CS120: Bitcoin for Developers I

Bitcoin's distributed and timestamped ledger, the blockchain, has potential uses far beyond payments. Many developers have tried to use the transaction scripting language to take advantage of the security and resilience of the system for applications such as digital notary services, stock certificates, and smart contracts. Early attempts to use bitcoin's script language for these purposes involved creating transaction outputs that recorded data on the blockchain; for example, to record a digital fingerprint of a file in such a way that anyone could establish proof-of-existence of that file on a specific date by reference to that transaction.

The use of bitcoin's blockchain to store data unrelated to bitcoin payments is a controversial subject. Many developers consider such use abusive and want to discourage it. Others view it as a demonstration of the powerful capabilities of blockchain technology and want to encourage such experimentation. Those who object to the inclusion of nonpayment data argue that it causes "blockchain bloat," burdening those running full bitcoin nodes with carrying the cost of disk storage for data that the blockchain was not intended to carry. Moreover, such transactions create UTXO that cannot be spent, using the destination bitcoin address as a freeform 20-byte field. Because the address is used for data, it doesn't correspond to a private key and the resulting UTXO can never be spent; it's a fake payment. These transactions that can never be spent are therefore never removed from the UTXO set and cause the size of the UTXO database to forever increase, or "bloat".

In version 0.9 of the Bitcoin Core client, a compromise was reached with the introduction of the RETURN operator. RETURN allows developers to add 80 bytes of nonpayment data to a transaction output. However, unlike the use of "fake" UTXO, the RETURN operator creates an explicitly provably unspendable output, which does not need to be stored in the UTXO set. RETURN outputs are recorded on the blockchain, so they consume disk space and contribute to the increase in the blockchain's size, but they are not stored in the UTXO set and therefore do not bloat the UTXO memory pool and burden full nodes with the cost of more expensive RAM.

RETURN scripts look like this:

RETURN <data>

The data portion is limited to 80 bytes and most often represents a hash, such as the output from the SHA256 algorithm (32 bytes). Many applications put a prefix in front of the data to help identify the application. For example, the Proof of Existence digital notarization service uses the 8-byte prefix DOCPROOF, which is ASCII encoded as 44 4f 43 50 52 4f 4f 46 in hexadecimal.

Keep in mind that there is no "unlocking script" that corresponds to RETURN that could possibly be used to "spend" a RETURN output. The whole point of RETURN is that you can't spend the money locked in that output, and therefore it does not need to be held in the UTXO set as potentially spendable – RETURN is provably unspendable. RETURN is usually an output with a zero bitcoin amount, because any bitcoin assigned to such an output is effectively lost forever. If a RETURN is referenced as an input in a transaction, the script validation engine will halt the execution of the validation script and mark the transaction as invalid. The execution of RETURN essentially causes the script to "RETURN" with a FALSE and halt. Thus, if you accidentally reference a RETURN output as an input in a transaction, that transaction is invalid.

A standard transaction (one that conforms to the IsStandard() checks) can have only one RETURN output. However, a single RETURN output can be combined in a transaction with outputs of any other type.

Two new command-line options have been added in Bitcoin Core as of version 0.10. The option datacarrier controls relay and mining of RETURN transactions, with the default set to "1" to allow them. The option datacarriersize takes a numeric argument specifying the maximum size in bytes of the RETURN script, 83 bytes by default, which, allows for a maximum of 80 bytes of RETURN data plus one byte of RETURN opcode and two bytes of PUSHDATA opcode.

Note: RETURN was initially proposed with a limit of 80 bytes, but the limit was reduced to 40 bytes when the feature was released. In February 2015, in version 0.10 of Bitcoin Core, the limit was raised back to 80 bytes. Nodes may choose not to relay or mine RETURN, or only relay and mine RETURN containing less than 80 bytes of data.