcoin network depending on the version a miner is running has different definitions of what is considered dusty UTXOs. If this site is correct version of bitcoind running on nodes the bulk of the network is at 0.10 and 0.9.*.For 0.9.3 the dust limit is 546 satoshis. For version .10 I believe it is 546 and earlier versions of 0.9 I believe was higher at 10x around 5k satoshis.