Transaction Layer

6 minute read

UCL Course COMP0143 Cryptocurrencies: LEC-02

Bitcoin V.S. Ethereum

All known cryptocurrency systems define currency units to realize an incentive system

however, dose not provide them a legal status of any form

Here give Bitcoin and Ethereum as examples

who are representatives of different design philosophies

Bitcoin	Ethereum
UTXO (*Unspent Transaction Output*) Model	Account Model
transactions transfer ownership of coins	transactions update account balances
Stateless: traced from all UTXOs	Stateful: update continuously
Requires change	Requires No change
Value computed from traceability of every unit to its coinbase transaction	Value computed from the validity of all state transitions
Not fungible	Fungible

Bitcoin’s Transaction Layer

Address

The hash of the public key \(pk\) from an ECDSA key pair \((pk,sk)\)

Regular Bitcoin addresses always start with 1

Transaction

Inputs	Outputs
`ptx` Hash of a previous transaction	`val` Number of Satoshi this output is worth when claimed
`idx` Specific output in the referenced transaction	`scr`: Second half of a script which specifies receiver and other things
`sig` First half of a script which includes a signature

Properties

The referenced transactions must be UTXOs
UTXOs can only be spent in their entirety
Change is refunded via output addresses

Double Spending

Problem

Since Bitcoin transactions are digital objects,

it is possible to be used multiple times (unlike physical coins)

Solution

Decentralized Bookkeeping: Distributed Ledger Technique (DLT, Blockchain)

Distributed Ledger Technology (DLT)

Blockchain is a linked list of blocks with hash pointers linked with each other (append-only)

Each block has a header (metadata) and payload (transactions)

Block Structure

Size	Field	Description
4	Magic number	Fixed network identifier 0xD9B4BEF9
4	Block size	Number of bytes to end of block
4	Version	Block version number
32	Previous Block Hash	Hash of the previous block header
32	Merkle Root	Merkle root hash of all transactions
4	Time	Block timestamp in seconds
4	Target	Number of leading zeroes in block hash (difficulty)
4	Nonce	Proof-of-work mining counter
1-9	Transaction counter	Number of included transactions
Variable	Transactions	List of transactions

Simplified Payment Verification (SPV)

Method that not need to store all blocks in the blockchain

Store only block headers which are on the order of tens of megabytes
Enables them to selectively verify transactions but not the entire blockchain
Trust that miners do not include bad transactions or that full nodes watch out for this
Often used in resource-constraint environments, e.g. mobile wallets

Block Rewards

The first transaction of every block, the so-called coinbase transaction,

assigns a block reward and the sum of all fees to the consensus leader (e.g., a miner)
These coinbase transactions do not have any other inputs or signatures
Outputs of coinbase transactions can only be spent after 100 blocks (cooldown)
These block rewards provide incentives for consensus nodes (e.g., miners)

to invest their computational resources and keep the system up and running

Bitcoin’s Scripting Language

Bitcoin Script Wiki

Features

Stack-based, stateless
Intentionally not Turing complete, no loops
Support for cryptography
Time / memory usage bound by program size
Commands are specified as opcodes

Types

Pay-To-PubKeyHash (P2PKH)

Allows to send transactions to public key hashes (addresses starting with 1)
Basic Bitcoin transaction form

Pay-To-Script-Hash (P2SH)

Allows to send transactions to script hashes (addresses starting with 3)
To spend bitcoins sent via P2SH,

recipient must provide a redeem script matching the script hash
Enables richer functionality than P2PKH (e.g. multi-signatures)

Ethereum’s Transaction Layer

Key Feature: The Ethereum Virtual Machine (EVM)
can execute Turing-complete scripts and run decentralized applications

Account Types

Externally Owned Account (EOA)

Controlled by a signing key
Can be created for free
Can initiate transactions

Code Account (CA)

Controlled by program logic
Creation produces cost because it requires network storage
Can only send transactions (message calls) in response to receiving transactions.
Transactions from an EOA to a CA can trigger code

which can execute many different actions,

such as transferring tokens or even creating a new contract

Account Structure

The account address with account state

Account state have four fields

Field	Description
`nonce`	Number of transactions sent from the account which ensures that transactions are only processed once
`balance`	Amount of wei owned by the account
`codeHash`	Hash of the code that is stored in the state database for CAs Empty for EOAs
`storageRoot`	Root hash of a Merkle Patricia tree that encodes the storage contents of the account

Transaction Structure

Field	Description
Nonce	Sequence number set by the originating EOA used to prevent message replay
Gas price	Price of gas (in wei) the originator is willing to pay
Gas limit	Maximum amount of gas the originator is willing to pay
Recipient	Destination Ethereum address
Value	Amount of ether to send to the destination
Data	Variable-length binary data payload
(v; r ; s)	ECDSA signature components of the origination EOA

Transaction Fees

Goals

Compensation for provisioning of computational resources
Prevent abuse of Ethereum’s Turing-complete execution environment

Concepts

Every instruction has a gas price
Exchange rate between gas and ether is market-determined:
\[\textit{fee} = \textit{consumed_gas} \times \textit{gas_price}\]
If a computation needs more gas than provided by the user,

the corresponding transaction is rolled back and the miner gets the fee

Ethereum Virtual Machine (EVM)

Quasi-Turing-complete
Stack-based
256-bit words
State transitions can be specified (almost) arbitrarily
Low-level programming language: EVM byte code
High-level programming languages: Solidity, LLL, Serpent, Vyper

Other Important Concepts

Swarm

Distributed database that stores arbitrary information
Unlike on a blockchain there are no serialization and validity checks
Hash-based addressing
Ether-based incentive system

Ethereum Name Service (ENS)

Distributed database that maps human-readable strings to Ethereum addresses
Ether-based incentive system

Oracles

Services that push details on real-world events onto the blockchain

to make them available to code accounts.
Hard to decentralize, trust in a few responsible parties necessary.

Endong Liu