B++ Logo
Feedback

Transaction Creation

Creating Bitcoin transactions programmatically involves selecting inputs, creating outputs, calculating fees, signing, and broadcasting. This guide covers the complete process.

Transaction Structure

Basic Components

Transaction:
  Version: 4 bytes
  Input Count: VarInt
  Inputs: Array of inputs
  Output Count: VarInt
  Outputs: Array of outputs
  Locktime: 4 bytes
  Witness: (if SegWit)

Input Structure

Input:
  Previous TXID: 32 bytes
  Previous Output Index: 4 bytes
  Script Length: VarInt
  Script: Variable
  Sequence: 4 bytes

Output Structure

Output:
  Value: 8 bytes (satoshis)
  Script Length: VarInt
  Script: Variable (typically 22-34 bytes)

Serializing a Transaction Output

Step-by-Step Process

Step 1: Select UTXOs

Choose which UTXOs to spend:

# List available UTXOs
bitcoin-cli listunspent

# Select UTXOs (coin selection algorithm)
# Total value >= payment + fee

Step 2: Create Raw Transaction

# Create transaction
bitcoin-cli createrawtransaction \
  '[{"txid":"abc123...", "vout":0}]' \
  '{"<destination_address>": 0.001}'

Parameters:

  • Inputs: Array of UTXOs to spend
  • Outputs: Destination address and amount

Step 3: Sign Transaction

# Sign transaction
bitcoin-cli signrawtransactionwithwallet <hex>

For Multisig:

# Sign with specific key
bitcoin-cli signrawtransactionwithkey <hex> \
  '["<private_key>"]' \
  '[{"txid":"...", "vout":0, "scriptPubKey":"...", "redeemScript":"..."}]'

Step 4: Broadcast Transaction

# Broadcast to network
bitcoin-cli sendrawtransaction <signed_hex>

Fee Calculation

Estimating Transaction Size

Base Transaction:

  • Version: 4 bytes
  • Input count: 1-9 bytes
  • Output count: 1-9 bytes
  • Locktime: 4 bytes

Per Input:

  • Previous output: 36 bytes
  • Script length: 1-9 bytes
  • Script: Variable (depends on script type)
  • Sequence: 4 bytes

Per Output:

  • Value: 8 bytes
  • Script length: 1-9 bytes
  • Script: Variable (typically 22-34 bytes)

Virtual Size (SegWit)

Weight = (Base Size × 3) + Total Size
Virtual Size = Weight / 4

Fee Calculation

Fee = Transaction Size (vBytes) × Fee Rate (sat/vB)

Example:

Transaction Size: 250 vBytes
Fee Rate: 10 sat/vB
Fee: 2,500 sats

Change Outputs

When to Create Change

Create change output if:

  • Input value > Payment + Fee + Dust Threshold
  • Change amount > Dust threshold (546 sats)

Change Output Creation

# Include change output
bitcoin-cli createrawtransaction \
  '[{"txid":"...", "vout":0}]' \
  '{"<destination>": 0.001, "<change_address>": 0.0005}'

Signing Process

Single Signature

P2PKH:

Script: <signature> <public_key>

P2WPKH:

Witness: <signature> <public_key>

Multisig Signing

Process:

  1. Create transaction
  2. Sign with first key
  3. Sign with second key (using partially signed tx)
  4. Continue until M signatures collected
  5. Broadcast fully signed transaction

Transaction Validation

Before Broadcasting

  1. Check Inputs: Verify UTXOs are still unspent
  2. Verify Balance: Ensure sufficient funds
  3. Validate Fee: Check fee meets minimum
  4. Check Size: Ensure transaction is valid size
  5. Verify Signatures: All signatures valid

Common Validation Errors

  • Insufficient funds: Not enough input value
  • Invalid signature: Signature doesn't match
  • Double spend: UTXO already spent
  • Dust output: Output below dust threshold
  • Fee too low: Fee below minimum

Best Practices

For Developers

  1. Fee Estimation: Accurate fee estimation is critical
  2. UTXO Management: Efficient coin selection
  3. Error Handling: Handle all error cases
  4. Validation: Validate before broadcasting
  5. Testing: Test on testnet first

For Users

  1. Verify Address: Double-check destination address
  2. Check Fee: Ensure reasonable fee
  3. Wait for Confirmation: Don't assume immediate confirmation
  4. Backup: Backup transaction if needed
  5. Monitor: Track transaction status

Common Issues

Transaction Stuck

Problem: Transaction not confirming

Solutions:

  • Wait for confirmation
  • Use Replace-by-Fee (RBF) if enabled
  • Increase fee (if possible)
  • Wait for mempool to clear

Insufficient Fee

Problem: Fee too low, transaction rejected

Solutions:

  • Increase fee rate
  • Use higher priority
  • Wait for lower network activity

Invalid Transaction

Problem: Transaction rejected by network

Causes:

  • Invalid signature
  • Double spend
  • Dust output
  • Invalid script

Solution: Fix issue and recreate transaction

Advanced Topics

Replace-by-Fee (RBF)

Enable RBF:

# Set sequence to enable RBF
# Sequence < 0xFFFFFFFF - 1

Replace Transaction:

# Create replacement with higher fee
bitcoin-cli createrawtransaction ... --replaceable

Partially Signed Bitcoin Transactions (PSBT)

Create PSBT:

bitcoin-cli walletcreatefundedpsbt \
  '[]' \
  '[{"<address>": <amount>}]'

Sign PSBT:

bitcoin-cli walletprocesspsbt <psbt>

Finalize PSBT:

bitcoin-cli finalizepsbt <psbt>

Summary

Transaction creation involves:

  • UTXO Selection: Choose inputs to spend
  • Output Creation: Create payment and change outputs
  • Fee Calculation: Calculate appropriate fees
  • Signing: Sign with private keys
  • Broadcasting: Send to network
  • Validation: Verify transaction is valid

Understanding transaction creation is essential for building Bitcoin wallets and applications.

  • Bitcoin Wallets - Introduction to Bitcoin wallets
  • Coin Selection - How wallets choose UTXOs to spend
  • Multisig - Multi-signature transaction signing
  • PSBT - Partially Signed Bitcoin Transactions standard
  • Mempool - Where unconfirmed transactions wait