How does nSequence/Check Sequence Verify work?

Question

How does relative timelock work? I mean, I know the theoretical description, but how to use nSequence concretely ? Can you do me a practical example with 2 sample transactions one of which locked with nSequence from another?

Answer 1

In order to use a relative time lock, you need to provide the requirements in the scriptPubKey to which the Bitcoin is sent.

Example

scriptPubKey for escrow with 30 day timeout:

IF
    2 <Alice's pubkey> <Bob's pubkey> <Escrow's pubkey> 3 CHECKMULTISIG
ELSE
    "30d" CHECKSEQUENCEVERIFY DROP
    <Alice's pubkey> CHECKSIG
ENDIF

Then, in order to spend it before 30 days, the scriptSig that satisfies the first conditional statement (multisig script) must be provided, i.e.:

scriptSig: 0 <signature1> <signature2>

Or after 30 days, alice can provide:

scriptSig: <signature>

See BIP112

Sequence

Note that in order to set a relative locktime: the tx must have the following properties:

• version must be 2 or greater
• nSequence must not have 32nd bit set
• nSequence must have the 23rd bit set (0x400000) if it is a lock-time type, unset for block height type
• for relative lock-time type the granularity of each bit is 512 seconds
• for relative block height type each bit represents 1 block

For 30 days, I believe it would be as follows:

30 * 24 * 60 * 60 = 2592000 seconds
2592000 / 512 = 5062.5 ~= 5063 or 0x13C7
sequence = 0x13C7 | 0x400000 = 0x4013C7 or 4199367
nSequence = 0xC7134000 (little endian)

The sequence is the last 4 bytes of an input, see https://en.bitcoin.it/wiki/Transaction

Answer 2

I am still having problems understanding the relative locktime:

I am aware that the scriptpubkey is "Time Locked" as mentioned above :

   "30d" CHECKSEQUENCEVERIFY DROP
    <Alice's pubkey> CHECKSIG

So when I want to spend this output, do I actually have to set the nSequence Field by myself. I mean, what prevents me from just calculating the right values which satisfies the OP_Code. I am missing the actual connection to the real transaction, like which procedure checks that this transaction has really been 30 days in the blockchain since it appeared in a block.

To prevent older nodes from forking of, the final nSequence should also be calculated into a resulting locktime, to prevent older nodes form spending it?