Bitcoin, Explained — The Technical Side of Bitcoin

In this episode of The Van Wirdum Sjorsnado, hosts Aaron van Wirdum and Sjors Provoost discuss Segregated Witness, also known as SegWit. SegWit was the last soft fork to have been activated on the Bitcoin network in the summer of 2017, and the biggest Bitcoin protocol upgrade to date.

In short, SegWit allowed transaction data and signature data to be separated in Bitcoin blocks. In this episode, Aaron and Sjors explain how this works, and that this offered four main benefits:

First, SegWit solved the transaction malleability issue, where transaction IDs could be altered without invalidating the transactions themselves. Solving the transaction malleability issue itself in turn enabled second layer protocols like the Lightning Network.

Second, SegWit offered a modest block size limit increase by discounting the “weight” of witness data, most notably signatures. Importantly, this could be done without the need for a hard fork.

Third, SegWit’s script versioning allows for easier upgrades to new transactions types. The anticipated Taproot upgrade could be a first example of this feature.

And fourth, input signing resolved some edge case problems where wallets needed to make sure they don’t overpay in transaction fees.. Hardware wallets benefit from this solution in particular.

In this episode of The Van Wirdum Sjorsnado, hosts Aaron van Wirdum and Sjors Provoost discuss Speedy Trial, the proposed Taproot activation mechanism that has been gaining traction in recent weeks.

Aaron and Sjors explain that Speedy Trial would give miners three months to signal support for the Taproot upgrade with their hash power. If a supermajority of miners signal support for the upgrade within these thee months, Taproot will activate a couple of months later: six months since the release of the software client that includes the activation logic. If miners don’t signal support within three months, the upgrade will expire, and a new upgrade path can be considered. (It is as of yet not defined what the potential alternative upgrade path would look like.)

Aaron explains that Speedy Trial was born out of a compromise between developers and users who preferred different upgrade mechanisms for the Taproot soft fork, while Sjors details what some of the more technical implementation considerations of Speedy Trial are, like the benefits of using block heights instead of time stamps, and the extended delay between signaling and enforcement. Finally, Aaron and Sjors discuss some of the downsides and risks of Speedy Trial.

In this episode of The Van Wirdum Sjorsnado, hosts Aaron van Wirdum and Sjors Provoost discuss hardware wallet integration into Bitcoin Core, one of the ongoing projects that Sjors regularly contributes to himself.

Hardware wallets are a popular solution for storing private keys offline, to minimize the risk that hackers gain access to the corresponding coins. They are used in combination with regular software wallets to sign transactions in such a way that the private keys never leave the device.

In this episode of The Van Wirdum Sjorsnado, hosts Aaron van Wirdum and Sjors Provoost discuss activation of the Taproot soft fork upgrade, and more specifically, the lock-in on timeout (LOT) parameter. The LOT parameter can be set to either “true” (LOT=true) or “false” (LOT=false).

LOT=false resembles how several previous soft forks were activated. Miners would have one year to coordinate Taproot activation through hash power; if and when a supermajority (probably 90 percent) of miners signal readiness for the upgrade, the soft fork will activate. But if this doesn’t happen within (probably) a year, the upgrade will expire. (After which it could be redeployed.)LOT=true also lets miners activate the soft fork through hash power, but if they fail to do this within that year, nodes will activate the soft fork regardless.Aaron and Sjors discuss the benefits and detriments of each option. This also includes some possible scenarios of what could happen if some users set LOT to true, while other users set LOT to false, and the associated risks. Finally, Aaron and Sjors discuss what they think is most likely going to happen with Taproot activation.

In this episode of The Van Wirdum Sjorsnado, hosts Aaron van Wirdum and Sjors Provoost discuss Bitcoin addresses. Every Bitcoin user has probably at one point used Bitcoin addresses, but what are they, exactly?

Aaron and Sjors explain that Bitcoin addresses are not part of the Bitcoin protocol. Instead, they are conventions used by Bitcoin (wallet) software to communicate where coins must be spent to: either a public key (P2PK), a public key hash (P2PKH), a script hash (P2SH), a witness public key hash (P2WPKH), or a witness script hash (P2WSH). Addresses also include some meta data about the address type itself.

Bitcoin addresses communicate these payment options using their own “numeric systems”, Aaron and Sjors explain. The first version of this was base58, which uses 58 different symbols to represent numbers. Newer address types, bech32 addresses, instead use base32 which uses 32 different symbols to represent numbers.

Aaron and Sjors discuss some of the benefits of using Bitcoin addresses in general. and bech32 addresses in specific. In addition, Sjors explains that the first version of bech32 addresses included a (relatively harmless) bug, and how a newer standard for bech32 addresses has fixed this bug.

In this episode of The Van Wirdum Sjorsnado, hosts Aaron van Wirdum and Sjors Provoost are once again joined by Ruben Somsen. This time, they discuss one of Ruben’s own proposals, called Softchains.

Softchains are a type of two-way peg sidechains that utilize a new type of consensus mechanism: proof-of-work fraud proofs (or as Sjors prefers to call them, proof-of-work fraud indicators). Using this consensus mechanism, users don’t validate the content of each block, but instead only check the proof of work header, like Simplified Payment Verification (SPV) clients do. But using proof-of-work fraud proofs, users do validate the entire content of blocks any time a blockchain fork occurs. This offers a security model in between full node security and SPV security.

Ruben explains that by using proof-of-work fraud proofs for sidechains to create Softchains, Bitcoin full nodes could validate entire sidechains at minimal cost. This new model might be useful for certain types of sidechains, most notably “block size increase” sidechains that do nothing fancy but do offer more transaction capacity. Aaron, Sjors and Ruben also discuss some of the downsides of the Softchain model.

In this episode of The Van Wirdum Sjorsnado, hosts Aaron van Wirdum and Sjors Provoost discuss Replace By Fee (RBF). RBF is a trick that lets unconfirmed transactions be replaced by conflicting transactions that include a higher fee.

With RBF, users can essentially bump a transaction fee to incentivize miners to include the transaction in a block. Aaron and Sjors explain three advantages of RBF: the option the “speed up” a transaction (1), which can in turn result in a more effective fee market for block space (2), as well as the potential to make more efficient use of block space by updating transactions to include more recipients (3).

The main disadvantage of RBF is that it makes it slightly easier to double spend unconfirmed transactions, which was also at the root of last week’s “double spend” controversy that dominated headlines. Aaron and Sjors discuss some solutions to diminish this risk, including “opt-in RBF” which is currently implemented in Bitcoin Core.

Finally, Sjors explains in detail how opt-in RBF works in Bitcoin Core, and which conditions must be met before a transaction is considered replaceable. He also notes some complications with this version of RBF, for example in the context of the Lightning Network.

In this episode of The Van Wirdum Sjorsnado, hosts Aaron van Wirdum and Sjors Provoost discuss Compact Client Side Filtering, also known as Neutrino. Compact Client Side Filtering is a solution to use Bitcoin without needing to download and validate the entire blockchain, and without sacrificing your privacy to someone who operates a full node (and therefore did download and validate the entire blockchain).

Downloading and validating the entire Bitcoin blockchain can take a couple of days even on a standard laptop, and much longer on smart phones or other limited-performance computers. This is why many people prefer to use light clients. These aren’t quite as secure as full Bitcoin nodes, but they do require fewer computational resources to operate.

Some types of light clients — Simplified Payment Verification (SPV) clients — essentially ask nodes on the Bitcoin network about the particular Bitcoin addresses they are interested in, to check how much funds they own. This is bad for privacy, since the full node operators learns which addresses belong to the SPV user.

Compact Client Side Filtering is a newer solution to accomplish similar goals as SPV, but without the loss of privacy. This works, in short, by having full node operators create a cryptographic data-structure that tells the light client user whether a block could have contained activity pertaining to its addresses, so the user can keep track of its funds by downloading only a small subset of all Bitcoin blocks.

Aaron and Sjors explain how this works in more detail, and discuss some of the tradeoffs of this solution.

In this episode of “The Van Wirdum Sjorsnado,” hosts Aaron van Wirdum and Sjors Provoost discuss the newly released Bitcoin Core 0.21.0. Bitcoin Core 0.21.0 is the 21st and latest major release of the Bitcoin Core software, the oldest and most important Bitcoin node implementation, which is often also regarded as the reference implementation for the Bitcoin protocol.

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In this episode of “The Van Wirdum Sjorsnado,” hosts Aaron van Wirdum and Sjors Provoost are once again joined by Ruben Somsen. The trio discusses Drivechain, a sidechain project spearheaded by Paul Sztorc.Sidechains are alternative blockchains, where coins are pegged to bitcoin.

This should make the sidechain coins interchangeable with bitcoin and therefore carry an equal value. In a way, sidechains let users “move” bitcoin across blockchains, where they are subject to different protocol rules, allowing for greater transaction capacity, more privacy, and other benefits.Aaron, Sjors and Ruben explain that Drivechain consists of two main innovations.

The first is blind merged mining, which lets Bitcoin miners secure the drivechain with their existing hash power, but without necessarily needing to validate everything that happens on the sidechain.

The second is hashrate escrows, which lets miners “move” coins from the Bitcoin blockchain to the sidechain and back.

The hosts also discuss some of the benefits as well as complications with Drivechain, most notably the security implications of letting miners control the pegging out process. They consider the arguments why this process is incentive compatible (in other words: secure) — or why it might not be.