I've been asked one question quite regularly and recently with more force. The question is about Segregated Witness and specifically what a hard fork based version would look like.
Segregated Witness (or SegWit for short) is complex. It tries to solve quite a lot of completely different and not related issues and it tries to do this in a backwards compatible manner. Not a small feat!
So, what exactly does SegWit try to solve? We can find info of that in the benefits document.
As mentioned above, SegWit tries to solve these problems in a backwards compatible way. This requirement is there only because the authors of SegWit set themselves this requirement. They set this because they wished to use a softfork to roll out this protocol upgrade. This post is going to attempt to answer the question if that is indeed the best way of solving these problems.
Starting with Malleability, the problem is that a transaction between being created by the owner of the funds and being mined in a block is possible to change in such a way that it still is valid, but the transaction identifier (TX-id) has been changed. But before we dive into the deep, lets have some general look at the transaction data first.
If we look at a Transaction as it is today, we notice some issues.
| Version | 4 bytes |
| Number of inputs | VarInt (between 1 and 9 bytes) |
| Prev transaction hash | 32 bytes. Stored in reverse |
| Prev transaction index | 4 bytes |
| TX-in script length | Compact-int |
| TX-in script | This is the witness data |
| Sequence-no/CSV | 4 bytes |
| Number of outputs | VarInt (between 1 and 9 byte) |
| Value | Var int |
| TX-out script length | Compact-int |
| TX-out script | bytearray |
| NLockTime | 4 bytes |
The original transaction format as designed by Satoshi Nakamoto had a 4 byte version. This design approach is common in the industry and the way that this is used is that a new version is defined whenever any field in the data structure needs changing. In Bitcoin we have not done this and we are still at version 1.
What Bitcoin has done instead is make small, semi backwards-compatible, changes. For instance the CHECKSEQUENCEVERIFY feature repurposes the sequence field as a way to add data that would not break old clients. Incidentally, this specific change (described in BIP68) is not backwards compatible in the main clients as it depends on a transaction version number being greater than 1, they all check for Standard transactions and say that only version 1 is standard.
The design of having a version number implies that the designer wanted to use hard forks for changes. A new client is required to know how to parse a newly designed data structure, this should be obvious. So the idea is to change the version number and so older clients would know they can't parse this new transaction version. To keep operating, everyone would have to upgrade to a client that supports this new transaction version.
Lets look at why we would want to change the version; I marked some items in red that are confusing. Most specifically is that numbers are stored in 3 different, incompatible formats in transactions. Not really great and certainly a source of bugs.
Transactions are cryptographically signed by the owner of the coin so others can validate that he is actually allowed to move the coins. The signature is stored in the TX-in-script.
Crypto-geeks may have noticed something weird that goes against any textbooks knowledge. What this is is that a digital signature has to be placed outside of the thing it signs. This is because a digital signature protects against changes. But a signature itself would cause this change. So you have to store the signature outside the thing you sign.
Bitcoin's creator did something smart with how transactions are actually signed so the signature actually doesn't have to be outside the transaction. It works. Mostly. But we want it to work flawlessly because currently this being too smart causes the dreaded malleability issues where people have been known to lose money.
SegWit actually solves only one of these items. It moves the signature out of the transaction. SegWit doesn't fix any of the other problems in Bitcoin transactions, it also doesn't change the version after making the transaction's-meaning essentially unable to be understood by old clients.
Old clients will stop being able to check the SegWit type of transaction, because the authors of SegWit made it so that SegWit transactions just have a sticker of "All-Ok" on the car while moving the real data to the trailer, knowing that the old clients will ignore the trailer.
SegWit wants to keep the data-structure of the transaction unchanged and it tries to fix the data structure of the transaction. This causes friction as you can't do both at the same time, so there will be a non-ideal situation and hacks are to be expected.
The problem, then, is that SegWit introduces more technical debt, a term software developers use to say the system-design isn't done and needs significant more work. And the term 'debt' is accurate as over time everyone that uses transactions will have to understand the defects to work with this properly. Which is quite similar to paying interest.
Using a Soft fork means old clients will stop being able to validate transactions, or even parses them fully. But these old clients are themselves convinced they are doing full validation.
I want to suggest a way to one-time change the data-structure of the transaction so it becomes much more future-proof and fix the issues it gained over time as well. Including the malleability issue. It turns out that this new data-structure makes all the other issues that SegWit fixes quite trivial to fix.
I'm going to propose an upgrade I called;
Flexible Transactions
Last weekend I wrote a little app (sources here) that reads a transaction and then writes it out in a new format I've designed for Bitcoin. Its based on ideas I've used for some time in other projects as well, but this is the first open source version.
The basic idea is to change the transaction to be much more like modern systems like JSON, HTML and XML. Its a 'tag' based format and has various advantages over the closed binary-blob format.
For instance if you add a new field, much like tags in HTML, your old browser will just ignore that field making it backwards compatible and friendly to future upgrades.
Further advantages;
An average Flexible Transaction will look like this;
| TxStart (Version) | 0x04 | |
| in | TX-ID I try to spent | 1 + 32 bytes |
| in | Index in prev TX-ID | varint |
| out | TX-out Value (in Satoshis) | VarInt |
| out | TX-out script | bytearray |
| inputs | TX-in-script (Witness data) | bytearray |
| TxEnd | 0x2C |
Notice how the not used tags are skipped. The NLockTime and the Sequence were not used, so they are skipped in the transaction.
The Flexible Transaction proposal uses a list of tags. Like JSON; "Name:" "Value". Which makes the content very flexible and extensible. Just instead of using text, Flexible Transactions use a binary format.
The biggest change here is that the TX-in-script (aka the witness data) is moved to be at the end of the transaction. When a wallet generates this new type of transaction they will append the witness data at the end but the transaction ID is calculated by hashing the data that ends before the witness data.
The witness data typically contains a public key as well as a signature. In the Flexible Transactions proposal the signature is made by signing exactly the same set of data as is being hashed to generate the TX-input. Thereby solving the malleability issue. If someone would change the transaction, it would invalidate the signature.
I took 187000 recent transactions and checked what this change would do to the size of a transaction with my test app I linked to above.
To actually fix the malleability issues at its source we need to fix this instruction. But we can't change the original until we decide to make a version 2 of the Script language.
This change is not really a good trigger to do a version two, and it would be madness to do that at the same time as we roll out a new format of the transaction itself. (too many changes at the same time is bound to cause issues)
This means that in order to make the Flexible Transaction proposal actually work we need to use one of the NOP codes unused in Script right now and make it do essentially the same as OP_CHECKSIG, but instead of using the overly complicated manner of deciding what it will sign, we just define it to sign exactly the same area of the transaction that we also use to create the TX-ID. (see right most column in the above table)
This new opcode should be relatively easy to code and it becomes really easy to clean up the scripting issues we introduce in a future version of script.
First of all, introducing a new version of a transaction doesn't mean we stop supporting the current version. So all this is perfectly backwards compatible because clients can just continue making old style transactions. Naturally, with the problems that had, but nobody will end up stuck.
Using a tagged format for a transaction is a one time hard fork to upgrade the protocol and allow many more changes to be made with much lower impact on the system in the future. There are parallels to SegWit, it strives for the same goals, after-all. But where SegWit tries to adjust a static memory-format by re-purposing existing fields, Flexible transactions presents a coherent simple design that removes lots of conflicting concepts.
Most importantly, years after Flexible transactions has been introduced we can continue to benefit from the tagged system to extend and fix issues we find then we haven't thought of today. In the same, consistent, concepts.
We can fit more transactions in the same (block) space similarly to SegWit, the signatures (witness part) can be pruned by full nodes without causing any security implications in both solutions. What SegWit doesn't do is allowing unused features to not use space. So if a transaction doesn't use NLockTime (which is near 100% of them) they will take space in SegWit but not in this proposal. Expect your transactions to be smaller and thus lower fee!
On size, SegWit proposes to gain 60% space. Which is by removing the signatures minus the overhead introduced. In my tests Flexible transactions showed 75% gain.
SegWit also describes changes how data is stored in the block. It creates an extra 'branch' in the merkle tree. The Flexible Transactions proposal is in essence solving the same problem as SegWit and the same solution for blocks can be applied. Which means we can have that merkle tree solution as well. No change.
At the start of the blog I mentioned a list of advantages that the authors of SegWit included. It turns out that those advantages themselves are completely not related to each other and they each have a very separate solution to their individual problems. The tricky part is that due to the requirement of old clients staying forwards-compatible they are forced to push them all into the one 'fix'.
Lets go over them individually;
Using this new version of a transaction data-structure solves all forms of known malleability.
The problem it tries to solve is described here; https://bitcointalk.org/?topic=140078
As a result of that discussion the idea of SigOps were introduced which shortly later was seen to be a suboptimal solution. In BIP109 a better solution has been created which is called sig-hash-bytes. It is based on the fact that hashing is the most expensive part of validation (notice that hashing is only a part of signature validation).
In this solution the definition is made that no more than 650MB can be hashed as a result of every megabyte of blocksize. Hashing this amount takes around 5 seconds and as such its a good protection.
This is a good balance. Some 650MB hashing per MB block will allow even the most extraordinary transactions while protecting machines from issues.
This looks like a problem that didn't need solving any longer. Changing the protocol, with possibly unintended consequences, seems overkill.
This is included in this proposal.
The Flexible transactions proposal outlined in this document makes many of the additional changes in SegWit really easy to add at a later time. This change is one of them.
Bottom line, changing the security with a bigger hash in SegWit is only included in SegWit because SegWit didn't solve the transaction versioning problem making it trivial to do separately. With flexible transactions this change can now be done at any time in the future with minimal impact.
Notice that this only introduces the versioning byte. It doesn't actually introduce a new version of script.
This is an excellent example where tagged formats shine brighter than a static memory format that SegWit uses because adding such a versioning tag is much cleaner and much easier and less intrusive to do with flexible transactions. Just add a new tag that defaults to version 1 so the old transactions not having the tag stay consistent.
Imagine having to include "body background=white" in each and every html page because it was not allowed to leave it out. Thats what SegWit does right now. Even though it doesn't actually support changing it yet.
I suggest you read this point for yourself, its rather interestingly technical and I'm sure many will not fully grasp the idea. The bottom line of that they are claiming the UTXO database will avoid growing because SegWit doesn't allow more customers to be served.
I don't even know how to respond to such a solution. Its throwing out the baby with the bath water.
Database technology has matured immensely over the last 20 years, the database is tiny in comparison to what free and open source databases can do today. Granted, the UTXO database is slightly unfit for a normal SQL database, but telling customers to go elsewhere has never worked out for products in the long term.
Again, not really included in SegWit, just started as a basis. The exact same basis is suggested for flexible transactions, and as such this is identical.
SegWit has some good ideas and some needed fixes. Stealing all the good ideas and improving on them can be done, but require a hard fork. This post shows that the advantages are quite significant and certainly worth it.
We introduced a tagged data structure. Conceptually like JSON and XML in that it is flexible, but the proposal is a compact and fast binary format. Using the Flexible Transaction data format allows many future innovations to be done cleanly in a consistent and, at a later stage, a more backwards compatible manner than SegWit is able to do, even if given much more time. We realize that separating the fundamental issues that SegWit tries to fix all in one go, is possible and each becomes much lower risk to Bitcoin as a system.
After SegWit has been in the design stage for a year and still we find show-stopping issues, delaying the release, I would argue that dropping the requirement of staying backwards compatible should be on the table.
The introduction of the Flexible Transaction upgrade has big benefits because the transaction design becomes extensible. A hardfork is done once to allow us to do soft upgrades in the future.
The Flexible transaction solution lowers the amount of changes required in the entire ecosystem. Not just for full nodes. Especially considering that many tools and wallets use shared libraries between them to actually create and parse transactions.
The Flexible Transaction upgrade proposal should be considered by anyone that cares about the protocol stability because its risk of failures during or after upgrading is several magnitudes lower than SegWit is and it removes technical debt that will allow us to innovate better into the future.
Flexible transactions are smaller, giving significant savings after pruning over SegWit.
