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[[ch5_intro]]
=== Introduction
((("transactions", id="ix_ch05-asciidoc0", range="startofrange")))Transactions are the most important part of the bitcoin system. Everything else in bitcoin is designed to ensure that transactions can be created, propagated on the network, validated, and finally added to the global ledger of transactions (the block chain). Transactions are data structures that encode the transfer of value between participants in the bitcoin system. Each transaction is a public entry in bitcoin's block chain, the global double-entry bookkeeping ledger.
((("transactions", id="ix_ch05-asciidoc0", range="startofrange")))Transactions are the most important part of the bitcoin system. Everything else in bitcoin is designed to ensure that transactions can be created, propagated on the network, validated, and finally added to the global ledger of transactions (the blockchain). Transactions are data structures that encode the transfer of value between participants in the bitcoin system. Each transaction is a public entry in bitcoin's blockchain, the global double-entry bookkeeping ledger.
In this chapter we will examine all the various forms of transactions, what they contain, how to create them, how they are verified, and how they become part of the permanent record of all transactions.
[[tx_lifecycle]]
=== Transaction Lifecycle
((("transactions","lifecycle of", id="ix_ch05-asciidoc1", range="startofrange")))A transaction's lifecycle starts with the transaction's creation, also known as((("origination of transactions"))) _origination_. The transaction is then signed with one or more signatures indicating the authorization to spend the funds referenced by the transaction. The transaction is then broadcast on the bitcoin network, where each network node (participant) validates and propagates the transaction until it reaches (almost) every node in the network. Finally, the transaction is verified by a mining node and included in a block of transactions that is recorded on the block chain.
((("transactions","lifecycle of", id="ix_ch05-asciidoc1", range="startofrange")))A transaction's lifecycle starts with the transaction's creation, also known as((("origination of transactions"))) _origination_. The transaction is then signed with one or more signatures indicating the authorization to spend the funds referenced by the transaction. The transaction is then broadcast on the bitcoin network, where each network node (participant) validates and propagates the transaction until it reaches (almost) every node in the network. Finally, the transaction is verified by a mining node and included in a block of transactions that is recorded on the blockchain.
Once recorded on the block chain and confirmed by sufficient subsequent blocks (confirmations), the transaction is a permanent part of the bitcoin ledger and is accepted as valid by all participants. The funds allocated to a new owner by the transaction can then be spent in a new transaction, extending the chain of ownership and beginning the lifecycle of a transaction again.
Once recorded on the blockchain and confirmed by sufficient subsequent blocks (confirmations), the transaction is a permanent part of the bitcoin ledger and is accepted as valid by all participants. The funds allocated to a new owner by the transaction can then be spent in a new transaction, extending the chain of ownership and beginning the lifecycle of a transaction again.
[[tx_origination]]
==== Creating Transactions
@ -23,12 +23,12 @@ Once recorded on the block chain and confirmed by sufficient subsequent blocks (
Transactions can be created online or offline by anyone, even if the person creating the transaction is not an authorized signer on the account. For example, an accounts payable clerk might process payable checks for signature by the CEO. Similarly, an accounts payable clerk can create bitcoin transactions and then have the CEO apply digital signatures to make them valid. Whereas a check references a specific account as the source of the funds, a bitcoin transaction references a specific previous transaction as its source, rather than an account.
Once a transaction has been created, it is signed by the owner (or owners) of the source funds. If it is properly formed and signed, the signed transaction is now valid and contains all the information needed to execute the transfer of funds. Finally, the valid transaction has to reach the bitcoin network so that it can be propagated until it reaches a miner for inclusion in the pubic ledger (the block chain).
Once a transaction has been created, it is signed by the owner (or owners) of the source funds. If it is properly formed and signed, the signed transaction is now valid and contains all the information needed to execute the transfer of funds. Finally, the valid transaction has to reach the bitcoin network so that it can be propagated until it reaches a miner for inclusion in the pubic ledger (the blockchain).
[[tx_bcast]]
==== Broadcasting Transactions to the Bitcoin Network
((("bitcoin network","broadcasting transactions to")))((("transactions","broadcasting to network")))First, a transaction needs to be delivered to the bitcoin network so that it can be propagated and included in the block chain. In essence, a bitcoin transaction is just 300 to 400 bytes of data and has to reach any one of tens of thousands of bitcoin nodes. The senders do not need to trust the nodes they use to broadcast the transaction, as long as they use more than one to ensure that it propagates. The nodes don't need to trust the sender or establish the sender's "identity." Because the transaction is signed and contains no confidential information, private keys, or credentials, it can be publicly broadcast using any underlying network transport that is convenient. Unlike credit card transactions, for example, which contain sensitive information and can only be transmitted on encrypted networks, a bitcoin transaction can be sent over any network. As long as the transaction can reach a bitcoin node that will propagate it into the bitcoin network, it doesn't matter how it is transported to the first node.
((("bitcoin network","broadcasting transactions to")))((("transactions","broadcasting to network")))First, a transaction needs to be delivered to the bitcoin network so that it can be propagated and included in the blockchain. In essence, a bitcoin transaction is just 300 to 400 bytes of data and has to reach any one of tens of thousands of bitcoin nodes. The senders do not need to trust the nodes they use to broadcast the transaction, as long as they use more than one to ensure that it propagates. The nodes don't need to trust the sender or establish the sender's "identity." Because the transaction is signed and contains no confidential information, private keys, or credentials, it can be publicly broadcast using any underlying network transport that is convenient. Unlike credit card transactions, for example, which contain sensitive information and can only be transmitted on encrypted networks, a bitcoin transaction can be sent over any network. As long as the transaction can reach a bitcoin node that will propagate it into the bitcoin network, it doesn't matter how it is transported to the first node.
((("insecure networks, transmitting bitcoin over")))Bitcoin transactions can therefore be transmitted to the bitcoin network over insecure networks such as WiFi, Bluetooth, NFC, Chirp, barcodes, or by copying and pasting into a web form. In extreme cases, a bitcoin transaction could be transmitted over packet radio, satellite relay, or shortwave using burst transmission, spread spectrum, or frequency hopping to evade detection and jamming. A bitcoin transaction could even be encoded as smileys (emoticons) and posted in a public forum or sent as a text message or Skype chat message. Bitcoin has turned money into a data structure, making it virtually impossible to stop anyone from creating and executing a bitcoin transaction.
@ -63,17 +63,17 @@ A transaction contains a number of fields, as shown in <<tx_data_structure>>.
.Transaction Locktime
****
((("locktime")))((("transactions","locktime")))Locktime defines the earliest time that a transaction can be added to the block chain. It is set to zero in most transactions to indicate immediate execution. If locktime is nonzero and below 500 million, it is interpreted as a block height, meaning the transaction is not included in the block chain prior to the specified block height. If it is above 500 million, it is interpreted as a Unix Epoch timestamp (seconds since Jan-1-1970) and the transaction is not included in the block chain prior to the specified time. The use of locktime is equivalent to postdating a paper check.
((("locktime")))((("transactions","locktime")))Locktime defines the earliest time that a transaction can be added to the blockchain. It is set to zero in most transactions to indicate immediate execution. If locktime is nonzero and below 500 million, it is interpreted as a block height, meaning the transaction is not included in the blockchain prior to the specified block height. If it is above 500 million, it is interpreted as a Unix Epoch timestamp (seconds since Jan-1-1970) and the transaction is not included in the blockchain prior to the specified time. The use of locktime is equivalent to postdating a paper check.
****
[[tx_inputs_outputs]]
=== Transaction Outputs and Inputs
((("transactions","unspent transaction output (UTXO)")))((("unspent transaction output (UTXO)")))The fundamental building block of a bitcoin transaction is an _unspent transaction output_, or UTXO. UTXO are indivisible chunks of bitcoin currency locked to a specific owner, recorded on the blockchain, and recognized as currency units by the entire network. The bitcoin network tracks all available (unspent) UTXO currently numbering in the millions. Whenever a user receives bitcoin, that amount is recorded within the block chain as a UTXO. Thus, a user's bitcoin might be scattered as UTXO amongst hundreds of transactions and hundreds of blocks. In effect, there is no such thing as a stored balance of a bitcoin address or account; there are only scattered UTXO, locked to specific owners. The concept of a user's bitcoin balance is a derived construct created by the wallet application. The wallet calculates the user's balance by scanning the block chain and aggregating all UTXO belonging to that user.
((("transactions","unspent transaction output (UTXO)")))((("unspent transaction output (UTXO)")))The fundamental building block of a bitcoin transaction is an _unspent transaction output_, or UTXO. UTXO are indivisible chunks of bitcoin currency locked to a specific owner, recorded on the blockchain, and recognized as currency units by the entire network. The bitcoin network tracks all available (unspent) UTXO currently numbering in the millions. Whenever a user receives bitcoin, that amount is recorded within the blockchain as a UTXO. Thus, a user's bitcoin might be scattered as UTXO amongst hundreds of transactions and hundreds of blocks. In effect, there is no such thing as a stored balance of a bitcoin address or account; there are only scattered UTXO, locked to specific owners. The concept of a user's bitcoin balance is a derived construct created by the wallet application. The wallet calculates the user's balance by scanning the blockchain and aggregating all UTXO belonging to that user.
[TIP]
====
((("accounts")))((("balances")))There are no accounts or balances in bitcoin; there are only _unspent transaction outputs_ (UTXO) scattered in the block chain.
((("accounts")))((("balances")))There are no accounts or balances in bitcoin; there are only _unspent transaction outputs_ (UTXO) scattered in the blockchain.
====
A UTXO can have an arbitrary value denominated as a multiple of((("satoshis"))) satoshis. Just like dollars can be divided down to two decimal places as cents, bitcoins can be divided down to eight decimal places as satoshis. Although UTXO can be any arbitrary value, once created it is indivisible just like a coin that cannot be cut in half. If a UTXO is larger than the desired value of a transaction, it must still be consumed in its entirety and change must be generated in the transaction. ((("change, making")))In other words, if you have a 20 bitcoin UTXO and want to pay 1 bitcoin, your transaction must consume the entire 20 bitcoin UTXO and produce two outputs: one paying 1 bitcoin to your desired recipient and another paying 19 bitcoin in change back to your wallet. As a result, most bitcoin transactions will generate change.
@ -146,12 +146,12 @@ b2affea89ff82557c60d635a2a3137b8f88f12ecec85082f7d0a1f82ee203ac4:0 - 10000000 Sa
===== Spending conditions (encumbrances)
((("encumbrance")))((("locking scripts")))Transaction outputs associate a specific amount (in satoshis) to a specific _encumbrance_ or locking script that defines the condition that must be met to spend that amount. In most cases, the locking script will lock the output to a specific bitcoin address, thereby transferring ownership of that amount to the new owner. When Alice paid Bob's Cafe for a cup of coffee, her transaction created a 0.015 bitcoin output _encumbered_ or locked to the cafe's bitcoin address. That 0.015 bitcoin output was recorded on the block chain and became part of the Unspent Transaction Output set, meaning it showed in Bob's wallet as part of the available balance. When Bob chooses to spend that amount, his transaction will release the encumbrance, unlocking the output by providing an unlocking script containing a signature from Bob's private key.(((range="endofrange", startref="ix_ch05-asciidoc4")))(((range="endofrange", startref="ix_ch05-asciidoc3")))(((range="endofrange", startref="ix_ch05-asciidoc2")))
((("encumbrance")))((("locking scripts")))Transaction outputs associate a specific amount (in satoshis) to a specific _encumbrance_ or locking script that defines the condition that must be met to spend that amount. In most cases, the locking script will lock the output to a specific bitcoin address, thereby transferring ownership of that amount to the new owner. When Alice paid Bob's Cafe for a cup of coffee, her transaction created a 0.015 bitcoin output _encumbered_ or locked to the cafe's bitcoin address. That 0.015 bitcoin output was recorded on the blockchain and became part of the Unspent Transaction Output set, meaning it showed in Bob's wallet as part of the available balance. When Bob chooses to spend that amount, his transaction will release the encumbrance, unlocking the output by providing an unlocking script containing a signature from Bob's private key.(((range="endofrange", startref="ix_ch05-asciidoc4")))(((range="endofrange", startref="ix_ch05-asciidoc3")))(((range="endofrange", startref="ix_ch05-asciidoc2")))
[[tx_inputs]]
==== Transaction Inputs
((("transactions","inputs", id="ix_ch05-asciidoc5", range="startofrange")))In simple terms, transaction inputs are pointers to UTXO. They point to a specific UTXO by reference to the transaction hash and sequence number where the UTXO is recorded in the block chain. To spend UTXO, a transaction input also includes unlocking scripts that satisfy the spending conditions set by the UTXO. The unlocking script is usually a signature proving ownership of the bitcoin address that is in the locking script.
((("transactions","inputs", id="ix_ch05-asciidoc5", range="startofrange")))In simple terms, transaction inputs are pointers to UTXO. They point to a specific UTXO by reference to the transaction hash and sequence number where the UTXO is recorded in the blockchain. To spend UTXO, a transaction input also includes unlocking scripts that satisfy the spending conditions set by the UTXO. The unlocking script is usually a signature proving ownership of the bitcoin address that is in the locking script.
When users make a payment, their wallet constructs a transaction by selecting from the available UTXO. For example, to make a 0.015 bitcoin payment, the wallet app may select a 0.01 UTXO and a 0.005 UTXO, using them both to add up to the desired payment amount.
@ -202,7 +202,7 @@ The sequence number is used to override a transaction prior to the expiration of
((("fees, transaction", id="ix_ch05-asciidoc6", range="startofrange")))Most transactions include transaction fees, which compensate the bitcoin miners for securing the network. Mining and the fees and rewards collected by miners are discussed in more detail in <<ch8>>. This section examines how transaction fees are included in a typical transaction. Most wallets calculate and include transaction fees automatically. However, if you are constructing transactions programmatically, or using a command-line interface, you must manually account for and include these fees.
Transaction fees serve as an incentive to include (mine) a transaction into the next block and also as a disincentive against "spam" transactions or any kind of abuse of the system, by imposing a small cost on every transaction. Transaction fees are collected by the miner who mines the block that records the transaction on the block chain.
Transaction fees serve as an incentive to include (mine) a transaction into the next block and also as a disincentive against "spam" transactions or any kind of abuse of the system, by imposing a small cost on every transaction. Transaction fees are collected by the miner who mines the block that records the transaction on the blockchain.
((("fees, transaction","calculating")))Transaction fees are calculated based on the size of the transaction in kilobytes, not the value of the transaction in bitcoin. Overall, transaction fees are set based on market forces within the bitcoin network. Miners prioritize transactions based on many different criteria, including fees, and might even process transactions for free under certain circumstances. Transaction fees affect the processing priority, meaning that a transaction with sufficient fees is likely to be included in the next-most–mined block, whereas a transaction with insufficient or no fees might be delayed, processed on a best-effort basis after a few blocks, or not processed at all. Transaction fees are not mandatory, and transactions without fees might be processed eventually; however, including transaction fees encourages priority processing.
@ -273,7 +273,7 @@ Every bitcoin client will validate transactions by executing the locking and unl
In the original bitcoin client, the unlocking and locking scripts were concatenated and executed in sequence. For security reasons, this was changed in 2010, because of a vulnerability that allowed a malformed unlocking script to push data onto the stack and corrupt the locking script. In the current implementation, the scripts are executed separately with the stack transferred between the two executions, as described next.
First, the unlocking script is executed, using the stack execution engine. If the unlocking script executed without errors (e.g., it has no "dangling" operators left over), the main stack (not the alternate stack) is copied and the locking script is executed. If the result of executing the locking script with the stack data copied from the unlocking script is "TRUE," the unlocking script has succeeded in resolving the conditions imposed by the locking script and, therefore, the input is a valid authorization to spend the UTXO. If any result other than "TRUE" remains after execution of the combined script, the input is invalid because it has failed to satisfy the spending conditions placed on the UTXO. Note that the UTXO is permanently recorded in the block chain, and therefore is invariable and is unaffected by failed attempts to spend it by reference in a new transaction. Only a valid transaction that correctly satisfies the conditions of the UTXO results in the UTXO being marked as "spent" and removed from the set of available (unspent) UTXO.
First, the unlocking script is executed, using the stack execution engine. If the unlocking script executed without errors (e.g., it has no "dangling" operators left over), the main stack (not the alternate stack) is copied and the locking script is executed. If the result of executing the locking script with the stack data copied from the unlocking script is "TRUE," the unlocking script has succeeded in resolving the conditions imposed by the locking script and, therefore, the input is a valid authorization to spend the UTXO. If any result other than "TRUE" remains after execution of the combined script, the input is invalid because it has failed to satisfy the spending conditions placed on the UTXO. Note that the UTXO is permanently recorded in the blockchain, and therefore is invariable and is unaffected by failed attempts to spend it by reference in a new transaction. Only a valid transaction that correctly satisfies the conditions of the UTXO results in the UTXO being marked as "spent" and removed from the set of available (unspent) UTXO.
<<scriptSig_and_scriptPubKey>> is an example of the unlocking and locking scripts for the most common type of bitcoin transaction (a payment to a public key hash), showing the combined script resulting from the concatenation of the unlocking and locking scripts prior to script validation.
@ -453,11 +453,11 @@ When executed, this combined script will evaluate to TRUE if, and only if, the u
[[op_return]]
==== Data Output (OP_RETURN)
((("ledger, storing unrelated information in")))((("OP_RETURN operator")))((("transactions","storing unrelated information in")))Bitcoin's distributed and timestamped ledger, the block chain, has potential uses far beyond payments. Many developers have tried to use the transaction scripting language to take advantage of the security and resilience of the system for applications such as((("digital notary services")))((("smart contracts")))((("stock certificates"))) digital notary services, stock certificates, and smart contracts. Early attempts to use bitcoin's script language for these purposes involved creating transaction outputs that recorded data on the block chain; for example, to record a digital fingerprint of a file in such a way that anyone could establish proof-of-existence of that file on a specific date by reference to that transaction.
((("ledger, storing unrelated information in")))((("OP_RETURN operator")))((("transactions","storing unrelated information in")))Bitcoin's distributed and timestamped ledger, the blockchain, has potential uses far beyond payments. Many developers have tried to use the transaction scripting language to take advantage of the security and resilience of the system for applications such as((("digital notary services")))((("smart contracts")))((("stock certificates"))) digital notary services, stock certificates, and smart contracts. Early attempts to use bitcoin's script language for these purposes involved creating transaction outputs that recorded data on the blockchain; for example, to record a digital fingerprint of a file in such a way that anyone could establish proof-of-existence of that file on a specific date by reference to that transaction.
((("blockchains","storing unrelated information in")))The use of bitcoin's block chain to store data unrelated to bitcoin payments is a controversial subject. Many developers consider such use abusive and want to discourage it. Others view it as a demonstration of the powerful capabilities of block chain technology and want to encourage such experimentation. Those who object to the inclusion of non-payment data argue that it causes "block chain bloat," burdening those running full bitcoin nodes with carrying the cost of disk storage for data that the block chain was not intended to carry. Moreover, such transactions create UTXO that cannot be spent, using the destination bitcoin address as a free-form 20-byte field. Because the address is used for data, it doesn't correspond to a private key and the resulting UTXO can _never_ be spent; it's a fake payment. This practice causes the size of the in-memory UTXO set to increase and these transactions that can never be spent are therefore never removed, forcing bitcoin nodes to carry these forever in RAM, which is far more expensive.
((("blockchains","storing unrelated information in")))The use of bitcoin's blockchain to store data unrelated to bitcoin payments is a controversial subject. Many developers consider such use abusive and want to discourage it. Others view it as a demonstration of the powerful capabilities of blockchain technology and want to encourage such experimentation. Those who object to the inclusion of non-payment data argue that it causes "blockchain bloat," burdening those running full bitcoin nodes with carrying the cost of disk storage for data that the blockchain was not intended to carry. Moreover, such transactions create UTXO that cannot be spent, using the destination bitcoin address as a free-form 20-byte field. Because the address is used for data, it doesn't correspond to a private key and the resulting UTXO can _never_ be spent; it's a fake payment. This practice causes the size of the in-memory UTXO set to increase and these transactions that can never be spent are therefore never removed, forcing bitcoin nodes to carry these forever in RAM, which is far more expensive.
In version 0.9 of the Bitcoin Core client, a compromise was reached with the introduction of the +OP_RETURN+ operator. +OP_RETURN+ allows developers to add 40 bytes of nonpayment data to a transaction output. However, unlike the use of "fake" UTXO, the +OP_RETURN+ operator creates an explicitly _provably unspendable_ output, which does not need to be stored in the UTXO set. +OP_RETURN+ outputs are recorded on the block chain, so they consume disk space and contribute to the increase in the block chain's size, but they are not stored in the UTXO set and therefore do not bloat the UTXO memory pool and burden full nodes with the cost of more expensive RAM.
In version 0.9 of the Bitcoin Core client, a compromise was reached with the introduction of the +OP_RETURN+ operator. +OP_RETURN+ allows developers to add 40 bytes of nonpayment data to a transaction output. However, unlike the use of "fake" UTXO, the +OP_RETURN+ operator creates an explicitly _provably unspendable_ output, which does not need to be stored in the UTXO set. +OP_RETURN+ outputs are recorded on the blockchain, so they consume disk space and contribute to the increase in the blockchain's size, but they are not stored in the UTXO set and therefore do not bloat the UTXO memory pool and burden full nodes with the cost of more expensive RAM.
+OP_RETURN+ scripts look like this:
@ -564,7 +564,7 @@ P2SH addresses hide all of the complexity, so that the person making a payment d
* Complex scripts are replaced by shorter fingerprints in the transaction output, making the transaction smaller.
* Scripts can be coded as an address, so the sender and the sender's wallet don't need complex engineering to implement P2SH.
* P2SH shifts the burden of constructing the script to the recipient, not the sender.
* P2SH shifts the burden in data storage for the long script from the output (which is in the UTXO set and therefore affect memory) to the input (only stored on the block chain).
* P2SH shifts the burden in data storage for the long script from the output (which is in the UTXO set and therefore affect memory) to the input (only stored on the blockchain).
* P2SH shifts the burden in data storage for the long script from the present time (payment) to a future time (when it is spent).
* P2SH shifts the transaction fee cost of a long script from the sender to the recipient, who has to include the long redeem script to spend it.