Bitcoin's Unspent Transaction Output (UTXO) system is a unique method of handling transactions. Instead of account-based systems, Bitcoin records transactions as individual bills called UTXOs. These UTXOs represent received but unspent bitcoin amounts, and each has its own value. Spending bitcoin requires using one or more UTXOs as inputs in a transaction.

Unlike account-based systems like Ethereum, where balances are updated directly, Bitcoin's UTXO model maintains transactions as a graph, consuming existing UTXOs and creating new ones.

UTXO Management is crucial because it affects transaction efficiency and privacy. Accumulating many small UTXOs can lead to higher transaction fees, reduced privacy, and wallet performance issues.

There are several strategies for managing UTXOs effectively. UTXO consolidation involves combining multiple small UTXOs into a larger one to reduce transaction fees. However, this may impact privacy and incur additional fees. Strategic UTXO selection allows users to manually choose which UTXOs to include in transactions, minimizing inputs and optimizing transaction sizes.

Automated UTXO management services like Swan Bitcoin's auto-withdrawal feature can help set thresholds for automatic Bitcoin withdrawals, managing UTXO size and frequency without constant manual intervention.

Dust UTXOs, tiny amounts of bitcoin uneconomical to spend due to high transaction fees, can be avoided by consolidating UTXOs before they become too small, using higher auto-withdrawal thresholds, and leaving sufficient remaining balances in wallets.

In conclusion, mastering Bitcoin's UTXO system is vital for efficient and secure transactions. By understanding UTXOs and employing strategies like consolidation, strategic selection, and automated management, users can optimize transaction fees, maintain privacy, and ensure smooth wallet operation amidst increasing Bitcoin adoption and potential on-chain fee hikes.