Bitcoin Transactions
A transaction is a serialised data item that authorises an exchange between inputs and outputs.
A transaction can be created and iterated inside a Payment Channel using nLocktime and nSequence interlocks, or sent directly to The Bitcoin Network for inscription into a block. A transaction uses unspent transaction outputs (UTXOs) as inputs and distributes their value to new outputs. UTXOs are the 'coins' in which all Bitcoins are stored.
Transactions are not encrypted, so it is possible to browse and view every transaction ever collected into a block. Once transactions have been seen and validated by a majority of block creating nodes in the Bitcoin network, they can be considered settled. When they are eventually mined into a block, miners collaboratively agree on the order in which they were seen by the network.
Transactions are referenced using their TXID which is a double SHA-256 hash of the fully serialised transaction.
Transaction outputs are puzzle scripts called ScriptPubKeys which are typically used to lock the contained Bitcoin value. Outputs are redeemed by making them inputs to new transactions and providing a ScriptSig which is a valid solution that unlocks the Bitcoin held in the ScriptPubKey. Outputs may have zero value in Bitcoin, but may carry value in another form such as data or tokens. Scripts can be complex and specialised and may have more than one way to be redeemed.
All transactions are captured on the ledger in blocks on the block chain, and can be viewed with a block explorer. This can be useful for seeing the technical details of transactions in action and for verifying payments.
General format of a Bitcoin transaction
The following outlines the elements that are serialised to build a valid Bitcoin transaction.
| Field | Description | Size |
|---|---|---|
| Version no | currently 1 | 4 bytes |
| In-counter | positive integer VI = VarInt | 1 - 9 bytes |
| list of inputs | Input Structure | <in-counter> qty with variable length per input |
| Out-counter | positive integer VI = VarInt | 1 - 9 bytes |
| list of outputs | Output Structure | <out-counter> qty with variable length per output |
| nLocktime | if non-zero and sequence numbers are < 0xFFFFFFFF: block height or timestamp when transaction is final | 4 bytes |
Transaction Inputs and Outputs
Each Bitcoin transaction is comprised of Inputs and Outputs. Inputs provide the funds to be spent in the transaction, and Outputs define where those funds should be allocated.
Inputs
An input is a reference to an output from a previous transaction, and a transactions can include between 1 and 2<super>32</super>.
All of the new transaction's input values (that is, the total coin value of the previous outputs referenced by the new transaction's inputs) are added up, and the total (less any transaction fee) is consumed by the outputs of the new transaction. Previous tx is a hash of a previous transaction. Index is the specific output in the referenced transaction. ScriptSig is the first half of a script which is provided when a UTXO is spent as an input to a transaction.
An input ScriptSig may contain many components. In a P2PKH script the public key must match the hash given in the script of the redeemed output. The public key is used to verify the redeemer's signature, which is the second component. More precisely, the second component is an ECDSA signature. Dependent on the SIGHASH flags used, the signature may cover a hash representing part or all of the transaction. Combined with the public key, this proves the transaction was created by a person or process that controls the keys needed to spend the Bitcoin in the input.
Format of a Transaction Input
Otherwise known as a TXIN, the following table outlines the required elements of a valid transaction input.
| Field | Description | Size |
|---|---|---|
| Previous Transaction hash | doubled SHA256-hashed of a (previous) to-be-used transaction | 32 bytes |
| Previous Txout-index | non negative integer indexing an output of the to-be-used transaction | 4 bytes |
| Txin-script length | non negative integer VI = VarInt | 1 - 9 bytes |
| Txin-script / scriptSig | Script | <in-script length>-many bytes |
| Sequence_no | Used to iterate inputs inside a payment channel. Input is final when nSequence = 0xFFFFFFFF | 4 bytes |
The input sufficiently describes where and how to get the bitcoin amount to be redeemed. If it is the (only) input of the first transaction of a block, it is called the Coinbase message and includes information about which block it was mined in and a miner configurable data element.
Outputs
An output contains a piece of Bitcoin Script which can be used to lock Bitcoins, requiring a certain set of keys or information to be provided to unlock them. Outputs can also be used to inscribe data onto the ledger.
This ScriptPubKey is the second half of a full script and is only completed when the output is spent. There can be more than one output, and they share the combined value of the inputs. The Value of eachoutput is the number of Satoshis that the script unlocks when solved. Because each output from one transaction can only ever be referenced once by an input of a subsequent transaction, the entire value of the combined inputs needs to be allocated to the transaction outputs. Any Satoshis left unallocated are considered to be paid in mining fees] and are awarded to the miner whos node generates the block that the transaction is included in..
If a user's input is larger than the value they want to send, the transaction must create at least two outputs, one sending the required funds to the destination, and one sending the change back to the user.
Outputs can have a value of zero satoshis. Currently, these outputs are limited to False Return scripts and are typically used to carry other information or tokens for Application layer protocols.
Format of a Transaction Output
Otherwise known as a TXOUT, the following table outlines the required elements of a valid transaction output.
| Field | Description | Size |
|---|---|---|
| value | non negative integer giving the number of Satoshis to be transferred | 8 bytes |
| Txout-script length | non negative integer | 1 - 9 bytes VI = VarInt |
| Txout-script / scriptPubKey | Script | <out-script length>-many bytes |
The output's scriptPubKey sets the conditions to release this bitcoin amount later. The sum of the output values of the first transaction is the value of the mined bitcoins for the block plus possible transactions fees of the other transactions in the block.
Transaction Validation
To verify that inputs are authorized to collect the values of referenced outputs, Bitcoin uses a Forth-like scripting system. The input's scriptSig and the referenced output's scriptPubKey are evaluated (in that order), with scriptPubKey using the values left on the stack by the scriptSig. The input is authorized if scriptPubKey returns true. Through the scripting system, the sender can create very complex conditions that must be met in order to claim the output's value.
For example, it's possible to create an output that can be claimed by anyone without any authorization. It's also possible to require that an input be signed by ten different keys or be redeemable with a password instead of a key.
Puzzles and Solutions
The flexible scripting language enabled by the Bitcoin protocol allows a multitude of different transaction types to be created. Each scriptSig/scriptPubKey pair is validated by the network miners and mined into a block if found to be valid. Some commonly used Bitcoin puzzle types are described below:
Pay to Public Key (P2PK)
scriptPubKey: <pubKey> OP_CHECKSIG scriptSig: <sig>
When redeeming coins that have been sent to a Bitcoin public key the script verifies that the provided signature was generated by the private key that also corresponds to the public key.
Checking process:
| Stack | Script | Description |
|---|---|---|
| Empty. | <sig> <pubKey> OP_CHECKSIG | scriptSig and scriptPubKey are combined. |
| <sig> | <pubKey> OP_CHECKSIG | Signature is added to the stack. |
| <sig> <pubKey> | OP_CHECKSIG | Pubkey is added to stack. |
| true | Empty. | Signature is checked. |
Pay to Public Key Hash (P2PKH)
scriptPubKey: OP_DUP OP_HASH160 <pubKeyHash> OP_EQUALVERIFY OP_CHECKSIG scriptSig: <sig> <pubKey>
A Bitcoin address is only a hash, so the sender can't provide a full public key in scriptPubKey. When redeeming coins that have been sent to a Bitcoin address, the recipient provides both the signature and the public key. The script verifies that the provided public key does hash to the hash in scriptPubKey, and then it also checks the signature against the public key.
Checking process:
| Stack | Script | Description |
|---|---|---|
| Empty. | <sig> <pubKey> OP_DUP OP_HASH160 <pubKeyHash> OP_EQUALVERIFY OP_CHECKSIG | scriptSig and scriptPubKey are combined. |
| <sig> <pubKey> | OP_DUP OP_HASH160 <pubKeyHash> OP_EQUALVERIFY OP_CHECKSIG | Constants are added to the stack. |
| <sig> <pubKey> <pubKey> | OP_HASH160 <pubKeyHash> OP_EQUALVERIFY OP_CHECKSIG | Top stack item is duplicated. |
| <sig> <pubKey> <pubHashA> | <pubKeyHash> OP_EQUALVERIFY OP_CHECKSIG | Top stack item is hashed. |
| <sig> <pubKey> <pubHashA> <pubKeyHash> | OP_EQUALVERIFY OP_CHECKSIG | Constant added. |
| <sig> <pubKey> | OP_CHECKSIG | Equality is checked between the top two stack items. |
| true | Empty. | Signature is checked for top two stack items. |
Pay to R-Puzzle Hash (P2RPH)
scriptPubKey: OP_OVER OP_3 OP_SPLIT OP_NIP OP_1 OP_SPLIT OP_SWAP OP_SPLIT OP_DROP OP_HASH160 <rHash> OP_EQUALVERIFY OP_CHECKSIG scriptSig: <sig> <pubKey>
Bitcoins are locked in an R-Puzzle script requiring the spending party to sign using a known value for k rather than a random number. To redeem the script, the spending party provides both the signature and the public key. The script verifies that the provided signature was signed using the correct k-value, then checks the signature against the public key. Because the public key is not checked as part of the script solution, it is possible to sign the transaction using any keypair. This can be useful when dealing with tokens that are associated with a Bitcoin address as the pubkey that corresponds to that address can be used to sign the transaction without the requirement for there to be Bitcoin in the address. The technique is also relevant for Metanet node signing as the Metanet keys can be signed with an R-Puzzle without needing a separate signature.
Checking process:
| Stack | Script | Description |
|---|---|---|
| Empty. | <sig> <pubKey> OP_OVER OP_3 OP_SPLIT OP_NIP OP_1 OP_SPLIT OP_SWAP OP_SPLIT OP_DROP OP_HASH160 <rHash> OP_EQUALVERIFY OP_CHECKSIG | scriptSig and scriptPubKey are combined. |
| <sig> <pubKey> | OP_OVER OP_3 OP_SPLIT OP_NIP OP_1 OP_SPLIT OP_SWAP OP_SPLIT OP_DROP OP_HASH160 <rHash> OP_EQUALVERIFY OP_CHECKSIG | Constants are added to the stack. |
| <sig> <pubKey> <sig> | OP_3 OP_SPLIT OP_NIP OP_1 OP_SPLIT OP_SWAP OP_SPLIT OP_DROP OP_HASH160 <rHash> OP_EQUALVERIFY OP_CHECKSIG | Second from top stack item is duplicated. |
| <sig> <pubKey> <3 bytes> <sig'> | OP_NIP OP_1 OP_SPLIT OP_SWAP OP_SPLIT OP_DROP OP_HASH160 <rHash> OP_EQUALVERIFY OP_CHECKSIG | First 3 bytes of signature are split |
| <sig> <pubKey> <sig'> | OP_1 OP_SPLIT OP_SWAP OP_SPLIT OP_DROP OP_HASH160 <rHash> OP_EQUALVERIFY OP_CHECKSIG | 3 byte data item is removed |
| <sig> <pubKey> <R Length> <sig"> | OP_SWAP OP_SPLIT OP_DROP OP_HASH160 <rHash> OP_EQUALVERIFY OP_CHECKSIG | 1 byte containing R length is split from sig' |
| <sig> <pubKey> <sig"> <R Length> | OP_SPLIT OP_DROP OP_HASH160 <rHash> OP_EQUALVERIFY OP_CHECKSIG | R Length parameter is moved to top of stack |
| <sig> <pubKey> <R> <sig'"> | OP_DROP OP_HASH160 <rHash> OP_EQUALVERIFY OP_CHECKSIG | R is split from sig" |
| <sig> <pubKey> <R> | OP_HASH160 <rHash> OP_EQUALVERIFY OP_CHECKSIG | sig'"== is dropped from stack |
| <sig> <pubKey> <rHashA> | <rHash> OP_EQUALVERIFY OP_CHECKSIG | R is double hashed (SHA256 followed by RIPEMD160) and result left on stack |
| <sig> <pubKey> <rHashA> <rHash> | OP_EQUALVERIFY OP_CHECKSIG | Previously defined R-Hash is pushed onto stack |
| <sig> <pubKey> | OP_CHECKSIG | Script checks if rHashA = rHash |
| true | Empty. | Signature is checked for top two stack items. |
Pay to Multi Signature (P2MS)
scriptPubKey: OP_3 <pubKey1> <pubKey2> <pubKey3> <pubKey4> <pubKey5> OP_5 OP_CHECKMULTISIG scriptSig: OP_1 <sig1> <sig2> <sig4>
OP_CHECKMULTISIG offers users the capability to lock coins with a requirement for multiple parties to sign the scriptSig before coins can be spent. OP_CHECKMULTISIG can check many signatures against many public keys as long as the signatures in the scriptSig are provided in an order that corresponds to the order in which the public keys are placed in the scriptPubKey. The first opcode in the ScriptPubKey defines how many signatures must be provided in order for the coin to be successfully spent. The last one before OP_CHECKMULTISIG tells the scripting engine how many public keys to evaluate those signatures against. There must be at least as many items on the stack as are required for the OP_CHECKMULTISIG opcode to process or the script will be invalid.
Note: The current version of the scripting engine also includes a bug that requires an additional value to be placed on the stack before the signatures. In this example, OP_1 has been used to push a 1 to the top of the stack, but in theory any piece of data can be used. This value is consumed by the checking process but is not evaluated.
Checking process:
| Stack | Script | Description |
|---|---|---|
| Empty. | OP_1 <sig1> <sig2> <sig4> OP_3 <pubKey1> <pubKey2> <pubKey3> <pubKey4> <pubKey5> OP_5 OP_CHECKMULTISIG | scriptSig and scriptPubKey are combined. |
| 1 <sig1> <sig2> <sig4> | OP_3 <pubKey1> <pubKey2> <pubKey3> <pubKey4> <pubKey5> OP_5 OP_CHECKMULTISIG | Constants from scriptSig are added to the stack. |
| 1 <sig1> <sig2> <sig4> 3 <pubKey1> <pubKey2> <pubKey3> <pubKey4> <pubKey5> 5 | OP_CHECKMULTISIG | Constants from scriptPubKey are added to the stack. |
| true | Empty. | Multisignature script evaluation is performed |
Other Puzzle Types
Bitcoin's scripting language is rich and diverse and allows a user to create almost any kind of financial instrument that we have today, and many that we don't have. Puzzles do not need to conform to any particular standard or template however it is expected that the vast majority of transactions will be built using template scripts.
Examples of more complex script can be found here
Pieces of script can be combined to make larger and more complex transactions, and scripts can be built inside conditional loops allowing a single transaction output to be redeemed in multiple different ways.
Prior to the Genesis upgrade, complex scripts that fell outside the 'isstandard' testing schema were required to be compressed into a transaction format called 'Pay to Script Hash (P2SH)' This format is now deprecated in favour of using the full, rich scripting language inside transactions.