Protocol rules

The main data structures are transactions and blocks. Blocks are composed of the block header followed by transactions in the block. Transactions are identified by their hash; blocks by the hash of their header. Blocks have prev pointers that link them into a graph.

Conceptually, the client has the following data structures:

The difficulty changes every 2016 blocks. This choice is designed to occur approximately every two weeks.

2 weeks / 10 minutes = 14 * 24 * 60 / 10 = 2016

Once 2016 blocks has been reached we loop back until we hit the 2016th block before the current one. We find the difference in time between the current block and that one. This difference (called the actual timespan) is limited in bounds between [2 weeks/4, 2 weeks*4].

Then we get the last target for this old 2 week window and multiply it by the ratio of the actual timespan / the target timespan (2 weeks in secs).

new target = old target * time for 2016 blocks / 2 weeks.

If the old set of blocks completed too fast then the target is lowered (difficulty goes up) ensuring it takes longer to solve these new blocks... and vice versa. This way the difficulty oscillates around the ideal of 2 weeks (and 10 mins per block).

The block creation fee changes at every 210000 blocks. The block creation fee is a function of block height on the chain (genesis=0), and is calculated using 64 bit integer operations (in satoshis) as:

(50 * 100000000) >> (height / 210000)

The block creation fee started with 50 BTC, has fallen to 25 BTC at block 210000, fell to 12.5 BTC at block 420000, to 6.25 at block 630000, will halve every 210000 blocks (roughly 4 years) and finally go down to 0 satoshi with block 6930000 around the year 2140. The block creation fee of all coinbase transactions will sum up to 2099999997690000 satoshis, practically 21million BTC.

These messages hold a single transaction.

1. Check syntactic correctness
2. Make sure neither in or out lists are empty
3. Size in bytes <= MAX_BLOCK_SIZE
4. Each output value, as well as the total, must be in legal money range
5. Make sure none of the inputs have hash=0, n=-1 (coinbase transactions)
6. Check that nLockTime <= INT_MAX[1], size in bytes >= 100[2], and sig opcount <= 2[3]
7. Reject "nonstandard" transactions: scriptSig doing anything other than pushing numbers on the stack, or scriptPubkey not matching the two usual forms[4]
8. Reject if we already have matching tx in the pool, or in a block in the main branch
9. For each input, if the referenced output exists in any other tx in the pool, reject this transaction.[5]
10. For each input, look in the main branch and the transaction pool to find the referenced output transaction. If the output transaction is missing for any input, this will be an orphan transaction. Add to the orphan transactions, if a matching transaction is not in there already.
11. For each input, if the referenced output transaction is coinbase (i.e. only 1 input, with hash=0, n=-1), it must have at least COINBASE_MATURITY (100) confirmations; else reject this transaction
12. For each input, if the referenced output does not exist (e.g. never existed or has already been spent), reject this transaction[6]
13. Using the referenced output transactions to get input values, check that each input value, as well as the sum, are in legal money range
14. Reject if the sum of input values < sum of output values
15. Reject if transaction fee (defined as sum of input values minus sum of output values) would be too low to get into an empty block
16. Verify the scriptPubKey accepts for each input; reject if any are bad
17. Add to transaction pool[7]
18. "Add to wallet if mine"
19. Relay transaction to peers
20. For each orphan transaction that uses this one as one of its inputs, run all these steps (including this one) recursively on that orphan

These messages hold a single block.

1. Check syntactic correctness
2. Reject if duplicate of block we have in any of the three categories
3. Transaction list must be non-empty
4. Block hash must satisfy claimed nBits proof of work
5. Block timestamp must not be more than two hours in the future
6. First transaction must be coinbase (i.e. only 1 input, with hash=0, n=-1), the rest must not be
7. For each transaction, apply "tx" checks 2-4
8. For the coinbase (first) transaction, scriptSig length must be 2-100
9. Reject if sum of transaction sig opcounts > MAX_BLOCK_SIGOPS
10. Verify Merkle hash
11. Check if prev block (matching prev hash) is in main branch or side branches. If not, add this to orphan blocks, then query peer we got this from for 1st missing orphan block in prev chain; done with block
12. Check that nBits value matches the difficulty rules
13. Reject if timestamp is the median time of the last 11 blocks or before
14. For certain old blocks (i.e. on initial block download) check that hash matches known values
15. Add block into the tree. There are three cases: 1. block further extends the main branch; 2. block extends a side branch but does not add enough difficulty to make it become the new main branch; 3. block extends a side branch and makes it the new main branch.
16. For case 1, adding to main branch:
    1. For all but the coinbase transaction, apply the following:
       1. For each input, look in the main branch to find the referenced output transaction. Reject if the output transaction is missing for any input.
       2. For each input, if we are using the nth output of the earlier transaction, but it has fewer than n+1 outputs, reject.
       3. For each input, if the referenced output transaction is coinbase (i.e. only 1 input, with hash=0, n=-1), it must have at least COINBASE_MATURITY (100) confirmations; else reject.
       4. Verify crypto signatures for each input; reject if any are bad
       5. For each input, if the referenced output has already been spent by a transaction in the main branch, reject
       6. Using the referenced output transactions to get input values, check that each input value, as well as the sum, are in legal money range
       7. Reject if the sum of input values < sum of output values
    2. Reject if coinbase value > sum of block creation fee and transaction fees
    3. (If we have not rejected):
    4. For each transaction, "Add to wallet if mine"
    5. For each transaction in the block, delete any matching transaction from the transaction pool
    6. Relay block to our peers
    7. If we rejected, the block is not counted as part of the main branch
17. For case 2, adding to a side branch, we don't do anything.
18. For case 3, a side branch becoming the main branch:
    1. Find the fork block on the main branch which this side branch forks off of
    2. Redefine the main branch to only go up to this fork block
    3. For each block on the side branch, from the child of the fork block to the leaf, add to the main branch:
       1. Do "branch" checks 3-11
       2. For all but the coinbase transaction, apply the following:
          1. For each input, look in the main branch to find the referenced output transaction. Reject if the output transaction is missing for any input.
          2. For each input, if we are using the nth output of the earlier transaction, but it has fewer than n+1 outputs, reject.
          3. For each input, if the referenced output transaction is coinbase (i.e. only 1 input, with hash=0, n=-1), it must have at least COINBASE_MATURITY (100) confirmations; else reject.
          4. Verify crypto signatures for each input; reject if any are bad
          5. For each input, if the referenced output has already been spent by a transaction in the main branch, reject
          6. Using the referenced output transactions to get input values, check that each input value, as well as the sum, are in legal money range
          7. Reject if the sum of input values < sum of output values
       3. Reject if coinbase value > sum of block creation fee and transaction fees
       4. (If we have not rejected):
       5. For each transaction, "Add to wallet if mine"
    4. If we reject at any point, leave the main branch as what it was originally, done with block
    5. For each block in the old main branch, from the leaf down to the child of the fork block:
       1. For each non-coinbase transaction in the block:
          1. Apply "tx" checks 2-9, except in step 8, only look in the transaction pool for duplicates, not the main branch
          2. Add to transaction pool if accepted, else go on to next transaction
    6. For each block in the new main branch, from the child of the fork node to the leaf:
       1. For each transaction in the block, delete any matching transaction from the transaction pool
    7. Relay block to our peers
19. For each orphan block for which this block is its prev, run all these steps (including this one) recursively on that orphan

• Protocol specification
• Bitcoin Improvement Proposals
• Hardfork Wishlist