This is the kind of problem that looks straightforward until you start thinking about what 'valid' actually means in a blockchain context.
Start by clarifying the scope: which standard transaction rules (e.g., Bitcoin Core's CheckTransaction) and whether to include script validation or just structural checks. Then outline a modular validation function that checks each rule in order, returning specific errors, and discuss trade-offs like performance and extensibility.
Pro tip: Mention that you'd separate consensus-critical checks from policy checks, and that in a real system you'd use a library like Bitcoin Core's validation code rather than reimplementing it, but for the interview you'll focus on the core logic.
Ask which rules to enforce (e.g., no double-spends, valid signatures, output values in range) and whether the function operates on raw transactions or a blockchain context. State assumptions clearly.
List the standard checks: non-empty inputs/outputs, output values non-negative and within max money, no duplicate inputs, script validation (if required), and proper locking/unlocking script execution.
Propose a function that takes a transaction and optional context (e.g., UTXO set) and returns a boolean or error. Iterate through checks in a logical order, short-circuiting on failure.
Explain how to handle script validation (e.g., using a script interpreter), performance considerations (e.g., caching, parallel validation), and extensibility for new rules.
Mention testing with malformed transactions, boundary values, and consensus-critical scenarios. Highlight the importance of fuzz testing and formal verification for security.
AI-generated suggestions, not part of the candidate's original notes. May be inaccurate — verify before relying on them.