About Bitcoin Transactions
posted August 2018
Did you know that a bitcoin transaction does not have a recipient field?
That's right! when crafting a transaction to send money on the bitcoin network, you actually do not include
I am sending my BTC to _this address_. Instead, you include a script called a ScriptPubKey which dictates a set of inputs that are allowed to redeem the monies. The PubKey in the name surely refers to the main use for this field: to actually let a unique public key redeem the money (the intended recipient). But that's not all you can do with it! There exist a multitude of ways to write ScriptPubKeys! You can for example:
- not allow anyone to redeem the BTCs, and even use the transaction to record arbitrary data on the blockchain (this is what a lot of applications built on top of bitcoin do, they "burn" bitcoins in order to create metadata transactions in their own blockchains)
- allow someone who has a password to use the BTCs (but to submit the password, you would need to include it in clear inside a transaction which would inevitably be advertised to the network before actually getting mined. This is dangerous)
- allow a subset of signatures from a fixed set of public keys to redeem the BTCs (this is what we call multi-sig transactions)
- allow someone who can break a hash function (SHA-1) to redeem the BTCs (This is what Peter Todd did in 2013)
- only allow the BTCs to be redeemed after some time in the future (via a timestamp)
On the other hand, if you want to use the money you need to prove that you can use such a transaction's output. For that you include a ScriptSig in a new transaction, which is another script that runs and creates a number of inputs to be used by the ScriptPubKey I talked about. And you guessed it, in our prime use-case this will include a signature (the Sig in the name)!
Recap: when you send BTCs, you actually send it to whoever can give you a correct input (created by a ScriptSig) to your program (ScriptPubKey). In more details, a Bitcoin transaction includes a set of input BTCs to spend and a set of output BTCs that are now redeemable by whoever can provide a valid ScriptSig. That's right, a transaction actually uses many previous transactions to collect money from, and spread them in possibly multiple pockets of money that other transactions can use. Each input of a transaction is associated to a previous transaction output, along with the ScriptSig to redeem it. Each output is associated with a ScriptPubKey. By the way, an output that hasn't been spent yet is called an UTXO for unspent transaction output.
The scripting language of Bitcoin is actually quite limited and easy to learn. It uses a stack and must return
True at the end. The limitations actually bothered some people who thought it might be interesting to create something more turing-complete, and thus Ethereum was born.