@ -154,7 +154,7 @@ Alice was introduced to bitcoin by a friend and so she has an easy way of gettin
==== Sending and receiving bitcoins
Alice has created her bitcoin web-wallet and she is now ready to receive funds. Her web-wallet application randomly generated a bitcoin address together with its corresponding key (an elliptic curve private key, described in more detail in <<private keys>>). At this point, her bitcoin address is not known to the bitcoin network or "registered" with any part of the bitcoin system. Her bitcoin address is simply a number that corresponds to a key that she can use to control access to the funds. There is no account or association between that address and an account. Until the moment this address is referenced as the recipient of value in a transaction posted on the bitcoin ledger (the blockchain), it is simply part of the vast number of possible addresses that are "valid" in bitcoin. Once it has been associated with a transaction, it becomes part of the known addresses in the network and anyone can check its balance on the public ledger.
Alice has created her bitcoin web-wallet and she is now ready to receive funds. Her web-wallet application randomly generated a bitcoin address together with its corresponding key (an elliptic curve private key, described in more detail in <<private keys>>). At this point, her bitcoin address is not known to the bitcoin network or "registered" with any part of the bitcoin system. Her bitcoin address is simply a number that corresponds to a key that she can use to control access to the funds. There is no account or association between that address and an account. Until the moment this address is referenced as the recipient of value in a transaction posted on the bitcoin ledger (the blockchain), it is simply part of the vast number of possible addresses that are "valid" in bitcoin. Once it has been associated with a transaction, it becomes part of the known addresses in the network and Alice can check its balance on the public ledger.
Alice meets her friend Joe who introduced her to bitcoin at a local restaurant so they can exchange some US dollars and put some bitcoins into her account. She has brought a print out of her address and the QR code as shown on the home page of her web-wallet. There is nothing sensitive from a security perspective about the bitcoin address. It can be posted anywhere without risking the security of her account and it can be changed by creating a new address at any time. Alice wants to convert just $10 US dollars into bitcoin, so as not to risk too much money on this new technology. She gives Joe a $10 bill and the printout of her address so that Joe can send her the equivalent amount of bitcoin.
The transaction also contains proof of ownership for each amount of bitcoin (inputs) whose value is transferred, in the form of a digital signature from the owner, which can be independently validated by anyone. In bitcoin terms, "spending" is signing the value of a previous transaction for which you have the keys over to a new owner identified by a bitcoin address.
The transaction also contains proof of ownership for each amount of bitcoin (inputs) whose value is transferred, in the form of a digital signature from the owner, which can be independently validated by anyone. In bitcoin terms, "spending" is signing a transaction which transfers value from a previous transaction over to a new owner identified by a bitcoin address.
Alice's payment to Bob's Cafe utilizes a previous transaction as its input. In the previous chapter Alice received bitcoin from her friend Joe in return for cash. That transaction has a number of bitcoins locked (encumbered) against Alice's key. Her new transaction to Bob's Cafe references the previous transaction as an input and creates new outputs to pay for the cup of coffee and receive change. The transactions form a chain, where the inputs from the latest transaction correspond to outputs from previous transactions. Alice's key provides the signature which unlocks those previous transaction outputs, thereby proving to the bitcoin network that she owns the funds. She attaches the payment for coffee to Bob's address, thereby "encumbering" that output with the requirement that Bob produces a signature in order to spend that amount. This represents a transfer of value between Alice and Bob.
@ -124,11 +124,11 @@ Alice's wallet application contains all the logic for selecting appropriate inpu
==== Getting the right inputs
Alice's wallet application will first have to find inputs that can pay for the amount she wants to send to Bob. Most wallet applications keep a small database of "unspent transaction outputs" that are locked (encumbered) with the wallet's own keys. Therefore, Alice's wallet would contain a copy of the transaction output from Joe's transaction which was created in exchange for cash (see <<getting bitcoin>>). A bitcoin wallet application that runs as a full-index client actually contains a copy of *every unspent output* from every transaction in the blockchain. This allows a wallet to construct transaction inputs as well as to quickly verify incoming transactions as having correct inputs.
Alice's wallet application will first have to find inputs that can pay for the amount she wants to send to Bob. Most wallet applications keep a small database of "unspent transaction outputs" that are locked (encumbered) with the wallet's own keys. Therefore, Alice's wallet would contain a copy of the transaction output from Joe's transaction which was created in exchange for cash (see <<getting bitcoin>>). A bitcoin wallet application that runs as a full-index client actually contains a copy of every unspent output from every transaction in the blockchain. This allows a wallet to construct transaction inputs as well as to quickly verify incoming transactions as having correct inputs. However, since a full-index client takes up a lot of disk space, most user wallets run "lightweight" clients that track only the user's own unspent outputs.
If the wallet application does not maintain a copy of unspent transaction outputs, it can query the bitcoin network to retrieve this information, using a variety of APIs available by different providers, or by asking a full-index node using the bitcoin JSON RPC API. Below we see an example of a RESTful API request, constructed as an HTTP GET command to a specific URL. This URL will return all the unspent transaction outputs for an address, giving any application the information it needs to construct transaction inputs for spending. We use the simple command-line HTTP client _cURL_ to retrieve the response:
.Look up all the unspent outputs for Alice's address 1Cdid9KFAaatwczBwBttQcwXYCpvK8h7FK
.Look up all the unspent outputs for Alice's bitcoin address
@ -154,7 +154,7 @@ The response above shows that the bitcoin network knows of one unspent output (o
[TIP]
====
Look up the transaction from Joe to Alice to see the information referenced above as it is stored in the bitcoin blockchain. Using the blockchain explorer web application, follow the URL below:
Use the following link to look up the transaction from Joe to Alice:
@ -214,7 +214,7 @@ The bitcoin system of trust is based on computation. Transactions are bundled in
* Mining creates new bitcoins in each block, almost like a central bank printing new money. The amount of bitcoin created per block is fixed and diminishes with time.
* Mining creates trust by ensuring that transactions are only confirmed if enough computational power was devoted to the block that contains them. More blocks mean more computation which means more trust.
A good way to describe mining is like a giant competitive game of sudoku that resets every time someone finds a solution and whose difficulty automatically adjusts so that it takes approximately 10 minutes to find a solution. Imagine a giant sudoku puzzle, several thousand rows and columns in size. If I show you a completed puzzle you can verify it quite quickly. If it is empty, however, it takes a lot of work to solve! The difficulty of the sudoku can be adjusted by changing its size (more or fewer rows and columns), but it can still be verified quite easily even if it is very large. The "puzzle" used in bitcoin is based on a cryptographic hash and exhibits similar characteristics: it is asymmetrically hard to solve but easy to verify, and its difficulty can be adjusted.
A good way to describe mining is like a giant competitive game of sudoku that resets every time someone finds a solution and whose difficulty automatically adjusts so that it takes approximately 10 minutes to find a solution. Imagine a giant sudoku puzzle, several thousand rows and columns in size. If I show you a completed puzzle you can verify it quite quickly. However, if the puzzle has a few squares filled and the rest is empty, it takes a lot of work to solve! The difficulty of the sudoku can be adjusted by changing its size (more or fewer rows and columns), but it can still be verified quite easily even if it is very large. The "puzzle" used in bitcoin is based on a cryptographic hash and exhibits similar characteristics: it is asymmetrically hard to solve but easy to verify, and its difficulty can be adjusted.
In <<user-stories>> we introduced Jing, a computer engineering student in Shanghai. Jing is participating in the bitcoin network as a miner. Every 10 minutes or so, Jing joins thousands of other miners in a global race to find a solution to a block of transactions. Finding such a solution, the so-called "Proof-of-Work", requires quadrillions of hashing operations per second across the entire bitcoin network. The algorithm for "Proof-of-Work" involves repeatedly hashing the header of the block and a random number with the SHA256 cryptographic algorithm until a solution matching a pre-determined pattern emerges. The first miner to find such a solution wins the round of competition and publishes that block into the blockchain.
Andreas M. Antonopoulos
10 years ago
