bitcoin-bips/bip-tx-ver2.mediawiki

<pre>
  BIP: (no number)
  Title: "Coalescing Transaction" Specification (wildcard inputs)
  Author: Chris Priest <cp368202@ohiou.edu>
  Status: Draft
  Type: Standards Track
  Created: 2015-11-30
</pre>

==Abstract==

This specification defines a new type of transaction that supplements (not replaces)
normal "non coalescing" bitcoin transactions.

==Motivation==

Normal "non-coalescing" Bitcoin Transactions have one large inefficiency: When you want to spend
from multiple inputs with the exact same scriptPubKey, you have to list each
input separately, along with the same signature multiple times, even though the signature expresses the same information.
This bloats the transaction size and makes it expensive to spend from small value inputs.

Because small value inputs are expensive to send, they remain in the UTXO pool
which full nodes have to keep around. It is believed that long term increase of the UTXO
set can have negative scaling consequences on the network.

If maximum blocksize is made to increase *slower* than the actual number of transactions bitcoin users are sending
to the network, this problem is projected to get worse. In other words, as transaction
fees increase, the minimum economical value of a spending a UTXO will increase.

==Specification==

=== Redefinition of Transaction version ===

First, this BIP redefines the version field on transactions. The first four bytes
are defined as the version number, while the last four bytes are defined as the
transaction type. Type "0000" denotes normal transactions, and "0001" defines
coalescing transaction.

Examples:

version 1 transaction with normal inputs:
`version: 10000000`

version 2 transaction with normal inputs:
`version: 20000000`

version 2 transaction with coalescing inputs:
`version: 20000001`

Essentially the last bit in the version field is set to 1 to enable wildcard inputs for all
inputs present in the transaction.

=== Wildcard inputs ====

A coalescing transaction is formulated the exact same way as a version 1 transaction
with one exception: each input is treated as a "wildcard input".

A wildcard input beings the value of all inputs with the exact same scriptPubKey
in a block lower or equal to the block the wildcard input is confirmed into.

== Changes needed to implement ==

The bitcoin code needs to be modified in three places in order to handle Version 2 Transactions.

1. **Full Node Coalescing validation** - When a full node receives a coalescing transaction, it has to
aggregate the value of all the UTXOs in the blockchain older than the input
with the same scriptPubKey. If this value is greater than or equal to the
amount of all outputs, then that coalescing transaction is valid and can be propagated.

2. **Full Node Non-Coalescing validation** - When a non-coalescing transaction comes in, the code needs to be modified
to check if each input has not been spent by a coalescing transaction. If there exist any
coalescing transaction in the blockchain with the same scriptPubKey found in a block *after* that input,
then the UTXO has been spent and the transaction is invalid.

3. **Wallet** - The user facing wallet portion of the reference client should notify
the user when their wallet contains many UTXOs that qualify it to benefit from
a coalescing transaction. Wallets should not simply replace non-coalescing transactions
with coalescing transactions in all instances.