Transaction and Scripting: Part Two of Understanding Bitcoin
Tags: bitcoin, blockchain, ethereum, beginners
Published: 2023-04-04 12:34:33


Bitcoin is a decentralized digital currency that allows users to transact directly without a go-between.

Part One of this series covered how transactions work on the Bitcoin network.

In this article, we’ll dive deeper into the scripting language that enables the creation of complex transactions on the Bitcoin network.
<h4><strong>What is Scripting?</strong></h4>
Scripting is the programming language used to create transactions on the Bitcoin network.

It’s a simple stack-based language allowing users to define conditions under which they can spend transactions.

Scripting makes Bitcoin’s transaction model so powerful, as it creates sophisticated transactions that somebody can customize to fit a user’s specific needs.
<h4><strong>Understanding Scripts and ScriptPubKey</strong></h4>
When creating a transaction, the script embedded in the output script is called the ScriptPubKey.

The ScriptPubKey defines the conditions to spend the transaction’s output.

A typical example of a ScriptPubKey is the Pay-to-Public-Key-Hash (P2PKH) script, which requires a digital signature from a specific private key to spend the transaction output.

<strong>Example for Pay-to-Script-Hash (P2SH):</strong>

Imagine Alice wants to pay Bob but with the condition that he can only spend the funds after a specific date. Bob can give Alice a P2SH address that includes the script with the time lock condition.

Alice sends the payment to the P2SH address, which locks the funds in the script until the specified date. When the selected date arrives, Bob can unlock and spend the funds using the redeem script.
<h4>ScriptSig and How it Works</h4>
When spending an output, the input script called ScriptSig unlocks the ScriptPubKey.

The ScriptSig contains the digital signature and other data required to fulfil the conditions set in the ScriptPubKey.

The transaction is valid if the conditions are met and added to the blockchain.

<strong>Example for CheckSequenceVerify (CSV):</strong>

Suppose Alice wants to provide a conditional payment to Bob where Bob can only spend the funds after a specific time.

Bob can provide Alice with a CSV-enabled P2SH address, which includes a script with the time-based condition.

Alice sends the payment to the CSV-enabled P2SH address, and the funds are locked in the script until the specified time has passed.

Once the time has passed, Bob can use the redemption script to unlock and spend the funds.
<h4><strong>Complex Scripts and Multi-Signature Transactions</strong></h4>
Bitcoin’s scripting language is flexible enough to create more complex transactions, such as multi-signature transactions.

Multiple parties must provide digital signatures to spend the transaction output in a multi-signature transaction.

It is a helpful feature for businesses or organizations that require multiple parties to sign off on a transaction.
<h4><strong>OP_RETURN and Null Data Outputs</strong></h4>
Another use case for scripting is the OP_RETURN opcode, which allows users to store small amounts of data on the Bitcoin network.

OP_RETURN outputs are considered null data outputs and do not contribute to the transaction’s value.
<h4><strong>Timelocks and Scripting</strong></h4>
Timelocks are another feature enabled by scripting. They allow users to specify a specific block height or time when someone can spend a transaction.

It can help create conditional payments or transactions requiring a certain amount of time before spending.

Alice wants to make a transaction but wants it confirmed at a specific time.

She can set the nLocktime to the block height or timestamp of the specific time she wants the transaction to be confirmed.

When Alice creates the transaction, nobody can add to the blockchain until the block height or timestamp specified in nLocktime times off.
<h4><strong>Conclusion:</strong></h4>
Bitcoin’s scripting language is a powerful tool that enables the creation of sophisticated and customized transactions on the network.

From simple transactions to complex multi-signature transactions, scripting offers flexibility and control.

With an understanding of how scripts work, users can leverage the full potential of Bitcoin’s transaction model.
<h4><strong>Resource </strong></h4>
<ul>
 	<li><a class="markup--anchor markup--li-anchor" href="https://github.com/bitcoinbook/bitcoinbook/blob/develop/ch07.asciidoc" target="_blank" rel="noopener noreferrer nofollow">Andreas M. Antonopoulos</a></li>
 	<li><a href="http://blog.learnhub.africa">Bitcoin for beginners </a></li>
</ul>