Privacy.

Utxos are like individual coins... gold dust is not very convenient to use for sales while a gold bar that can have nuggets cut from it is more convenient and therefore cheaper to use as money.

If you have a (bitcoin) bar too big, and remember that the blockchain is public, then it makes you a target. Whatever someone can do to demystify who owns that bar, they will do and then they will try to use that information to target you. Also having lots of smaller bars in the same address is proof that 1 person owns all that bitcoin.

Addresses are like pockets, and you have infinite pockets in the blockchain. If you are being robbed physically, you might have cash in 2 pockets, but you pull out the cash in 1 pocket and the robber leaves. But if you put all of your cash in that pocket, they will see it when you try to short change them and demand all of it.

Separating nuggets of bitcoin (utxo) into separate pockets (addresses) is good for overall privacy and security. 

 So my premise that utxo consolidation from time to time being a good practice is wrong because it depends...

I see. Thank you folks! 

 Yup it depends. This is a problem space that we are starting to think deeply about, but it is still a new problem.

We may learn a sweet range, like 10,000 sats - 200,000,000 sats where its always going to be not too big and not too small. Then wallets will just manage this for us.

Until then, we are guinea pigs. 😆 

 We actually don't need to consolidate utxos. It only makes sense to consolidate when you have lots of small utxos which are not likely to be spent separately.

UTXOs are like dollar bills and coins. If you have a jar full of pennies, it makes sense to consolidate them to a $50 bill so you can spend it easier. In Bitcoin terms, that would mean that you might want to consolidate small UTXOs when network fees are low, so you have big UTXOs available to spend when fees are high.

But if you have a bag full of $100 bills, or a bunch of UTXOs worth $100 each, it makes no sense to consolidate them, unless you plan to spend a lot more than $100 in one transaction. 

So as long as you don’t plan to buy your house or your yacht and pay in Bitcoin, keep those $100 UTXOs separate, as it helps keeping your total balance more private.