More on Bitcoin Transactions

To understand why digital signatures are integral to Bitcoin transactions, you'll need to learn a bit about the structure of Bitcoin transactions. This chapter will introduce you to what's happening "Behind the Scenes" in these transactions. We'll discuss this more in Unit 5.

Transaction Outputs and Inputs

Transaction Outputs

Every bitcoin transaction creates outputs, which are recorded on the bitcoin ledger. Almost all of these outputs, with one exception create spendable chunks of bitcoin called UTXO, which are then recognized by the whole network and available for the owner to spend in a future transaction.

UTXO are tracked by every full-node bitcoin client in the UTXO set. New transactions consume (spend) one or more of these outputs from the UTXO set.

Transaction outputs consist of two parts:

  • An amount of bitcoin, denominated in satoshis, the smallest bitcoin unit
  • A cryptographic puzzle that determines the conditions required to spend the output

The cryptographic puzzle is also known as a locking script, a witness script, or a scriptPubKey.

The transaction scripting language, used in the locking script mentioned previously, is discussed in detail in Transaction Scripts and Script Language.

Now, let's look at Alice's transaction and see if we can identify the outputs. In the JSON encoding, the outputs are in an array (list) named vout:

"vout": [
    "value": 0.01500000,
    "scriptPubKey": "OP_DUP OP_HASH160 
    ab68025513c3dbd2f7b92a94e0581f5d50f654e7 OP_EQUALVERIFY
    "value": 0.08450000,
    "scriptPubKey": "OP_DUP OP_HASH160 
    7f9b1a7fb68d60c536c2fd8aeaa53a8f3cc025a8 OP_EQUALVERIFY OP_CHECKSIG",


As you can see, the transaction contains two outputs. Each output is defined by a value and a cryptographic puzzle. In the encoding shown by Bitcoin Core, the value is shown in bitcoin, but in the transaction itself it is recorded as an integer denominated in satoshis. The second part of each output is the cryptographic puzzle that sets the conditions for spending. Bitcoin Core shows this as scriptPubKey and shows us a human-readable representation of the script.

The topic of locking and unlocking UTXO will be discussed later, in Script Construction (Lock + Unlock). The scripting language that is used for the script in scriptPubKey is discussed in Transaction Scripts and Script Language. But before we delve into those topics, we need to understand the overall structure of transaction inputs and outputs.