Toms Blog

Where I talk about Bitcoin and Technology

Tom Zander

Update: This post made when FlexTrans was started. It is now mostly finished and got its own home on where more info can be found.

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.

If you are the impatient type; skip to the Conclusions

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.

Version4 bytes
Number of inputsCompact-int (between 1 and 9 bytes)
inputsPrev transaction hash32 bytes
Prev transaction index4 bytes
TX-in script lengthCompact-int
TX-in scriptThis is the witness data
Sequence-no/CSV 4 bytes
Number of outputsCompact-int (between 1 and 9 byte)
outputsValueCompact int
TX-out script lengthCompact-int/td>
TX-out scriptbytearray
NLockTime4 bytes

The original transaction format as designed by Satoshi Nakamoto opens with a version field. 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 yet 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. Any change in the datastructure requires software that parses it to be updated. The idea is to change the version number and so older clients would know they should not try to parse this new transaction version. To keep operating, everyone would have to upgrade to a client that supports this new transaction version. This design was known and accepted in the industry when Satoshi introduced Bitcoin, and we can conclude his goal was to use hard forks to upgrade Bitcoin. Otherwise there would not be any version numbers.

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. Texbook knowledge dictates that a digital signature has to be placed outside of the thing it signs. This is because a digital signature protects against changes. After generating the signature you would be modifiying the transaction if you insert it somewhere in the middle and that mean you'd have to regenerate the signature because the transaction changed.

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 and the quadratic hashing issue is also a direct result of this design choice.

What about SegWit?

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.

Can we improve on that?

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 contracted 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)0x040000 (4 bytes) TX-ID data
inputsTX-ID I try to spend1 + 32 bytes
Index in prev TX-IDvarint
outputsTX-out Value (in Satoshis)varint
TX-out scriptbytearray
InputStackItemTX-in-script (signature or public key)bytearray  

Notice how the not used tags are skipped. The NLockTime and the Sequence were not used in this example, so in that case they would not take any space.

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 so it is faster and shorter.

The biggest change here is that the TX-in-script (which segwit calls 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.

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.

Broken OP_CHECKSIG scripting instruction

To actually fix the malleability issues at its source we need to fix this Script instruction because the OP_CHECKSIG has a too smart way to strip the signatures from in between the transaction and we decided we want to instead just move the signatures. The solution turns out to be rather simple; in a transaction of version 4 (FlexTrans) we define the data we actually sign to be slighly different than it is in older transaction versions.

This means that in order to make the Flexible Transaction proposal actually work we need to use OP_CHECKSIG so 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)

So, how does this compare to SegWit.

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. This means that nobody will end up stuck.

Using a tagged format for a transaction is a one time protocol upgrade to 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 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 because it removes the overhead and more.

SegWit also describes changes how data is stored in the block. It creates an extra merkle tree it stores in the coinbase transaction. This requires all mining software to be upgraded. The Flexible Transactions proposal is in essence solving the same problem as SegWit and uses a cleaner solution where the extra merkle-tree items are just added to the existing merkle-tree.

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;

Malleability Fixes

Using this new version of a transaction data-structure solves all forms of known malleability.

Linear scaling of sighash operations

If you fix malleability, you always end up fixing this issue too. So there is no differnence between the solutions.

Signing of input values

This is included in this proposal.

Increased security for multisig via pay-to-script-hash (P2SH)

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 doesn't provide a solution to the transaction versioning problem, and this solution is what makes it trivial to do separately.
With flexible transactions this change can now be done at any time in the future with minimal impact.

Script versioning

Notice that this only introduces a version so we could increase it in future. It doesn't actually introduce a new version of Script.

SegWit adds a new byte for versioning. Flexible Transactions may add an optional tag for it. Both support it, but there is clearly a difference here.

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.

Specifically, SegWit has a byte reserved that you are not allowed to change yet. Imagine having to include "body background=white" in each and every html page because it was not allowed to leave it out. That is what SegWit does.

Reducing UTXO growth

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.

Compact fraud proofs

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.

What do we offer that SegWit doesn't offer?


SegWit has some good ideas and some needed fixes. Stealing all the good ideas and improving on them can be done using a hard fork. This post shows that doing so gives you advantages that 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 a more backwards compatible manner than SegWit is able to do. 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.