Pages:
Author

Topic: How Bitcoin transactions work and what are their types? (Read 1021 times)

legendary
Activity: 2744
Merit: 1708
First 100% Liquid Stablecoin Backed by Gold
Hello, forum members!

This thread about Bitcoin transactions—how they work and their various types—has been well-received and frequently merited, so I decided to continue updating and enhancing it. However, I can't do this alone, and that's where you come in!

Here’s my call to action: If you're active in the Bitcoin ecosystem and have insights into transaction types, innovations, or new developments, I encourage you to share them here.

What We’re Looking For:
Innovations: Have there been any notable advancements in Bitcoin transaction mechanisms? (e.g., Taproot, Lightning Network, or PayJoin improvements).
New Trends: Are there emerging types of transactions, privacy features, or scaling solutions worth discussing?
Updates Needed: Do you think anything from the previously mentioned transaction types in this thread is outdated or requires clarification?
Bitcoin transactions are the backbone of the network, and keeping this information up-to-date helps newcomers and enthusiasts alike. Your contributions can make this resource even more valuable!

Feel free to drop your insights, share resources, or link to relevant discussions below. Let's build an updated, comprehensive resource together!

Looking forward to your ideas and contributions.
legendary
Activity: 2310
Merit: 4085
Farewell o_e_l_e_o
You can add the new feature of blockchair.com, Privacy-o-meter. It is privacy relates to how people move their bitcoins.

Privacy-o-meter, a free tool to assess the privacy level of your BTC transaction. Their document is there.

They classify transactions into following types:
  • CB: Coinbase transaction
  • N1: Transaction with just 1 output (either a sweep to another address by the same owner, or a transfer using a "send everything I have" option)
  • N2: Transaction with 2 outputs — most common in wallets — where one of the outputs is the recipient, and the other one is the change address
  • NN: Transaction with more than 2 outputs — most common in exchanges and services that use payout batching

Blockstream.info has similar feature as well.
legendary
Activity: 3472
Merit: 10611
Is there anything new about BTC transactions? Any innovations or maybe something needs to be added/updated to already mentioned types of BTC transactions in this thread?
any change would involve the protocol and it requires a fork. the last for we had was the SegWit soft-fork that took place mid 2017. so, no there is nothing new.

Quote
I wonder if there is something planned, already in development, or maybe I just missed something when I was doing the last research?
there is the Schnorr signature proposal that has been a BIP for some time now which you can check it if you haven't already. and there are 2 more BIPs that come after involving Taproot scripts.
Schnorr Signatures for secp256k1: https://github.com/bitcoin/bips/blob/master/bip-0340.mediawiki
Taproot: SegWit version 1 spending rules: https://github.com/bitcoin/bips/blob/master/bip-0341.mediawiki
Validation of Taproot Scripts: https://github.com/bitcoin/bips/blob/master/bip-0342.mediawiki
legendary
Activity: 2744
Merit: 1708
First 100% Liquid Stablecoin Backed by Gold
Is there anything new about BTC transactions? Any innovations or maybe something needs to be added/updated to already mentioned types of BTC transactions in this thread?

I wanted to update this useful thread because is quoted many times in many other source threads and summaries.

Of course, I tried to find news about BTC transactions on my own but it seems that there were no changes or new developments regarding this matter.

I wonder if there is something planned, already in development, or maybe I just missed something when I was doing the last research?

I will be happy to hear suggestions and thanks in advance for any help provided.
legendary
Activity: 2744
Merit: 1708
First 100% Liquid Stablecoin Backed by Gold
This thread has been translated to the Russisch language and here is the link: Кaк paбoтaют тpaнзaкции Биткoйн и иx типы

In my opinion, such translations confirm the quality of the text, additionally, it is also important that now monolingual people will be able to learn about the subject of Bitcoin transactions too.
legendary
Activity: 2744
Merit: 1708
First 100% Liquid Stablecoin Backed by Gold
P2MS this is the first time i am hearing this term. where did you get it from?
I provided all sources as always in the post footer, but here it is: https://learnmeabitcoin.com/glossary/p2ms
If someone is confused, it's probably because at least historically transactions with these scripts were referred to as 'standard multisig' or 'raw multisig'.

I think the best way to call it would be colloquial speech and that's correct because I found in posts or questions on Stackoverflow.com such words/names when it comes to the transactions itself and MultSig transactions. I have seen in discussion how people use these names like "raw" or "standard" when they talk about BTC transactions as a whole, but also in detailed talks about specific MultSig transactions. However, you will not you won't find this naming in professional publications, so I did not use these rather colloquial names and not mention them to not complicate this text anymore. Cryptocurrencies' language is evolving so fast that sometimes is hard to catch up.
legendary
Activity: 3472
Merit: 1724
P2MS this is the first time i am hearing this term. where did you get it from?

I provided all sources as always in the post footer, but here it is: https://learnmeabitcoin.com/glossary/p2ms

If someone is confused, it's probably because at least historically transactions with these scripts were referred to as 'standard multisig' or 'raw multisig'.
legendary
Activity: 2744
Merit: 1708
First 100% Liquid Stablecoin Backed by Gold
...Miners don't have to run bitcoin full nodes for their farms...From my understanding, China has biggest mining farms globally, but they are not the leading nation in blockchain technology...From that perspective, it is reasonable to see top nations...the USA, Germany, France, Netherlands.

I don't think this is the reason why there are not so many full nodes in China. What @Pooya87 has written is very important:

Quote
for mining farms that own a lot of hashrate it is more secure and profitable to connect to a node they control

From my understanding, there are not so many full nodes in China because they need only a couple of them even for big mining farms. They have thousands of miners and a few or a dozen full nodes is enough for their needs. In other countries like the USA, Germany, France, Netherlands mining farms are a lot smaller and they have also a few or a dozen full nodes, just like the big once.

Now let's sum it up to better understand what I mean. There are only a few very big farms in China with only a couple of nodes and a lot more of smaller mining farms in the other countries, with the same or even bigger full nodes amounts. Additionally, all these bans for crypto mining in China for sure prevented many ordinary people from buying a miner and to start mining. So we can assume that in the other countries there is a lot more mining done by small investors on one or a few miners maximum and for safety reasons they need full nodes.

Large BTC mines in China do not translate into the number of full nodes because not every miner must be a full node and just a few or a dozen is enough, to meet their safety needs, even with hundreds of miners or more.

legendary
Activity: 3472
Merit: 10611
Miners don't have to run bitcoin full nodes for their farms. They can do this or not, this is not a must for bitcoin mining farms.

every miner must connect to a bitcoin full node to receive a constructed block to mine, whether they connect to a full node that they run themselves directly or through an intermediary like a pool is the only difference. for mining farms that own a lot of hashrate it is more secure and profitable to connect to a node they control instead of trusting a pool and also having to pay fees to that pool!
hero member
Activity: 2366
Merit: 838
Is really surprising to see China at 6th place only with 327 full nodes because I was sure that the biggest amount will be in the biggest mining farms, but to be honest I don't know if mining is actually allowed there or not because China banned and unbanned BTC and mining so many times that I don't know what is the real situation there?
Miners don't have to run bitcoin full nodes for their farms. They can do this or not, this is not a must for bitcoin mining farms.
From my understanding, China has biggest mining farms globally, but they are not the leading nation in blockchain technology, and it makes sense after looking at total bitcoin full nodes in China.

From that perspective, it is reasonable to see top nations are leading ones in crypto and blockchain technology, the USA, Germany, France, Netherlands.
legendary
Activity: 2744
Merit: 1708
First 100% Liquid Stablecoin Backed by Gold
The geographical distribution of bitcoin full nodes that visually presented by the image, gives us the fact that China has much less impacts on bitcoin, technically (at least)...In the top ten nations: 3 come from Asian continent, 2 come from American continent, and 5 come from European continent.

Exactly, I was also surprised to see Europe at the first place with 32,27% of all full nodes (exactly 2987) in countries like Germany, France, and the Netherlands. The second spot with 25.29% which is exactly 2341 full nodes goes to the USA and China is at 6th place with 3,53% which gives only 327 full nodes.


https://bitnodes.earn.com/

Is really surprising to see China at 6th place only with 327 full nodes because I was sure that the biggest amount will be in the biggest mining farms, but to be honest I don't know if mining is actually allowed there or not because China banned and unbanned BTC and mining so many times that I don't know what is the real situation there?


https://bitnodes.earn.com/nodes/live-map/
hero member
Activity: 2366
Merit: 838
The geographical distribution of bitcoin full nodes that visually presented by the image, gives us the fact that China has much less impacts on bitcoin, technically (at least). What we saw on social media, news that China has significant effects on bitcoin (positively or negatively depends on different periods) are very incorrectly.

China obviously has some of biggest bitcoin mining farms but technically impacts on bitcoin is much smaller than what we usually thought.

In the top ten nations: 3 come from Asian continent, 2 come from American continent, and 5 come from European continent.
legendary
Activity: 1876
Merit: 3139
Despite everything, the number of full nodes increases every year and today we have already 9137 according to https://bitnodes.earn.com/.

The number of all full nodes is actually much higher. This website lists nodes which are reachable for others, meaning that they can share blocks with other users. Some people don't know how to configure their networks properly or might intentionally block it to save the bandwidth.
legendary
Activity: 2744
Merit: 1708
First 100% Liquid Stablecoin Backed by Gold
...do you believe that's actually a form that can scale it in the long run considering the hyper hefty blockchain size that's technically too high for an average sized hard disk of a PC if people decide to run a node through downloading the whole blockchain?
...I believe that compression of Blockchain could be the only possible scenario that could help...

Lately, I have talked about the full nodes count and how the "hyper hefty blockchain size" will affect the future number of nodes and Bitcoin itself.

To be honest we haven't found the answer about the influence on BTC itself but full nodes and in particular their quantity looks to be not affected.

Despite everything, the number of full nodes increases every year and today we have already 9137 according to https://bitnodes.earn.com/.



It looks like a phenomenon to me.
legendary
Activity: 2744
Merit: 1708
First 100% Liquid Stablecoin Backed by Gold
...If you can, please consider adding this part into your topic. Personally, I would prefer to have more technical things on your topic, includes what I discussed above.

Thanks for this suggestion but I have to take all suggestions from members into consideration and some of them think that this thread is too overwhelming already and others (like you) wish to have even more detailed information.

As you see there is no way to satisfy everybody and the best solution will be to leave this thread as it is and only add new content in the comments during discussion.

But I will not leave you empty-handed and will try to write a new thread about transaction sizes and fees, additionally, there are many interesting things to talk about, like "vbytes" when it goes to transaction sizes.

The topic on types of bitcoin transaction is meaningful, but after reading I still don't know that how cheaper transaction with Segwit address is in comparison with Legacy address.

every transaction has different parts, version, input list which include previous transaction hash, signature..., output list,... if we simplify it to something like this:
Code:
[version][outpoint][signature][outscript][locktime]
in legacy transactions, this is the structure and the entire thing is used for calculating the size and paying the fee based on that.
when you use SegWit this structure changes a little
Code:
[version][outpoint][outscript][signature][locktime]
and the size is calculated by using everything except the signature so you'll end up with a smaller size and pay a smaller fee in total.

of course the more correct thing to say is that we are no longer using "size" we are using "virtual size" which is 1/4 of the tx weight which is calculated by using 3x base size (without witness) + total size (with witness)

Great explanation, short and detailed. I think even a newbie can now understand why fees are smaller in SegWit transactions.

It's because the smaller size which equals a smaller fee.
legendary
Activity: 3472
Merit: 10611
The topic on types of bitcoin transaction is meaningful, but after reading I still don't know that how cheaper transaction with Segwit address is in comparison with Legacy address.

every transaction has different parts, version, input list which include previous transaction hash, signature..., output list,... if we simplify it to something like this:
Code:
[version][outpoint][signature][outscript][locktime]
in legacy transactions, this is the structure and the entire thing is used for calculating the size and paying the fee based on that.
when you use SegWit this structure changes a little
Code:
[version][outpoint][outscript][signature][locktime]
and the size is calculated by using everything except the signature so you'll end up with a smaller size and pay a smaller fee in total.

of course the more correct thing to say is that we are no longer using "size" we are using "virtual size" which is 1/4 of the tx weight which is calculated by using 3x base size (without witness) + total size (with witness)
legendary
Activity: 2044
Merit: 1018
Not your keys, not your coins!
The topic on types of bitcoin transaction is meaningful, but after reading I still don't know that how cheaper transaction with Segwit address is in comparison with Legacy address.

If you can, please consider adding this part into your topic. Personally, I would prefer to have more technical things on your topic, includes what I discussed above.
legendary
Activity: 3052
Merit: 1273
...do you believe that's actually a form that can scale it in the long run considering the hyper hefty blockchain size that's technically too high for an average sized hard disk of a PC if people decide to run a node through downloading the whole blockchain?

To be honest, debate about the size of the Bitcoin block does not bring anything and even if, then it is only a temporary solution. With the time passing, we see new problems emerging and we still haven't solved old once. We have the Lightning Network running, which is a good thing of course and we have to help, to get it fully adopted, but still, this does not solve any of the problems with: transactions, speeds onchain, blocks and blockchain size, etc. Everybody was so focused on the LN start that we have forgotten about other important aspects or just naively believed, that Lightning will magically solve all these problems.

I believe LN is a solution for those believing in the offchain transactions with lesser fee involved, but even after doing it through LN can't resolve the size and scaling just because we are bound to take those transactions online in the future and add that size to our current blockchain, I believe that compression of Blockchain could be the only possible scenario that could help but don't really know how it'd be put in action by the devs if they ever decide to do so because the biggest risk of doing that will be - losing some old (and even new) transactional data possibly if it poses a glitch that could remove a piece of the transaction to reduce the size through compressing it, nothing else comes to my mind as of now.

Quote
Bitcointalk was the place for the biggest discussions about BTC development and future plans, so if there are any discussions actually ongoing, please point me to them because  
I would really like to know what the future plans for Bitcoin development are and what is the (so-called) roadmap if there is any?

Well, to what I've seen, these guys always try to dig a well whenever fire takes place so I haven't clearly seen any such development related debates especially through developers (maybe they are doing it behind the curtains) or it is possible that they believe in actions rather than just words. Smiley
legendary
Activity: 2744
Merit: 1708
First 100% Liquid Stablecoin Backed by Gold
...do you believe that's actually a form that can scale it in the long run considering the hyper hefty blockchain size that's technically too high for an average sized hard disk of a PC if people decide to run a node through downloading the whole blockchain?

To be honest, debate about the size of the Bitcoin block does not bring anything and even if, then it is only a temporary solution. With the time passing, we see new problems emerging and we still haven't solved old once. We have the Lightning Network running, which is a good thing of course and we have to help, to get it fully adopted, but still, this does not solve any of the problems with: transactions, speeds onchain, blocks and blockchain size, etc. Everybody was so focused on the LN start that we have forgotten about other important aspects or just naively believed, that Lightning will magically solve all these problems.

Bitcointalk was the place for the biggest discussions about BTC development and future plans, so if there are any discussions actually ongoing, please point me to them because  
I would really like to know what the future plans for Bitcoin development are and what is the (so-called) roadmap if there is any?

legendary
Activity: 3052
Merit: 1273
I tried to find information about new developments and what is the future for the Bitcoin transactions because they are evolving constantly during the time.

Unfortunately, I wasn't able to find anything and even was afraid that I missed something, but all comments in this thread assured me that I have them all so far.

If anybody knows something about Bitcoin development and the future of transactions then please share.

The network clogs and mining pool games of increasing transaction fees are few of the most important topics I'm trying to get a resolution to. Please also try to focus on these things while sharing knowledge about the type of scripts and transactions. Great thread, appreciated. There's been a debate about Bitcoin's block size increment over time to involve more and more transactions, do you believe that's actually a form that can scale it in the long run considering the hyper hefty blockchain size that's technically too high for an average sized hard disk of a PC if people decide to run a node through downloading the whole blockchain?
Pages:
Jump to: