Bitcoin Transactions

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A Bitcoin transaction consists of a version number, a locktime value, a list of inputs and a list of outputs.

The primary functionality of a Bitcoin transaction is to transfer custody of bitcoin from one to another.

A Bitcoin transaction can also serve as a vehicle for smart contracts, recording data, attestation and many other secondary functionalities.

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, sometimes also called locking script. Outputs are redeemed by making them inputs to new transactions and providing a ScriptSig (sometimes called unlocking script) which is a valid solution that unlocks the bitcoin held in the ScriptPubKey (locking script). 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 blockchain, 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 2 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 232 inputs.

All of the new transaction's input value (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_fees) is consumed by the outputs of the new transaction.

Previous tx is the TXID 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. To redeem a P2PKH script the input must provide a public key and an ECDSA signature. The Public key is doubled hashed (First SHA-256 then RIPEMD-160) and the resultant hash must match the hash embedded in the ScriptPubKey of the output being redeemed.

The public key is then used to verify the redeemer's 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 TXID of the transaction the output was created in 32 bytes
Previous Txout-index Index of the output (Non negative integer) 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 each output 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 whose 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 the script returns true. 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 validates 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)

NOTE: Since the discovery of a transaction malleation exploit which allows a message hash and signature to be modified to redirect R-Puzzle inputs to modified outputs, the advised method for using R-Puzzles is to include two signatures generating using different SIGHASH types in order to create a distinct message hash. Take care to generate each signature with a different k value.

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_TUCK OP_CHECKSIGVERIFY OP_CHECKSIG scriptSig: <sig'> <sig> <pubKey>

Bitcoins locked in an R-Puzzle script require 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'> <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_TUCK OP_CHECKSIGVERIFY OP_CHECKSIG scriptSig and scriptPubKey are combined.
<sig'> <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_TUCK OP_CHECKSIGVERIFY OP_CHECKSIG Constants are added to the stack.
<sig'> <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_TUCK OP_CHECKSIGVERIFY OP_CHECKSIG Second from top stack item is duplicated.
<sig'> <sig> <pubKey> <3 bytes> <sig'> OP_NIP OP_1 OP_SPLIT OP_SWAP OP_SPLIT OP_DROP OP_HASH160 <rHash> OP_EQUALVERIFY OP_TUCK OP_CHECKSIGVERIFY OP_CHECKSIG First 3 bytes of signature are split
<sig'> <sig> <pubKey> <sig'> OP_1 OP_SPLIT OP_SWAP OP_SPLIT OP_DROP OP_HASH160 <rHash> OP_EQUALVERIFY OP_TUCK OP_CHECKSIGVERIFY OP_CHECKSIG 3 byte data item is removed
<sig'> <sig> <pubKey> <R Length> <sig"> OP_SWAP OP_SPLIT OP_DROP OP_HASH160 <rHash> OP_EQUALVERIFY OP_TUCK OP_CHECKSIGVERIFY OP_CHECKSIG 1 byte containing R length is split from sig'
<sig'> <sig> <pubKey> <sig"> <R Length> OP_SPLIT OP_DROP OP_HASH160 <rHash> OP_EQUALVERIFY OP_TUCK OP_CHECKSIGVERIFY OP_CHECKSIG R Length parameter is moved to top of stack
<sig'> <sig> <pubKey> <R> <sig'"> OP_DROP OP_HASH160 <rHash> OP_EQUALVERIFY OP_TUCK OP_CHECKSIGVERIFY OP_CHECKSIG R is split from sig"
<sig'> <sig> <pubKey> <R> OP_HASH160 <rHash> OP_EQUALVERIFY OP_TUCK OP_CHECKSIGVERIFY OP_CHECKSIG sig'"== is dropped from stack
<sig'> <sig> <pubKey> <rHashA> <rHash> OP_EQUALVERIFY OP_TUCK OP_CHECKSIGVERIFY OP_CHECKSIG R is double hashed (SHA256 followed by RIPEMD160) and result left on stack
<sig'> <sig> <pubKey> <rHashA> <rHash> OP_EQUALVERIFY OP_TUCK OP_CHECKSIGVERIFY OP_CHECKSIG Previously defined R-Hash is pushed onto stack
<sig'> <sig> <pubKey> OP_TUCK OP_CHECKSIGVERIFY OP_CHECKSIG Script checks if rHashA = rHash
<sig'> <pubKey> <sig> <pubKey> OP_CHECKSIGVERIFY OP_CHECKSIG Pubkey is tucked behind <sig>
<sig'> <pubKey> OP_CHECKSIG Script checks <sig> against <pubKey>
true Empty. <sig'> is checked against <pubKey>

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 arrayed on the stack when it is executed. 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 indicates to 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.

See Also

Attribution

This content is based on content sourced from https://en.bitcoin.it/wiki/Transaction under Creative Commons Attribution 3.0. Although it may have been extensively revised and updated we acknowledge the original authors.