You should read this:
https://bitcointalk.org/index.php?topic=153662.10

On Wed, May 16, 2018 at 7:36 PM, Cory Fields via bitcoin-dev <
bitcoin-dev@lists.linuxfoundation.org> wrote:

> Tl;dr: Rather than storing all unspent outputs, store their hashes.
> Untrusted
> peers can supply the full outputs when needed, with very little overhead.
> Any attempt to spoof those outputs would be apparent, as their hashes
> would not
> be present in the hash set. There are many advantages to this, most
> apparently
> in disk and memory savings, as well as a validation speedup. The primary
> disadvantage is a small increase in network traffic. I believe that the
> advantages outweigh the disadvantages.
>
> --
>
> Bitcoin’s unspent transaction output set (usually referred to as “The UTXO
> set”) has two primary roles: providing proof that previous outputs exist
> to be
> spent, and providing the actual previous output data for verification when
> new
> transactions attempts to spend them. These roles are not usually discussed
> independently, but as Bram Cohen's TXO Bitfield [0] idea hints, there are
> compelling reasons to consider them this way.
>
> To see why, consider running a node with the following changes:
>
> - For each new output, gather all extra data that will be needed for
>   verification when spending it later as an input: the amount,
> scriptPubKey,
>   creation height, coinbaseness, and output type (p2pkh, p2sh, p2wpkh,
> etc.).
>   Call this the Dereferenced Prevout data.
> - Create a hash from the concatenation of the new outpoint and the
> dereferenced
>   prevout data. Call this a Unspent Transaction Output Hash.
> - Rather than storing the full dereferenced prevout entries in a UTXO set
> as is
>   currently done, instead store their hashes to an Unspent Transaction
> Output
>   Hash Set, or UHS.
> - When relaying a transaction, append the dereferenced prevout for each
> input.
>
> Now when a transaction is received, it contains everything needed for
> verification, including the input amount, height, and coinbaseness, which
> would
> have otherwise required a lookup the UTXO set.
>
> To verify an input's unspentness, again create a hash from the
> concatenation of
> the referenced outpoint and the provided dereferenced prevout, and check
> for
> its presence in the UHS. The hash will only be present if a hash of the
> exact
> same data was previously added to (and not since removed from) the UHS. As
> such, we are protected from a peer attempting to lie about the dereferenced
> prevout data.
>
> ### Some benefits of the UHS model
>
> - Requires no consensus changes, purely a p2p/implementation change.
>
> - UHS is substantially smaller than a full UTXO set (just over half for the
>   main chain, see below). In-memory caching can be much more effective as a
>   result.
>
> - A block’s transactions can be fully verified before doing a potentially
>   expensive database lookup for the previous output data. The UHS can be
>   queried afterwards (or in parallel) to verify previous output inclusion.
>
> - Entire blocks could potentially be verified out-of-order because all
> input
>   data is provided; only the inclusion checks have to be in-order.
> Admittedly
>   this is likely too complicated to be realistic.
>
> - pay-to-pubkey outputs are less burdensome on full nodes, since they use
> no
>   more space on-disk than pay-to-pubkey-hash or pay-to-script-hash.
> Taproot and
>   Graftroot outputs may share the same benefits.
>
> - The burden of holding UTXO data is technically shifted from the
> verifiers to
>   the spender. In reality, full nodes will likely always have a copy as
> well,
>   but conceptually it's a slight improvement to the incentive model.
>
> - Block data from peers can also be used to roll backwards during a reorg.
> This
>   potentially enables an even more aggressive pruning mode.
>
> - UTXO storage size grows exactly linearly with UTXO count, as opposed to
>   growing linearly with UTXO data size. This may be relevant when
> considering
>   new larger output types which would otherwise cause the UTXO Set size to
>   increase more quickly.
>
> - The UHS is a simple set, no need for a key-value database. LevelDB could
>   potentially be dropped as a dependency in some distant future.
>
> - Potentially integrates nicely with Pieter Wuille's Rolling UTXO set
> hashes
>   [1]. Unspent Transaction Output Hashes would simply be mapped to points
> on a
>   curve before adding them to the set.
>
> - With the help of inclusion proofs and rolling hashes, libbitcoinconsensus
>   could potentially safely verify entire blocks. The size of the required
>   proofs would be largely irrelevant as they would be consumed locally.
>
> - Others?
>
> ### TxIn De-duplication
>
> Setting aside the potential benefits, the obvious drawback of using a UHS
> is a
> significant network traffic increase. Fortunately, some properties of
> transactions can be exploited to offset most of the difference.
>
> For quick reference:
>
> p2pkh scriptPubKey: DUP HASH160 [pubkey hash] EQUALVERIFY CHECKSIG
> p2pkh scriptSig:    [signature] [pubkey]
>
> p2sh scriptPubKey:  HASH160 [script hash] EQUAL
> p2sh scriptSig:     [signature(s)] [script]
>
> Notice that if a peer is sending a scriptPubKey and a scriptSig together,
> as
> they would when using a UHS, there would likely be some redundancy. Using a
> p2sh output for example, the scriptPubKey contains the script hash, and the
> scriptSig contains the script itself. Therefore when sending dereferenced
> prevouts over the wire, any hash which can be computed can be omitted and
> only
> the preimages sent.
>
> Non-standard output scripts must be sent in-full, though because they
> account
> for only ~1% of all current UTXOs, they are rare enough to be ignored here.
>
> ### Intra-block Script De-duplication
>
> When transactions are chained together in the same block, dereferenced
> prevout
> data for these inputs would be redundant, as the full output data is
> already
> present. For that reason, these dereferenced prevouts can be omitted when
> sending over the wire.
>
> The downside would be a new reconstruction pass requirement prior to
> validation.
>
> ### Data
>
> Here's some preliminary testing with a naive POC implementation patched
> into
> Bitcoin Core. Note that the final sizes will depend on optimization of the
> serialization format. The format used for these tests is suboptimal for
> sure.
> Syncing mainnet to block 516346:
>
>                       UTXO Node      UHS Node
>   IBD Network Data:   153G           157G
>   Block disk space:   175G           157G
>   UTXO disk space :   2.8G           1.6G
>   Total disk space:   177.8G         158.6G
>
> The on-disk block-space reduction comes from the elimination of the Undo
> data
> that Bitcoin Core uses to roll back orphaned blocks. For UHS Nodes, this
> data
> is merged into to the block data and de-duplicated.
>
> Compared to the UXTO model, using a UHS reduces disk space by ~12%, yet
> only
> requires ~5% more data over the wire.
>
> Experimentation shows intra-block de-duplication to be of little help in
> practice, as it only reduces overhead by ~0.2% on mainnet. It could become
> more
> useful if, for example, CPFP usage increases substantially in the future.
>
> ### Safety
>
> Assuming sha256 for the UHS's hash function, I don't believe any
> fundamental
> changes to Bitcoin's security model are introduced. Because the unspent
> transaction output hashes commit to all necessary data, including output
> types,
> it should not be possible to be tricked into validating using mutated or
> forged
> inputs.
>
> ### Compatibility
>
> Transitioning from the current UTXO model would be annoying, but not
> particularly painful. I'll briefly describe my current preferred approach,
> but
> it makes sense to largely ignore this until there's been some discussion
> about
> UHS in general.
>
> A new service-bit should be allocated to indicate that a node is willing to
> serve blocks and transactions with dereferenced prevout data appended. Once
> connected to a node advertising this feature, nodes would use a new getdata
> flag, creating MSG_PREVDATA_BLOCK and MSG_PREVDATA_TX.
>
> Because current full nodes already have this data readily available in the
> block-undo files, it is trivial to append on-the-fly. For that reason, it
> would
> be easy to backport patches to the current stable version of Bitcoin Core
> in
> order to enable serving these blocks even before they could be consumed.
> This
> would avoid an awkward bootstrapping phase where there may only be a few
> nodes
> available to serve to all new nodes.
>
> Admittedly I haven't put much thought into the on-disk format, I'd rather
> leave
> that to a database person. Though it does seem like a reasonable excuse to
> consider moving away from LevelDB.
>
> Wallets would begin holding full prevout data for their unspent outputs,
> though
> they could probably back-into the data as-is.
>
> ### Serialization
>
> I would prefer to delay this discussion until a more high-level discussion
> has
> been had, otherwise this would be a magnet for nits. The format used to
> gather
> the data above can be seen in the implementation below.
>
> It should be noted, though, that the size of a UHS is directly dependent
> on the
> chosen hash function. Smaller hashes could potentially be used, but I
> believe
> that to be unwise.
>
> ### Drawbacks
>
> The primary drawback of this approach is the ~5% network ovhead.
>
> Additionally, there is the possibility that a few "bridge nodes" may be
> needed
> for some time. In a future with a network of only pruned UHS nodes, an old
> wallet with no knowledge of its dereferenced prevout data would need to
> broadcast an old-style transaction, and have a bridge node append the extra
> data before forwarding it along the network.
>
> I won't speculate further there, except to say that I can't imagine a
> transition problem that wouldn't have a straightforward solution.
>
> Migration issues aside, am I missing any obvious drawbacks?
>
> ### Implementation
>
> This code [2] was a quick hack-job, just enough to gather some initial
> data. It
> builds a UHS in memory and never flushes to disk. Only a single run works,
> nasty things will happen upon restart. It should only be viewed in order
> to get
> an idea of what changes are needed. Only enough for IBD is implemented,
> mempool/wallet/rpc are likely all broken. It is definitely not
> consensus-safe.
>
> ### Acknowledgement
>
> I consider the UHS concept to be an evolution of Bram Cohen's TXO bitfield
> idea. Bram also provided invaluable input when initially walking through
> the
> feasibility of a UHS.
>
> Pieter Wuille's work on Rolling UTXO set hashes served as a catalyst for
> rethinking how the UTXO set may be represented.
>
> Additional thanks to those at at Financial Crypto and the CoreDev event
> afterwards who helped to flesh out the idea:
>
> Tadge Dryja
> Greg Sanders
> John Newbery
> Neha Narula
> Jeremy Rubin
> Jim Posen
> ...and everyone else who has chimed in.
>
>
> [0] https://lists.linuxfoundation.org/pipermail/bitcoin-dev/
> 2017-March/013928.html
> [1] https://lists.linuxfoundation.org/pipermail/bitcoin-dev/
> 2017-May/014337.html
> [2] https://github.com/theuni/bitcoin/tree/utxo-set-hash3
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