In terms of UTXO management, I have the following extreme example to illustrate my question. Let's say I have 1 BTC with 100 million UTXOs of 1 sat each (or even 10 million UTXOs with 10 sats each). My question is - is the entire 1 BTC balance unspendable in a higher fee environment OR is it spendable and I will just pay a high fee?

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They are economically unspendable. If you only had the described 1-sat UTXOs, you would be unable to build a transaction that meets the minimum feerate.

Each UTXO requires some blockspace to be spent. If this blockspace costs more in fees at a given feerate than the UTXO is worth, an input spending the UTXO negatively contributes to the fees of a transaction—the input cannot carry its own weight, other inputs would need to add more fees to cover the deficit. I describe such UTXOs as having a negative effective value (at the given feerate).

As in your example, a UTXO might have a negative effective value even at the minimum feerate. I call such UTXOs economically unspendable. They can be spent, though only if the user deliberately pays extra for removing them from the UTXO set.

Note that the above terms differ from dust: the dust limit refers to the fixed amount of fees an input and output of a specific output type would cost at the discard feerate (3 ṩ/vB). The limit that makes an output economically unspendable is based on the cost of the input at the minimum feerate, and having a negative effective value is a property depending on the context of a given feerate.

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