@ -121,13 +121,13 @@ For the purposes of this book, we will be demonstrating the use of a variety of
==== Quick Start
((("getting started", "quick start example", id="GSquick01")))((("wallets", "quick start example", id="Wquick01")))((("use cases", "buying coffee", id="aliceone")))Alice, who we introduced in <<user-stories>>, is not a technical user and only recently heard about bitcoin from her friend Joe. While at a party, Joe is once again enthusiastically explaining bitcoin to all around him and is offering a demonstration. Intrigued, Alice asks how she can get started with bitcoin. Joe says that a mobile wallet is best for new users and he recommends a few of his favorite wallets. Alice downloads "Mycelium" for Android and installs it on her phone.
((("getting started", "quick start example", id="GSquick01")))((("wallets", "quick start example", id="Wquick01")))((("use cases", "buying coffee", id="aliceone")))Alice, who we introduced in <<user-stories>>, is not a technical user and only recently heard about bitcoin from her friend Joe. While at a party, Joe is once again enthusiastically explaining bitcoin to all around him and is offering a demonstration. Intrigued, Alice asks how she can get started with bitcoin. Joe says that a mobile wallet is best for new users and he recommends a few of his favorite wallets. Alice downloads "Bluewallet" for Android and installs it on her phone.
When Alice runs Mycelium for the first time, as with many bitcoin wallets, the application automatically creates a new wallet for her. Alice sees the wallet on her screen, as shown in <<mycelium-welcome>> (note: do _not_ send bitcoin to this sample address, it will be lost forever).
When Alice runs Bluewallet for the first time, she chooses the option to create a new Bitcoin wallet, and takes a moment **away from Joe and all other parties** to write down a secret mnemonic phrase _in order_ on a piece of paper. As explained by the mobile wallet and by Joe earlier, the mnemonic phrase allows Alice to restore her wallet in case she loses her mobile device and grants her access to her funds on another device. After creating her wallet and securing her mnemonic phrase, Alice can tap on her wallet to see her bitcoin amount, transaction history, as well as two buttons that allow her to either _receive_ or _send_ bitcoin, shown in <<bluewallet-welcome>>.
==== Mnemonic Words
A modern bitcoin wallet will provide a _mnemonic phrase_ (also sometimes called a "seed" or "seed phrase") for Alice to back up. The mnemonic phrase consists of 12-24 English words, selected randomly by the software, and used as the basis for the keys that are generated by the wallet. The mnemonic phrase can be used by Alice to restore all the transactions and funds in the Eclair Mobile wallet in the case of an event such as a lost mobile device, a software bug, or memory corruption.
A modern bitcoin wallet will provide a _mnemonic phrase_ (also sometimes called a "seed" or "seed phrase") for Alice to back up. The mnemonic phrase consists of 12-24 English words, selected randomly by the software, and used as the basis for the keys that are generated by the wallet. The mnemonic phrase can be used by Alice to restore all the transactions and funds in the her wallet in the case of an event such as a lost mobile device, a software bug, or memory corruption.
[TIP]
====
@ -146,23 +146,25 @@ Once Alice has recorded the mnemonic phrase, she should plan to store each copy
Never attempt a "DIY" security scheme that deviates in any way from the best practice recommendation in <<mnemonic-storage>>. Do not cut your mnemonic in half, make screenshots, store on USB drives or cloud drives, encrypt it, or try any other non-standard method. You will tip the balance in such a way as to risk permanent loss or theft. Many people have lost funds, not from theft but because they tried a non-standard solution without having the expertise to balance the risks involved. The best practice recommendation is carefully balanced by experts and suitable for the vast majority of users.
====
[[mycelium-welcome]]
.The Mycelium Mobile Wallet
image::images/mbc2_0101.png["MyceliumWelcome"]
[[bluewallet-welcome]]
.The Bluewallet Mobile Wallet
image::images/bw_0101.png["BluewalletWelcome"]
((("addresses", "bitcoin wallet quick start example")))((("QR codes", "bitcoin wallet quick start example")))((("addresses", see="also keys and addresses")))The most important part of this screen is Alice's _bitcoin address_. On the screen it appears as a long string of letters and numbers: +1Cdid9KFAaatwczBwBttQcwXYCpvK8h7FK+. Next to the wallet's bitcoin address is a QR code, a form of barcode that contains the same information in a format that can be scanned by a smartphone camera. The QR code is the square with a pattern of black and white dots. Alice can copy the bitcoin address or the QR code onto her clipboard by tapping the QR code, or the Receive button. In most wallets, tapping the QR code will also magnify it, so that it can be more easily scanned by a smartphone camera.
((("addresses", "bitcoin wallet quick start example")))((("QR codes", "bitcoin wallet quick start example")))((("addresses", see="also keys and addresses"))) The main wallet view displays the bitcoin amount, transaction history, and _Receive_ and _Send_ buttons. In addition, many wallets feature the ability to purchase Bitcoin directly through an exchange or similar service where you can offer fiat money in return for cryptocurrency, which is done by <<bitcoin_price>> and selling to the wallet user at or above this price. The _Buy Bitcoin_ button would allow Alice to purchase Bitcoin in this fashion.
Alice is now ready to start using her new bitcoin wallet. ((("", startref="GSquick01")))((("", startref="Wquick01"))) Her wallet application randomly generated a private key (described in more detail in <<private_keys>>) which will be used to derive bitcoin addresses that direct to her wallet. At this point, her bitcoin addresses are not known to the bitcoin network or "registered" with any part of the bitcoin system. Her bitcoin addresses are simply random numbers that correspond to her private key that she can use to control access to the funds. The addresses are generated independently by her wallet without reference or registration with any service. In fact, in most wallets, there is no association between a bitcoin address and any externally identifiable information including the user's identity. Until the moment an address is referenced as the recipient of value in a transaction posted on the bitcoin ledger, the bitcoin address is simply part of the vast number of possible addresses that are valid in bitcoin. Only once an address has been associated with a transaction does it become part of the known addresses in the network.
Alice uses the _Receive_ button, which displays a QR code along with a bitcoin address. The QR code is the square with a pattern of black and white dots. Next to the wallet's bitcoin address is a QR code, a form of barcode that contains the same information in a format that can be scanned by a smartphone camera. Alice can copy the bitcoin address onto her clipboard by tapping it. In most wallets, tapping the QR code will also magnify it, so that it can be more easily scanned by a smartphone camera. Of note, when receiving funds to a new mobile wallet for the first time, many wallets will often re-verify that you have indeed secured your mnemonic phrase. This can range from a simple prompt to requiring the user to manually re-enter the phrase.
[TIP]
====
((("addresses", "security of")))((("security", "bitcoin addresses")))Bitcoin addresses start with 1, 3, or bc1. Like email addresses, they can be shared with other bitcoin users who can use them to send bitcoin directly to your wallet. There is nothing sensitive, from a security perspective, about the bitcoin address. It can be posted anywhere without risking the security of the account. Unlike email addresses, you can create new addresses as often as you like, all of which will direct funds to your wallet. In fact, many modern wallets automatically create a new address for every transaction to maximize privacy. A wallet is simply a collection of addresses and the keys that unlock the funds within.
====
Alice is now ready to receive funds. Her wallet application randomly generated a private key (described in more detail in <<private_keys>>) together with its corresponding bitcoin address. 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. It was generated independently by her wallet without reference or registration with any service. In fact, in most wallets, there is no association between the bitcoin address and any externally identifiable information including the user's identity. Until the moment this address is referenced as the recipient of value in a transaction posted on the bitcoin ledger, the bitcoin address is simply part of the vast number of possible addresses that are valid in bitcoin. Only once it has been associated with a transaction does it become part of the known addresses in the network.
Alice is now ready to start using her new bitcoin wallet.((("", startref="GSquick01")))((("", startref="Wquick01")))
Alice is now ready to receive funds. Her wallet application randomly generated a private key together with its corresponding bitcoin address. 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. It was generated independently by her wallet without reference or registration with any service. In fact, in most wallets, there is no association between the bitcoin address and any externally identifiable information including the user's identity. Until the moment this address is referenced as the recipient of value in a transaction posted on the bitcoin ledger, the bitcoin address is simply part of the vast number of possible addresses that are valid in bitcoin. Only once it has been associated with a transaction does it become part of the known addresses in the network.
[[acquiring-bitcoin]]
==== Acquiring Bitcoin
[[getting_first_bitcoin]]
==== Getting Her First Bitcoin
There are several ways Alice can acquire bitcoin:
@ -201,7 +203,7 @@ In addition to these various sites and applications, most bitcoin wallets will a
==== Sending and Receiving Bitcoin
((("getting started", "sending and receiving bitcoin", id="GSsend01")))((("spending bitcoin", "bitcoin wallet quick start example")))((("spending bitcoin", see="also transactions")))Alice has decided to exchange $10 US dollars for bitcoin, so as not to risk too much money on this new technology. She gives Joe $10 in cash, opens her Mycelium wallet application, and selects Receive. This displays a QR code with Alice's first bitcoin address.
((("getting started", "sending and receiving bitcoin", id="GSsend01")))((("spending bitcoin", "bitcoin wallet quick start example")))((("spending bitcoin", see="also transactions")))Alice has decided to exchange $10 US dollars for bitcoin, so as not to risk too much money on this new technology. She gives Joe $10 in cash, opens her Bluewallet mobile wallet application, and selects Receive. This displays a QR code with Alice's first bitcoin address.
Joe then selects Send on his smartphone wallet and is presented with a screen containing two inputs:
@ -97,7 +97,7 @@ These standards may change or may become obsolete by future developments, but fo
The standards have been adopted by a broad range of software and hardware bitcoin wallets, making all these wallets interoperable. A user can export a mnemonic generated on one of these wallets and import it in another wallet, recovering all transactions, keys, and addresses.
((("hardware wallets")))((("hardware wallets", see="also wallets")))Some example of software wallets supporting these standards include (listed alphabetically) Breadwallet, Copay, Multibit HD, and Mycelium. Examples of hardware wallets supporting these standards include (listed alphabetically) KeepKey, Ledger, and Trezor.
((("hardware wallets")))((("hardware wallets", see="also wallets")))Some example of software wallets supporting these standards include (listed alphabetically) Bluewallet, Breadwallet, Copay, and Multibit HD. Examples of hardware wallets supporting these standards include (listed alphabetically) KeepKey, Ledger, and Trezor.
The following sections examine each of these technologies in detail.
@ -293,14 +293,6 @@ https://github.com/bitcoinjs/bip39[bitcoinjs/bip39]:: An implementation of BIP-3
https://github.com/libbitcoin/libbitcoin/blob/master/src/wallet/mnemonic.cpp[libbitcoin/mnemonic]:: An implementation of BIP-39, as part of the popular Libbitcoin framework, in pass:[<span class="keep-together">C++</span>]
There is also a BIP-39 generator implemented in a standalone webpage, which is extremely useful for testing and experimentation. <<a_bip39_generator_as_a_standalone_web_page>> shows a standalone web page that generates mnemonics, seeds, and extended private keys.
((("", startref="mnemonic05")))((("", startref="BIP3905")))The page (https://iancoleman.io/bip39/) can be used offline in a browser, or accessed online.
==== Creating an HD Wallet from the Seed
((("wallets", "technology of", "creating HD wallets from root seed")))((("root seeds")))((("hierarchical deterministic (HD) wallets")))HD wallets are created from a single _root seed_, which is a 128-, 256-, or 512-bit random number. Most commonly, this seed is generated from a _mnemonic_ as detailed in the previous section.
@ -831,30 +831,34 @@ Bitcoin's block interval of 10 minutes is a design compromise between fast confi
((("mining and consensus", "hashing power race", id="MAChash10")))Bitcoin mining is an extremely competitive industry. The hashing power has increased exponentially every year of bitcoin's existence. Some years the growth has reflected a complete change of technology, such as in 2010 and 2011 when many miners switched from using CPU mining to GPU mining and field programmable gate array (FPGA) mining. In 2013 the introduction of ASIC mining lead to another giant leap in mining power, by placing the SHA256 function directly on silicon chips specialized for the purpose of mining. The first such chips could deliver more mining power in a single box than the entire bitcoin network in 2010.
The following list shows the total hashing power of the bitcoin network, over the first eight years of operation:
The following list shows the total hashing power of the bitcoin network in terahashes/sec (TH/sec), since its inception in 2009 (source: Blockchain.com):
In the chart in <<network_hashing_power>>, we can see that bitcoin network's hashing power increased over the past two years. As you can see, the competition between miners and the growth of bitcoin has resulted in an exponential increase in the hashing power (total hashes per second across the network).
[[network_hashing_power]]
.Total hashing power, terahashes per second (TH/sec)
.Total hashing power, terahashes per second (TH/sec) (chart on a linear scale)
image::images/mbc2_1007.png["NetworkHashingRate"]
As the amount of hashing power applied to mining bitcoin has exploded, the difficulty has risen to match it. The difficulty metric in the chart shown in <<bitcoin_difficulty>> is measured as a ratio of current difficulty over minimum difficulty (the difficulty of the first block).
[[bitcoin_difficulty]]
.Bitcoin's mining difficulty metric
.Bitcoin's mining difficulty metric (chart on a logarithmic scale)
image::images/mbc2_1008.png["BitcoinDifficulty"]
In the last two years, the ASIC mining chips have become increasingly denser, approaching the cutting edge of silicon fabrication with a feature size (resolution) of 16 nanometers (nm). Currently, ASIC manufacturers are aiming to overtake general-purpose CPU chip manufacturers, designing chips with a feature size of 14 nm, because the profitability of mining is driving this industry even faster than general computing. There are no more giant leaps left in bitcoin mining, because the industry has reached the forefront of Moore's Law, which stipulates that computing density will double approximately every 18 months. Still, the mining power of the network continues to advance at an exponential pace as the race for higher density chips is matched with a race for higher density data centers where thousands of these chips can be deployed. It's no longer about how much mining can be done with one chip, but how many chips can be squeezed into a building, while still dissipating the heat and providing adequate power.
In the last two years, the ASIC mining chips have become increasingly denser, approaching the cutting edge of silicon fabrication with a feature size (resolution) of 7 nanometers (nm). Currently, ASIC manufacturers are aiming to overtake general-purpose CPU chip manufacturers, designing chips with a feature size of 5 nm, because the profitability of mining is driving this industry even faster than general computing. There are no more giant leaps left in bitcoin mining, because the industry has reached the forefront of Moore's Law, which stipulates that computing density will double approximately every 18 months. Still, the mining power of the network continues to advance at an exponential pace as the race for higher density chips is matched with a race for higher density data centers where thousands of these chips can be deployed. It's no longer about how much mining can be done with one chip, but how many chips can be squeezed into a building, while still dissipating the heat and providing adequate power.
@ -126,7 +126,7 @@ In the next round, Emma's software creates and signs another commitment transact
In this way, Emma's software continues to send commitment transactions to Fabian's server in exchange for streaming video. The balance of the channel gradually accumulates in favor of Fabian, as Emma consumes more seconds of video. Let's say Emma watches 600 seconds (10 minutes) of video, creating and signing 600 commitment transactions. The last commitment transaction (#600) will have two outputs, splitting the balance of the channel, 6 millibits to Fabian and 30 millibits to Emma.
Finally, Emma clicks "Stop" to stop streaming video. Either Fabian or Emma can now transmit the final state transaction for settlement. This last transaction is the _settlement transaction_ and pays Fabian for all the video Emma consumed, refunding the remainder of the funding transaction to Emma.
Finally, Emma selects "Stop" to stop streaming video. Either Fabian or Emma can now transmit the final state transaction for settlement. This last transaction is the _settlement transaction_ and pays Fabian for all the video Emma consumed, refunding the remainder of the funding transaction to Emma.
<<video_payment_channel>> shows the channel between Emma and Fabian and the commitment transactions that update the balance of the channel.
Will Binns
3 years ago
committed by
