PSBT

Most people use the Bitcoin blockchain for storing wealth and making payments, but as blockchain technology evolves, other use cases and functionalities are emerging. As the network matures, developers are addressing edge cases to provide unique experiences while maintaining the decentralization of the blockchain and adhering to Bitcoin's consensus rules. If a user wants to collaborate with two or more parties using Bitcoin, they would need to use PSBT. PSBT, or Partially Signed Bitcoin Transaction, allows for greater flexibility in transaction processing.

PSBT was introduced as part of the Bitcoin Improvement Proposal BIP174 and is the standard for serializing and deserializing partially signed transactions. The PSBT transaction format is designed to be interoperable, meaning any wallet or service that supports it can use it regardless of the software or hardware used.

Transactions can be partially signed, meaning some inputs are signed while others are not. This allows multiple signers to collaboratively create a transaction without needing to be present at the same time. This is particularly useful for multi-signature transactions, as they require multiple signatures to authorize the transaction.

PSBT can be used with any wallet that supports the PSBT format, including Bitcoin Core and hardware wallets like Trezor and Ledger. It is also compatible with popular BTC transaction formats such as SegWit and Taproot.

The PSBT format includes information about transaction inputs, including UTXOs, satoshis, public keys, and scriptig. Private keys are not included in the PSBT file as they are only used to finalize the transaction. The PSBT file can be shared among signers, allowing them to collaborate during the transaction creation process.

The workflow of using PSBT involves creating an unsigned transaction and then sharing it among signers. Each signer adds their signature to the PSBT file until all necessary signatures are obtained. Once all signatures are acquired, the transaction can be finalized and broadcasted to the Bitcoin network.

PSBT supports the use of coinjoin transactions, which is a type of transaction that combines multiple inputs and outputs into a single transaction. This helps improve the privacy and anonymity of the final transaction, as it becomes more difficult for observers to determine which inputs and outputs are associated with which participants.

The PSBT standard also improves interoperability between different wallet software. With PSBT, it is possible to create a transaction using an observing wallet that does not have access to the private keys required to sign the transaction. The observing wallet can then export a PSBT file, which can be imported into a wallet that contains the necessary private keys. Once the transaction is signed, the signing wallet can export an updated PSBT file, which can be sent to a Bitcoin node to be broadcasted to the network.

PSBT is an incompletely signed Bitcoin transaction format along with corresponding metadata to facilitate the signing process. Its purpose is to simplify the workflow for multiple parties that need to collaborate in generating a transaction. PSBT is commonly used in hardware wallets, multi-signature protocols, and coinjoin transactions. It can also be used in conjunction with the Lightning Network, enabling the creation, signing, and funding of channels using PSBT.

PSBT is a powerful tool that enables collaborative transaction processing and enhances the portability of unsigned transactions. It provides a standardized format and specification, and with its support for coinjoin transactions and the ability to complete transactions using hardware wallets, PSBT is a valuable addition to the cryptocurrency and blockchain technology space.