Difference between revisions of "Change"

Revision as of 11:32, 15 January 2020

Introduction

When the output of a transaction is used as the input of another transaction, the output must be spent in its entirety. The coin value of the output may be higher than what the user wishes to pay. In this case, the client generates a new Bitcoin address that spender owns, and sends the difference back to this address. This is known as change.

For example if a customer would like to buy a candy bar from a store for $1 but they only have a $20 bill. The customer cannot pay a partial denomination of the $20 bill; they must pay with the full bill and the merchant must give the customer change back. The merchant owes the customer $19 in this case. Bitcoin works in this same manner.

Standard example

In a standard payment scenario, the sender consumes a single UTXO, paying the spending amount to the receiver's address, then receiving the change into a new address that they control to take advantage of privacy.

An example of this type of transaction can be viewed here.

Change back to spending address

In a naive implementation, the sender consumes a single UTXO as in the previous example, with the only difference being to receive the change into the same spending address. This means of transacting is not recommended as it does not take advantage of Bitcoin's privacy model.

An example of this is here.

Consolidating UTXOs

In some cases, the spender may have many UTXOs that they would like to consolidate. This has the added benefit of reducing the network's total UTXOs, thus shrinking the database that all nodes must maintain. On the other hand the computation for processing these inputs could be high. Potentially miners could process these types of transactions at a lower rate.

An example can be found here.

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-=DISCLAIMER=
+=== Introduction ===
-This article is a direct copy of the original https://en.bitcoin.it/wiki/Transaction and has not been checked for correctness or edited.
+When the output of a transaction is used as the input of another transaction, the output must be spent in its entirety. The coin value of the output may be higher than what the user wishes to pay. In this case, the client generates a new Bitcoin address that spender owns, and sends the difference back to this address. This is known as [[change]].
-th October 2019
-Expected review by: 20 October 2019
-Review BJL 20191009
+For example if a customer would like to buy a candy bar from a store for $1 but they only have a $20 bill. The customer cannot pay a partial denomination of the $20 bill; they must pay with the full bill and the merchant must give the customer change back. The merchant owes the customer $19 in this case. Bitcoin works in this same manner.
+===Standard example===
+In a standard payment scenario, the sender consumes a single UTXO, paying the spending amount to the receiver's address, then receiving the change into a new address that they control to take advantage of privacy.
+An example of this type of transaction can be viewed [https://whatsonchain.com/tx/d0033a539a426de7142f4b230328c84306b6ebc1c985515d522a411c397522df here].
+=== Change back to spending address ===
+In a naive implementation, the sender consumes a single UTXO as in the previous example, with the only difference being to receive the change into the same spending address. This means of transacting is not recommended as it does not take advantage of Bitcoin's privacy model.
+An example of this is [https://whatsonchain.com/tx/defaaec6d8687a27da68d2bd445dac9c1333c4460246309070a5a3cf40f3d6f0 here].
-When the output of a transaction is used as the input of another transaction, it must be spent in its entirety. Sometimes the coin value of the output is higher than what the user wishes to pay. In this case, the client generates a new Bitcoin address, and sends the difference back to this address. This is known as [[change]].
+=== Consolidating UTXOs ===
+In some cases, the spender may have many UTXOs that they would like to consolidate. This has the added benefit of reducing the network's total UTXOs, thus shrinking the database that all nodes must maintain. On the other hand the computation for processing these inputs could be high. Potentially miners could process these types of transactions at a lower rate.
-Say you want to buy a candy bar ($1) from a store.  You open your wallet (fiat wallet) and inside there is a single $20 bill.  What is the min amount you can pay?  It isn't $1; you can't rip up 1/20th of the bill and give it to the cashier.  You need to pay $20 and since you only owe $1, the cashier gives you back $19.   Now in fiat nobody except the central bank can make new bills so bills are in fixed denominations and thus your fiat transaction may look something like the following.
+An example can be found [https://whatsonchain.com/tx/682e4ee70f5ba2a174e5427e4bdd645ee229ed64d2b9ca55d315035de6d85668 here].
-* Inputs:
-** $20 bill
-* Outputs:
-** $1 bill to cashier
-** $10 bill to you
-** $5 bill to you
-** $1 bill to you
-** $1 bill to you
-** $1 bill to you
-** $1 bill to you
-We do it everyday so it becomes instinctive but if you break it down that is what is happening. Now lets imagine for a second that some system existed which allowed the cashier (or anyone) to securely destroy any authentic fiat money (bills) and print replacements in arbitrary amounts (not just $10s and $20s but $18.94537208 if you wanted to), while preventing double spending, counterfeiting, and ensuring that at all times the amount of money created is exactly the same as the amount of money destroyed.  In that case your transaction may look like this:
-* Inputs:
-** $20 bill - destroyed
-* Outputs:
-** $1 newly created bill to cashier
-** $19 newly created bill to you
-That is exactly how bitcoin works.  Except instead of bills we call the elements inputs and outputs.  When you "spend" bitcoins (create a transaction) you must use the entire value of an unspent output (of a prior transaction) and make it the input for a new transaction.  Your wallet hides this somewhat by continually looking for unspent outputs and adding up their total value.  So when your wallet says you have 130 BTC it simply means the sum of all your unspent outputs total 130 BTC.  Just like a fiat wallet the value comes from one or more discrete bills/outputs.
-Take the case of the transaction [http://blockchain.info/tx/0a1c0b1ec0ac55a45b1555202daf2e08419648096f5bcc4267898d420dffef87 0a1c0b1ec0ac55a45b1555202daf2e08419648096f5bcc4267898d420dffef87], a 10.89 BTC previously unspent output was spent by the client.  10 BTC was the payment amount, and 0.89 BTC was the amount of change returned.  The client can't spend just 10.00 BTC out of a 10.89 BTC payment anymore than a person can spend $1 out of a $20 bill.  The entire 10.89 BTC unspent output became the input of this new transaction and in the process produced are two new unspent outputs which have a combined value of 10.89 BTC.  The 10.89 BTC is now "spent" and effectively destroyed because the network will prevent it from ever being spent again.   Those unspent outputs can now become inputs for future transactions.
-In this transaction, the fee is 0 but if there was a tx fee paid it would be the difference between the inputs and the outputs.  (i.e. 10.89 BTC input and a 10.88 BTC output = 0.01 BTC fee).
-The wallet file contains the private keys for change addresses, and they can receive and send coins normally. However, the GUI in the default client does not display them in the address book, therefore a recommendation is to backup wallet.dat every 50 transactions.
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