What Is Transaction Malleability and Why Was It a Problem for Bitcoin?
Transaction malleability is the characteristic that allowed a third party to slightly modify the digital signature of an unconfirmed transaction, which would change its unique transaction identifier (TXID), without invalidating the transaction itself. This was a problem because systems relying on the original TXID, particularly those involving multi-step transactions like payment channels or exchange withdrawals, could fail.
For example, if a child transaction referenced a parent transaction by its original TXID, the malleated TXID would break the link, causing the child transaction to be rejected.
Glossar
Digital Signature
Authentication ⎊ A digital signature, within cryptocurrency, options trading, and financial derivatives, functions as cryptographic attestation of a transaction’s origin and integrity, ensuring non-repudiation for the signatory.
Transaction Malleability
Issue ⎊ Transaction Malleability refers to the historical vulnerability where an unconfirmed transaction's unique identifier (its transaction ID or txid) could be altered by an intermediary without invalidating the underlying signature or authorization, leading to potential issues in tracking and confirmation.
TXID
Identifier ⎊ A TXID, or transaction identifier, is a unique alphanumeric string that identifies a specific transaction on a blockchain network.
Segwit Upgrade
Architecture ⎊ The Segwit upgrade, enacted in 2017, fundamentally altered Bitcoin’s block structure by segregating signature data from transaction data, increasing effective block capacity without a hard fork.
Payment Channels
Channel ⎊ Payment channels represent a Layer-2 scaling solution within cryptocurrency networks, enabling off-chain transactions that settle on the main blockchain periodically.
Unique Transaction Identifier
Reference ⎊ A unique, immutable identifier assigned to every transaction recorded on the ledger, serving as the definitive proof of execution and settlement for any associated financial contract.