Bitcoin transactions and their signing, 1

Filed under: Bitcoin, Software — Jacob Welsh @ 23:42

As my offline Bitcoin signer nears completion, it's a good time to introduce just what Bitcoin transactions are anyway, how they are signed, and not least of all how it could go horribly wrong if we're not careful. This first part will cover the basics that I consider required knowledge for anyone who handles the currency.

A Bitcoin transaction is a message with particular structure and binary encoding rules,(i) specifying the transfer of given quantities from one set of accounts to another.

Transactions are composed of inputs and outputs. Each output specifies a monetary value and a destination address.(ii) Each input contains a reference to a previous transaction output(iii) and a signature authorizing its spending. In a quirk of implementation, the "accounts" mentioned above don't explicitly exist in the system; outputs are considered either unspent or spent in full by inclusion in a subsequent transaction. Your available balance, then, is the total value of unspent outputs for which you are able to issue valid signatures. Since the amount to be sent isn't usually an exact sum of previous outputs, a "change" output is added so as to overshoot and send the excess back to the original owner.

Observing that the scheme as presented so far rests on the strength of the signature, let's briefly expand on that concept, leaving the mathematical details as a black box for present purposes. A digital signature scheme provides three high-level operations: key generation, signing, and verification. Key generation takes some cryptographic entropy as input and produces a public/private key pair. Signing takes a fixed-length message hash, a private key, and possibly some further entropy and produces a signature. Verification answers whether a purported signature is valid for a given hash and public key. This gives a high degree of confidence that the signature could only have been issued by someone with knowledge of the private key (as long as some underlying unproven mathematical assumptions hold, which they appear to have so far despite ample incentive to break them). Note the distinct advantage over traditional pen-and-paper signatures: simply seeing one does not grant an ability to forge it or pass it off as covering some other message, despite the susceptibility of digital information to perfect copying and easy modification.

To be continued.

  1. Due to an unfortunate misallocation of brain cycles by Satoshi and the others who imagined themselves Bitcoin developers in the early days, there's a whole cocktail of encodings with, for example, at least four different ways to represent integers. While this makes for some added implementation complexity, the details aren't especially important for normal usage. [^]
  2. Technically a "script", but for simplicity we'll consider only the standard "pay-to-pubkey-hash" form. [^]
  3. Except in the case of "coinbase" transactions which issue mining rewards. [^]


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