@ -85,120 +85,121 @@ Each of these stories is based on real people and real industries that are curre
=== Getting Started
((("bitcoin","forms of")))To join the bitcoin network and start using the currency, all a user has to do is download an application or use a web application. Because bitcoin is a standard, there are many implementations of the bitcoin client software. There is also a reference implementation, also known as the Satoshi client, which is managed as an open source project by a team of developers and is derived from the original implementation written by Satoshi Nakamoto.
Bitcoin is a protocol that can be accessed using a ((("bitcoin","client")))client application that speaks the protocol. A "bitcoin wallet" is the most common user interface to the bitcoin system, just like a web browser is the most common user interface for the HTTP protocol. There are many implementations and brands of bitcoin wallets, just like there are many brands of web browsers (e.g. Chrome, Safari, Firefox and Internet Explorer). And just like we all have our favorite browsers (Mozilla Firefox, Yay!) and our villains (Internet Explorer, Yuck!), bitcoin wallets vary in quality, performance, security, privacy and reliability. There is also a reference implementation of the bitcoin protocol that includes a wallet, known as the "Satoshi Client" or "Bitcoin Core", which is derived from the original implementation written by Satoshi Nakamoto.
The three main forms of bitcoin clients are:
==== Choosing a Bitcoin Wallet
Full client:: ((("full nodes")))A full client, or "full node," is a client that stores the entire history of bitcoin transactions (every transaction by every user, ever), manages the users' wallets, and can initiate transactions directly on the bitcoin network. This is similar to a standalone email server, in that it handles all aspects of the protocol without relying on any other servers or third-party services.
Bitcoin wallets are one of the most actively developed applications in the bitcoin ecosystem. There is intense competition and while a new wallet is probably being developed right now, several wallets from last year are no longer actively maintained. Many wallets focus on specific platforms or specific uses and some are more suitable for beginners while others are filled with features for advanced users. Choosing a wallet is highly subjective and depends on the use and user expertise. It is therefore impossible to recommend a specific brand or project of wallet. However, we can categorize bitcoin wallets according to their platform and function and provide some clarity about all the different types of wallets that exist. Better yet, moving money between bitcoin wallets is easy, cheap and fast, so it is worth trying out several different wallets until you find one that fits your needs.
Lightweight client:: ((("lightweight client")))A lightweight client stores the user's wallet but relies on third-party–owned servers for access to the bitcoin transactions and network. The light client does not store a full copy of all transactions and therefore must trust the third-party servers for transaction validation. This is similar to a standalone email client that connects to a mail server for access to a mailbox, in that it relies on a third party for interactions with the network.
Bitcoin wallets can be categorized as below, according to the platform:
Web client:: ((("web clients")))Web clients are accessed through a web browser and store the user's wallet on a server owned by a third party. This is similar to webmail in that it relies entirely on a third-party server.
Desktop Wallet:: ((("bitcoin wallet", "desktop")))A desktop wallet was the first type of bitcoin wallet created as a reference implementation and many users run desktop wallets for the features, autonomy and control they offer. Running on general-use operating systems such as Windows and Mac OS has certain security disadvantages however, as these platforms are often insecure and poorly configured.
.Mobile Bitcoin
****
((("mobile clients")))((("smartphones, bitcoin clients for")))Mobile clients for smartphones, such as those based on the Android system, can either operate as full clients, lightweight clients, or web clients. Some mobile clients are synchronized with a web or desktop client, providing a multiplatform wallet across multiple devices but with a common source of funds.
****
Mobile Wallet:: ((("bitcoin wallet", "mobile")))A mobile wallet is the most common type of bitcoin wallet. Running on smart-phone operating systems such as Apple iOS and Android, these wallets are often a great choice for new users. Many are designed for simplicity and ease-of-use, but there are also fully-featured mobile wallets for power users.
The choice of bitcoin client depends on how much control the user wants over funds. A full client will offer the highest level of control and independence for the user, but in turn puts the burden of backups and security on the user. On the other end of the range of choices, a web client is the easiest to set up and use, but the trade-off with a web client is that counterparty risk is introduced because security and control is shared with the user and the owner of the web service. If a web-wallet service is compromised, as many have been, the users can lose all their funds. Conversely, if users have a full client without adequate backups, they might lose their funds through a computer mishap.
Web Wallet:: ((("bitcoin wallet", "web")))Web wallets are accessed through a web browser and store the user's wallet on a server owned by a third party. This is similar to webmail in that it relies entirely on a third-party server. Some of these services operate using client-side code running in the user's browser, which keeps control of the bitcoin keys in the hands of the user. Most however present a compromise by taking control of the bitcoin keys from users in exchange for ease-of-use. It is inadvisable to store large amounts of bitcoin on third-party systems.
For the purposes of this book, we will be demonstrating the use of a variety of downloadable bitcoin clients, from the reference implementation (the Satoshi client) to web wallets. Some of the examples will require the use of the reference client, which, in addition to being a full client, also exposes APIs to the wallet, network, and transaction services. If you are planning to explore the programmatic interfaces into the bitcoin system, you will need the reference client.
Hardware Wallet::((("bitcoin wallet", "hardware")))Hardware wallets are devices that operate a secure self-contained bitcoin wallet on special-purpose hardware. They are operated via USB with a desktop web browser or via near-field-communication (NFC) on a mobile device. By handling all bitcoin related operations on the specialized hardware, these wallets are considered very secure and suitable for storing large amounts of bitcoin.
==== Quick Start
Paper Wallet::((("bitcoin wallet", "paper")))The keys controlling bitcoin can also be printed for long term storage. These are known as paper wallets even though other materials (wood, metal, e.t.c.) can be used. Paper wallets offer a low-tech but highly secure means of storing bitcoin long term. Offline storage is also often referred to as _cold storage_.
((("bitcoin","wallet setup")))((("wallets","setting up")))Alice, who we introduced in <<user-stories>>, is not a technical user and only recently heard about bitcoin from a friend. She starts her journey by visiting the((("bitcoin.org"))) official website http://www.bitcoin.org[bitcoin.org], where she finds a broad selection of bitcoin clients. Following the advice on the bitcoin.org site, she chooses the lightweight bitcoin client((("Multibit client"))) Multibit.
Another way to categorize bitcoin wallets is by their degree of autonomy and how they interact with the bitcoin network:
Alice follows a link from the bitcoin.org site to download and install Multibit on her desktop. Multibit is available for Windows, Mac OS, and Linux desktops.
Full node client:: ((("full nodes")))A full client, or "full node," is a client that stores the entire history of bitcoin transactions (every transaction by every user, ever), manages the users' wallets, and can initiate transactions directly on the bitcoin network. A full node handles all aspects of the protocol and can independently validate the entire blockchain and any transaction. A full-node client consumes substantial computer resources (e.g. more than 60GB of disk, 2GB of RAM) but offers complete autonomy and independent transaction verification.
[WARNING]
====
((("wallets","security of")))A bitcoin wallet must be protected by a password or passphrase. There are many bad actors attempting to break weak passwords, so take care to select one that cannot be easily broken. Use a combination of upper and lowercase characters, numbers, and symbols. Avoid personal information such as birth dates or names of sports teams. Avoid any words commonly found in dictionaries, in any language. If you can, use a password generator to create a completely random password that is at least 12 characters in length. Remember: bitcoin is money and can be instantly moved anywhere in the world. If it is not well protected, it can be easily stolen.
====
Lightweight client:: ((("lightweight client")))A lightweight client, also known as a simple-payment-verification (SPV) client connects to bitcoin full nodes (mentioned above) for access to the bitcoin transaction information, but stores the user wallet locally and independently creates, validates and transmits transactions. Lightweight clients interact directly with the bitcoin network, without an intermediary.
Third-Party API client:: ((("API client")))A third-party API client is one that interacts with bitcoin through a third-party system of application programming interfaces (APIs), rather than by connecting to the bitcoin network directly. The wallet may be stored by the user or by the third-party servers, but all transactions go through a third party.
Once Alice has downloaded and installed the Multibit application, she runs it and is greeted by a Welcome screen, as shown in <<multibit-welcome>>.
Combining the categorizations above, many bitcoin wallets fall into a few groups, with the three most common being Desktop Full Client, Mobile Lightweight Wallet and Web Third-Party Wallet. The lines between different categories are often blurry, as many wallets run on multiple platforms and can interact with the network in different ways.
[[multibit-welcome]]
.The Multibit bitcoin client Welcome screen
image::images/msbt_0101.png["MultibitWelcome"]
For the purposes of this book, we will be demonstrating the use of a variety of downloadable bitcoin clients, from the reference implementation (Bitcoin Core) to mobile and web wallets. Some of the examples will require the use of Bitcoin Core, which, in addition to being a full client, also exposes APIs to the wallet, network, and transaction services. If you are planning to explore the programmatic interfaces into the bitcoin system, you will need to run Bitcoin Core.
((("addresses, bitcoin","created by Multibit")))Multibit automatically creates a wallet and a new bitcoin address for Alice, which Alice can see by clicking the Request tab shown in <<multibit-request>>.
[[multibit-request]]
.Alice's new bitcoin address, in the Request tab of the Multibit client
image::images/msbt_0102.png["MultibitReceive"]
==== Quick Start
((("bitcoin","wallet setup")))((("wallets","setting up")))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.
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>>, below:
The most important part of this screen is Alice's _bitcoin address_. Like an email address, Alice can share this address and anyone can use it to send money directly to her new wallet. 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 black-and-white square on the right side of the window. Alice can copy the bitcoin address or the QR code onto her clipboard by clicking the copy button adjacent to each of them. Clicking the QR code itself will magnify it, so that it can be easily scanned by a smartphone camera.
Alice can also print the QR code as a way to easily give her address to others without them having to type the long string of letters and numbers.
The most important part of this screen is Alice's ((("bitcoin address")))_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 on the QR code, or on the +Receive+ button. In most wallets, clicking on the QR code will also magnify it, so that it can be more easily scanned by a smartphone camera.
[TIP]
====
((("addresses, bitcoin","sharing")))Bitcoin addresses start with the digit 1 or 3. Like email addresses, they can be shared with other bitcoin users who can use them to send bitcoin directly to your wallet. Unlike email addresses, you can create new addresses as often as you like, all of which will direct funds to your wallet. A wallet is simply a collection of addresses and the keys that unlock the funds within. You can increase your privacy by using a different address for every transaction. There is practically no limit to the number of addresses a user can create.
((("addresses, bitcoin","sharing")))Bitcoin addresses start with the digit 1 or 3. 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 start using her new bitcoin wallet.
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 users 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 becomes part of the known addresses in the network.
Alice is now ready to start using her new bitcoin wallet.
[[getting_first_bitcoin]]
==== Getting Your First Bitcoins
((("bitcoin","acquiring")))((("currency markets")))It is not possible to buy bitcoins at a bank or foreign exchange kiosks at this time. As of 2014, it is still quite difficult to acquire bitcoins in most countries. There are a number of specialized currency exchanges where you can buy and sell bitcoin in exchange for a local currency. These operate as web-based currency markets and include:
http://bitstamp.net[Bitstamp]:: A European currency market that supports several currencies including euros (EUR) and US dollars (USD) via wire transfer.((("Bitstamp currency market")))
http://www.coinbase.com[Coinbase]:: A US-based bitcoin wallet and platform where merchants and consumers can transact in bitcoin. Coinbase makes it easy to buy and sell bitcoin, allowing users to connect to US checking accounts via the ACH system.((("Coinbase.com")))
The first and often most difficult task for new users is to acquire some bitcoin. ((("bitcoin","acquiring")))((("currency markets")))Unlike other foreign currencies, you cannot buy bitcoin at a bank or foreign exchange kiosk, yet.
Cryptocurrency exchanges such as these operate at the intersection of national currencies and cryptocurrencies. As such, they are subject to national and international regulations, and are often specific to a single country or economic area and specialize in the national currencies of that area. Your choice of currency exchange will be specific to the national currency you use and limited to the exchanges that operate within the legal jurisdiction of your country. Similar to opening a bank account, it takes several days or weeks to set up the necessary accounts with these services because they require various forms of identification to comply with((("AML (Anti-Money Laundering) banking regulations")))((("banking regulations and bitcoin")))((("KYC (Know Your Customer) banking regulations"))) KYC (know your customer) and AML (anti-money laundering) banking regulations. Once you have an account on a bitcoin exchange, you can then buy or sell bitcoins quickly just as you could with foreign currency with a brokerage account.
Bitcoin transactions are irreversible. Most electronic payment networks such as credit cards, debit cards, paypal, and bank account transfers are reversible. For someone selling bitcoin, this difference introduces a very high risk that the buyer will reverse the electronic payment after they have received bitcoin, in effect defrauding the seller. To mitigate this risk, companies accepting traditional electronic payments in return for bitcoin usually require buyers undergo identity verification and credit-worthiness checks which may take several days or weeks. As a new user, this means you cannot buy bitcoin instantly with a credit card. With a bit of patience and creative thinking, however, you won't need to.
You can find a more complete list at http://bitcoincharts.com/markets[bitcoin charts], a site that offers price quotes and other market data across many dozens of currency exchanges.
Here are some methods for getting bitcoin as a new user:
There are four other methods for getting bitcoins as a new user:
* Find a friend who has bitcoin and buy some from him or her directly. Many bitcoin users start this way. This method is the least complicated. One way to meet people with bitcoin is to attend a local bitcoin meetup listed at https://meetup.com[Meetup.com].
* Use a classified service such as localbitcoins.com to find a ((("bitcoin, buying for cash")))seller in your area to buy bitcoins for cash in an in-person transaction.
* Earn bitcoin by selling a product or service for bitcoin. If you are a programmer, sell your programming skills. If you're a hairdresser, cut hair for bitcoin.
* Use((("ATMs, bitcoin")))((("bitcoin ATMs"))) a bitcoin ATM in your city. A bitcoin ATM is a machine that accepts cash and sends bitcoin to your smartphone bitcoin wallet. Find a bitcoin ATM close to you using an online map from https://www.coindesk.com/bitcoin-atm-map/[CoinDesk].
* Use a bitcoin currency exchange linked to your bank account. Many countries now have currency exchanges that offer a market for buyers and sellers to swap bitcoin with local currency. Exchange-rate listing services, such as https://bitcoinaverage.com[BitcoinAverage], often show a list of bitcoin exchanges for each currency.
* Find((("bitcoins, buying for cash"))) a friend who has bitcoins and buy some from him directly. Many bitcoin users start this way.
* Use a classified service such as localbitcoins.com to find a seller in your area to buy bitcoins for cash in an in-person transaction.
* Sell a product or service for bitcoin. If you're a programmer, sell your programming skills.
* Use((("ATMs, bitcoin")))((("bitcoin ATMs"))) a bitcoin ATM in your city. Find a bitcoin ATM close to you using an online map from http://www.coindesk.com/bitcoin-atm-map/[CoinDesk].
[TIP]
====
One of the advantages of bitcoin over other payment systems is that, when used correctly, it affords users much more privacy. Acquiring, holding, and spending bitcoin does not require you to divulge sensitive and personally identifiable information to third-parties. However, where bitcoin touches traditional systems, such as currency exchanges, national and international regulations often apply. In order to exchange bitcoin for your national currency, you will often be required to provide proof of identity and banking information. Users should be aware, that once a bitcoin address is attached to an identity all associated bitcoin transactions are also easy to identify and track. This is one reason many users choose to maintain dedicated exchange accounts unlinked to their wallets.
====
Alice was introduced to bitcoin by a friend and so she has an easy way of getting her first bitcoins while she waits for her account on a California currency market to be verified and activated.
Alice was introduced to bitcoin by a friend so she has an easy way to acquire her first bitcoin. Next, we will look at how she buys bitcoin from her friend Joe and how Joe sends the bitcoin to her wallet.
[[sending_receiving]]
==== Sending and Receiving Bitcoins
[[bitcoin_price]]
==== Finding the Current Price of Bitcoin
((("bitcoin","sending/receiving", id="ix_ch01-asciidoc1", range="startofrange")))Alice has created her bitcoin wallet and she 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. 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.
Before Alice can buy bitcoin from Joe, they have to agree on the _exchange rate_ between bitcoin and US dollars. This brings up a common question for those new to bitcoin: "Who sets the bitcoin price?" The short answer is that the price is set by markets.
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 printout of her address and the QR code as displayed in her bitcoin 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.
Bitcoin, like most other currencies, has a _floating exchange rate_. That means that the value of bitcoin vis-a-vis any other currency fluctuates according to supply and demand in the various markets where it is traded. For example, the "price" of bitcoin in US dollars is calculated in each market based on the most recent trade of bitcoin and US dollars. As such, the price tends to fluctuate minutely several times per second. A pricing service will aggregate the prices from several markets and calculate a volume-weighted average representing the broad market exchange rate of a currency pair (e.g. BTC/USD).
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.
((("exchange rate, finding")))There are hundreds of applications and websites that can provide the current market rate. Here are some of the most popular:
((("exchange rate, finding")))Next, Joe has to figure out the exchange rate so that he can give the correct amount of bitcoin to Alice. There are hundreds of applications and websites that can provide the current market rate. Here are some of the most popular:
http://bitcoincharts.com[Bitcoin Charts]:: ((("bitcoincharts.com")))A market data listing service that shows the market rate of bitcoin across many exchanges around the globe, denominated in different local currencies
http://bitcoinaverage.com/[Bitcoin Average]:: ((("bitcoinaverage.com")))A site that provides a simple view of the volume-weighted-average for each currency
http://www.zeroblock.com/[ZeroBlock]:: ((("ZeroBlock")))A free Android and iOS application that can display a bitcoin price from different exchanges (see <<zeroblock-android>>)
http://www.bitcoinwisdom.com/[Bitcoin Wisdom]:: ((("bitcoinwisdom.com")))Another market data listing service
[[zeroblock-android]]
.ZeroBlock, a bitcoin market-rate application for Android and iOS
Using one of the applications or websites just listed, Joe determines the price of bitcoin to be approximately 100 US dollars per bitcoin. At that rate he should give Alice 0.10 bitcoin, also known as 100 millibits, in return for the 10 US dollars she gave him.
http://bitcoincharts.com[Bitcoin Charts]:: ((("bitcoincharts.com")))A market data listing service that shows the market rate of bitcoin across many exchanges around the globe, denominated in different local currencies
http://www.zeroblock.com/[ZeroBlock]:: ((("ZeroBlock")))A free Android and iOS application that can display a bitcoin price from different exchanges
In addition to these various sites and applications, most bitcoin wallets will automatically convert amounts between bitcoin and other currencies. Joe will use his wallet to convert the price automatically before sending bitcoin to Alice.
Alice has decided to convert $10 US dollars into 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.
Once Joe has established a fair exchange price, he opens his mobile wallet application and selects to "send" bitcoin. For example, if using the Blockchain mobile wallet on an Android phone, he would see a screen requesting two inputs, as shown in <<blockchain-mobile-send>>.
Joe then selects +Send+ on his smartphone wallet and is presented with a screen containing two inputs:
* The destination bitcoin address for the transaction
* The amount of bitcoin to send
* A destination bitcoin address
* The amount to send, in bitcoin (BTC) or his local currency (USD)
In the input field for the bitcoin address, there is a small icon that looks like a QR code. This allows Joe to scan the barcode with his smartphone camera so that he doesn't have to type in Alice's bitcoin address, which is quite long and difficult to type. Joe taps the QR code icon and activates the smartphone camera, scanning the QR code displayed on Alice's smartphone.
In the input field for the bitcoin address, there is a small icon that looks like a QR code. This allows Joe to scan the barcode with his smartphone camera so that he doesn't have to type in Alice's bitcoin address (+1Cdid9KFAaatwczBwBttQcwXYCpvK8h7FK+), which is quite long and difficult to type. Joe taps the QR code icon and activates the smartphone camera, scanning the QR code from Alice's printed wallet that she brought with her. The mobile wallet application fills in the bitcoin address and Joe can check that it scanned correctly by comparing a few digits from the address with the address printed by Alice.
Joe now has Alice's bitcoin address set as the recipient. Joe enters the amount as $10 US dollars and his wallet converts it by accessing the most recent exchange rate from an online service. The exchange rate at the time is $100 US dollars per bitcoin, so $10 US dollars is worth 0.10 bitcoin (BTC) <<blockchain-mobile-send>>.
[[blockchain-mobile-send]]
.Blockchain mobile wallet's bitcoin send screen
.Blockchain mobile wallet's bitcoin send screen
*TODO NEW SCREENSHOT*
image::images/msbt_0104.png["blockchain mobile send screen"]
Joe then enters the bitcoin value for the transaction, 0.10 bitcoin. He carefully checks to make sure he has entered the correct amount, because he is about to transmit money and any mistake could be costly. Finally, he presses Send to transmit the transaction. Joe's mobile bitcoin wallet constructs a transaction that assigns 0.10 bitcoin to the address provided by Alice, sourcing the funds from Joe's wallet and signing the transaction with Joe's private keys. This tells the bitcoin network that Joe has authorized a transfer of value from one of his addresses to Alice's new address. As the transaction is transmitted via the peer-to-peer protocol, it quickly propagates across the bitcoin network. In less than a second, most of the well-connected nodes in the network receive the transaction and see Alice's address for the first time.
Joe then carefully checks to make sure he has entered the correct amount, because he is about to transmit money and mistakes are irreversible. After double checking the address and amount, he presses +Send+ to transmit the transaction. Joe's mobile bitcoin wallet constructs a transaction that assigns 0.10 bitcoin to the address provided by Alice, sourcing the funds from Joe's wallet and signing the transaction with Joe's private keys. This tells the bitcoin network that Joe has authorized a transfer of value to Alice's new address. As the transaction is transmitted via the peer-to-peer protocol, it quickly propagates across the bitcoin network. In less than a second, most of the well-connected nodes in the network receive the transaction and see Alice's address for the first time.
If Alice has a smartphone or laptop with her, she will also be able to see the transaction. The bitcoin ledger—a constantly growing file that records every bitcoin transaction that has ever occurred—is public, meaning that all she has to do is look up her own address and see if any funds have been sent to it. She can do this quite easily at the((("blockchain.info website"))) blockchain.info website by entering her address in the search box. The website will show her a http://bit.ly/1u0FFKL[page] listing all the transactions to and from that address. If Alice is watching that page, it will update to show a new transaction transferring 0.10 bitcoin to her balance soon after Joe hits Send.
Meanwhile, Alice's wallet is constantly "listening" to published transactions on the bitcoin network, looking for any that match the addresses in her wallets. A few seconds after Joe's wallet transmits the transaction, Alice's wallet will indicate that it is receiving 0.10 bitcoin.
.Confirmations
****
((("confirmation of transactions")))At first, Alice's address will show the transaction from Joe as "Unconfirmed." This means that the transaction has been propagated to the network but has not yet been included in the bitcoin transaction ledger, known as the blockchain. To be included, the transaction must be "picked up" by a miner and included in a block of transactions. Once a new block is created, in approximately 10 minutes, the transactions within the block will be accepted as "confirmed" by the network and can be spent. The transaction is seen by all instantly, but it is only "trusted" by all when it is included in a newly mined block.
((("confirmation of transactions")))At first, Alice's address will show the transaction from Joe as "Unconfirmed." This means that the transaction has been propagated to the network but has not yet been recorded in the bitcoin transaction ledger, known as the blockchain. To be confirmed, a transaction must be included in a block and added to the blockchain, which happens every 10 minutes, on average. In traditional financial terms this is known as _clearing_. For more detail on propagation, validation and clearing (confirmation) of bitcoin transactions, see <<bitcoin clearing>>.
****
Alice is now the proud owner of 0.10 bitcoin that she can spend. In the next chapter we will look at her first purchase with bitcoin, and examine the underlying transaction and propagation technologies in more detail.(((range="endofrange", startref="ix_ch01-asciidoc1")))(((range="endofrange", startref="ix_ch01-asciidoc0")))
Andreas M. Antonopoulos
8 years ago
