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@ -47,7 +47,7 @@ example, we will provide a URL so you can look it up yourself and study
it in detail. it in detail.
[[block-explorer-privacy]] [[block-explorer-privacy]]
.Block explorer privacy warning .Block Explorer Privacy Warning
[WARNING] [WARNING]
==== ====
Searching information on a block explorer may disclose to its operator Searching information on a block explorer may disclose to its operator
@ -80,17 +80,9 @@ usual options. The checkout cart displays the price in US dollars and
also in bitcoin (BTC), at Bitcoin's prevailing exchange rate. also in bitcoin (BTC), at Bitcoin's prevailing exchange rate.
Bob's Bob's
e-commerce system will automatically create a QR code containing an ecommerce system will automatically create a QR code containing an
_invoice_ (<<invoice-QR>>). _invoice_ (<<invoice-QR>>).
Unlike a QR code that simply contains a destination Bitcoin address, this
invoice is a QR-encoded URI that contains a destination address,
a payment amount, and a description.
This allows a Bitcoin wallet application to prefill the
information used to send the payment while showing a human-readable
description to the user. You can scan the QR code with a bitcoin wallet
application to see what Alice would see.
//// ////
TODO: Replace QR code with test-BTC address TODO: Replace QR code with test-BTC address
//// ////
@ -99,6 +91,15 @@ TODO: Replace QR code with test-BTC address
.Invoice QR code .Invoice QR code
image::images/mbc3_0202.png["payment-request"] image::images/mbc3_0202.png["payment-request"]
Unlike a QR code that simply contains a destination Bitcoin address, this
invoice is a QR-encoded URI that contains a destination address,
a payment amount, and a description.
This allows a Bitcoin wallet application to prefill the
information used to send the payment while showing a human-readable
description to the user. You can scan the QR code with a bitcoin wallet
application to see what Alice would see:
[TIP] [TIP]
==== ====
Try to scan this with your wallet to see Try to scan this with your wallet to see
@ -139,7 +140,7 @@ millibitcoins and satoshis.
==== ====
You can examine Alice's transaction to Bob's Store on the blockchain You can examine Alice's transaction to Bob's Store on the blockchain
using a block explorer site (<<view_alice_transaction>>): using a block explorer site (<<view_alice_transaction>>).
[[view_alice_transaction]] [[view_alice_transaction]]
.View Alice's transaction on https://blockstream.info/tx/674616f1fbc6cc748213648754724eebff0fc04506f2c81efb1349d1ebc8a2ef[Blockstream Explorer] .View Alice's transaction on https://blockstream.info/tx/674616f1fbc6cc748213648754724eebff0fc04506f2c81efb1349d1ebc8a2ef[Blockstream Explorer]
@ -251,9 +252,8 @@ In addition to one or more outputs that pay the receiver of
bitcoins, many transactions will also include an output that pays the bitcoins, many transactions will also include an output that pays the
spender of the bitcoins, called a _change_ output. spender of the bitcoins, called a _change_ output.
This is because transaction inputs, This is because transaction inputs,
like currency notes, cannot be partly spent. If you purchase a $5 US dollar like currency notes, cannot be partly spent. If you purchase a $5 US item in a store but use a $20 bill to pay for the item, you
item in a store but use a $20 dollar bill to pay for the item, you expect to receive $15 in change. The same concept applies to
expect to receive $15 dollars in change. The same concept applies to
Bitcoin transaction inputs. If you purchased an item that costs 5 Bitcoin transaction inputs. If you purchased an item that costs 5
bitcoins but only had an input worth 20 bitcoins to use, you would send one bitcoins but only had an input worth 20 bitcoins to use, you would send one
output of 5 bitcoins to the store owner and one output of 15 bitcoins back output of 5 bitcoins to the store owner and one output of 15 bitcoins back
@ -266,7 +266,7 @@ payment output.
Importantly, the change address does not have to be the Importantly, the change address does not have to be the
same address as that of the input and for privacy reasons is often a new same address as that of the input and for privacy reasons is often a new
address from the owner's wallet. In ideal circumstances, the two address from the owner's wallet. In ideal circumstances, the two
different uses of outputs both use never-before-been addresses and different uses of outputs both use never-before-seen addresses and
otherwise look identical, preventing any third party from determining otherwise look identical, preventing any third party from determining
which outputs are change and which are payments. However, for which outputs are change and which are payments. However, for
illustration purposes, we've added shading to the change outputs in illustration purposes, we've added shading to the change outputs in
@ -274,16 +274,16 @@ illustration purposes, we've added shading to the change outputs in
Not every transaction has a change output. Those that don't are called Not every transaction has a change output. Those that don't are called
_changeless transactions_ and they can have only a single output. _changeless transactions_ and they can have only a single output.
Changeless transaction are only a practical option if the amount being Changeless transactions are only a practical option if the amount being
spent is roughly the same as the amount available in the transaction spent is roughly the same as the amount available in the transaction
inputs minus the anticipated transaction fee. In <<transaction-chain>> inputs minus the anticipated transaction fee. In <<transaction-chain>>
we see Bob creating Tx3 as a changeless transaction that spends the we see Bob creating Tx3 as a changeless transaction that spends the
output he received in Tx2. output he received in Tx2.
==== Coin selection ==== Coin Selection
Different wallets use different strategies when choosing which Different wallets use different strategies when choosing which
inputs to use to a payment, called _coin selection_. inputs to se in a payment, called _coin selection_.
They might aggregate many small They might aggregate many small
inputs, or use one that is equal to or larger than the desired payment. inputs, or use one that is equal to or larger than the desired payment.
@ -306,7 +306,7 @@ transaction has one input and two outputs and is shown in
.Most common transaction .Most common transaction
image::images/mbc3_0205.png["Common Transaction"] image::images/mbc3_0205.png["Common Transaction"]
Another common form of transaction is a _consolidation transaction_ that spends several inputs Another common form of transaction is a _consolidation transaction_, which spends several inputs
into a single output (<<transaction-consolidating>>). This represents into a single output (<<transaction-consolidating>>). This represents
the real-world equivalent of exchanging a pile of coins and currency the real-world equivalent of exchanging a pile of coins and currency
notes for a single larger note. Transactions like these are sometimes notes for a single larger note. Transactions like these are sometimes
@ -317,7 +317,7 @@ generated by wallets and businesses to clean up lots of smaller amounts.
image::images/mbc3_0206.png["Aggregating Transaction"] image::images/mbc3_0206.png["Aggregating Transaction"]
Finally, another transaction form that is seen often on the Finally, another transaction form that is seen often on the
blockchain is _payment batching_ that pays to multiple outputs blockchain is _payment batching_, which pays to multiple outputs
representing multiple recipients (<<transaction-distributing>>). representing multiple recipients (<<transaction-distributing>>).
This type of transaction is sometimes used by commercial entities to This type of transaction is sometimes used by commercial entities to
distribute funds, such as when processing payroll payments to multiple distribute funds, such as when processing payroll payments to multiple
@ -424,7 +424,7 @@ the software logic and the data necessary for them to fully verify the
correctness of a new transaction. The connections between peers are correctness of a new transaction. The connections between peers are
often visualized as edges (lines) in a graph, with the peers themselves often visualized as edges (lines) in a graph, with the peers themselves
being the nodes (dots). For that reason, Bitcoin peers are commonly being the nodes (dots). For that reason, Bitcoin peers are commonly
called "full verification nodes", or _full nodes_ for short. called "full verification nodes," or _full nodes_ for short.
Alice's wallet application can send the new Alice's wallet application can send the new
transaction to any Bitcoin node over any type of transaction to any Bitcoin node over any type of
@ -433,7 +433,7 @@ to another program (such as a block explorer) that will relay it to a
node. Her Bitcoin wallet does not have node. Her Bitcoin wallet does not have
to be connected to Bob's Bitcoin wallet directly and she does not have to be connected to Bob's Bitcoin wallet directly and she does not have
to use the internet connection offered by Bob, though both those to use the internet connection offered by Bob, though both those
options are possible, too. Any Bitcoin node that receives a options are possible too. Any Bitcoin node that receives a
valid transaction it has not seen before will forward it to valid transaction it has not seen before will forward it to
all other nodes to which it is connected, a propagation technique known all other nodes to which it is connected, a propagation technique known
as _gossiping_. Thus, the transaction rapidly propagates out across the as _gossiping_. Thus, the transaction rapidly propagates out across the
@ -483,19 +483,19 @@ Mining achieves a fine balance between cost and reward. Mining uses
electricity to solve a computational problem. A successful miner will electricity to solve a computational problem. A successful miner will
collect a _reward_ in the form of new bitcoins and transaction fees. collect a _reward_ in the form of new bitcoins and transaction fees.
However, the reward will only be collected if the miner has only However, the reward will only be collected if the miner has only
included valid transactions, with the Bitcoin Protocol's rules for included valid transactions, with the Bitcoin protocol's rules for
_consensus_ dermining what is valid. This delicate balance provides _consensus_ dermining what is valid. This delicate balance provides
security for Bitcoin without a central authority. security for Bitcoin without a central authority.
Mining is designed to be a decentralized lottery. Each miner can create Mining is designed to be a decentralized lottery. Each miner can create
their own lottery ticket by creating a _candidate block_ that includes their own lottery ticket by creating a _candidate block_ that includes
the new transactions they want to mine plus some additional data fields. the new transactions they want to mine plus some additional data fields.
The miner inputs their candidate into a specially-designed algorithm that The miner inputs their candidate into a specially designed algorithm that
scrambles (or "hashes") the data, producing output that looks nothing scrambles (or "hashes") the data, producing output that looks nothing
like the input data. This _hash_ function will always produce the same like the input data. This _hash_ function will always produce the same
output for the same input--but nobody can predict what the output will output for the same input--but nobody can predict what the output will
look like for a new input, even if it is only slighly different from a look like for a new input, even if it is only slighly different from a
previous input. If the output of hash function matches a template previous input. If the output of the hash function matches a template
determined by the Bitcoin protocol, the miner wins the lottery and determined by the Bitcoin protocol, the miner wins the lottery and
Bitcoin users will accept the block with its transactions as a Bitcoin users will accept the block with its transactions as a
valid block. If the output doesn't match the template, the miner makes valid block. If the output doesn't match the template, the miner makes
@ -510,7 +510,7 @@ valid block something that requires an incredible amount of work to
create but only a trivial amount of work to verify. The simple create but only a trivial amount of work to verify. The simple
verification process is able to probabalistically prove the work was verification process is able to probabalistically prove the work was
done, so the data necessary to generate that proof--in this case, the done, so the data necessary to generate that proof--in this case, the
block--is called Proof-of-Work (PoW). block--is called proof of ork (PoW).
Transactions are added to the new block, prioritized by the highest fee rate Transactions are added to the new block, prioritized by the highest fee rate
transactions first and a few other criteria. Each miner starts the transactions first and a few other criteria. Each miner starts the
@ -518,13 +518,13 @@ process of mining a new candidate block of transactions as soon as they receive
previous block from the network, knowing that some other miner won that previous block from the network, knowing that some other miner won that
iteration of the lottery. They immediately create a new candidate block iteration of the lottery. They immediately create a new candidate block
with a commitment to the previous block, fill it with transactions, and start with a commitment to the previous block, fill it with transactions, and start
calculating the Proof-of-Work for the candidate block. Each miner includes a calculating the PoW for the candidate block. Each miner includes a
special transaction in their candidate blocks, one that pays their own Bitcoin address special transaction in their candidate blocks, one that pays their own Bitcoin address
the block reward plus the sum of the block reward plus the sum of
transaction fees from all the transactions included in the candidate block. If they transaction fees from all the transactions included in the candidate block. If they
finds a solution that makes the candidate into a valid block, they receives this reward find a solution that makes the candidate into a valid block, they receive this reward
after his successful block is added to the global blockchain and the after their successful block is added to the global blockchain and the
reward transaction he included becomes spendable. Miners who participates in a mining pool have set up their reward transaction they included becomes spendable. Miners who participate in a mining pool have set up their
software to create candidate blocks that assign the reward to a pool address. software to create candidate blocks that assign the reward to a pool address.
From there, a share of the reward is distributed to members of the pool From there, a share of the reward is distributed to members of the pool
miners in proportion to the amount of work they contributed. miners in proportion to the amount of work they contributed.
@ -548,7 +548,7 @@ transaction that doesn't pay Bob) would require performing the same
amount of work as it will take all Bitcoin miners to create an entirely amount of work as it will take all Bitcoin miners to create an entirely
new block. When there are multiple alternative blocks to choose from, new block. When there are multiple alternative blocks to choose from,
Bitcoin full nodes choose the chain of valid blocks with the most total Bitcoin full nodes choose the chain of valid blocks with the most total
Proof-of-Work, called the _best blockchain_. For the entire network to PoW, called the _best blockchain_. For the entire network to
accept an alternative block, an additional new block would need to be accept an alternative block, an additional new block would need to be
mined on top of the alternative. mined on top of the alternative.
@ -557,7 +557,7 @@ alternative to the transaction where she pays Bob, perhaps with
Alice paying miners a share of the money she previously paid Bob. This Alice paying miners a share of the money she previously paid Bob. This
dishonest behavior will require they expend the effort required to dishonest behavior will require they expend the effort required to
create two new blocks. Instead, miners who behave honestly can create a create two new blocks. Instead, miners who behave honestly can create a
single new block and and receive all of the fees from the transactions single new block and receive all of the fees from the transactions
they include in it, plus the block subsidy. Normally, the high cost of they include in it, plus the block subsidy. Normally, the high cost of
dishonestly creating two blocks for a small additional payment is much dishonestly creating two blocks for a small additional payment is much
less profitable than honestly creating a new block, making it unlikely less profitable than honestly creating a new block, making it unlikely
@ -575,7 +575,7 @@ Approximately 19 minutes
after the block containing Alice's transaction is broadcast, a new block after the block containing Alice's transaction is broadcast, a new block
is mined by another miner. Because this is mined by another miner. Because this
new block is built on top of the block that contained Alice's new block is built on top of the block that contained Alice's
transaction (giving Alice's transaction two confirmations) Alice's transaction (giving Alice's transaction two confirmations), Alice's
transaction can now only be changed if two alternative blocks are transaction can now only be changed if two alternative blocks are
mined--plus a new block built on top of them--for a total of three mined--plus a new block built on top of them--for a total of three
blocks that would need to be mined for Alice to take back the money she blocks that would need to be mined for Alice to take back the money she
@ -584,8 +584,7 @@ transaction counts as an additional confirmation. As the blocks pile on
top of each other, it becomes harder to reverse the transaction, thereby top of each other, it becomes harder to reverse the transaction, thereby
giving Bob more and more confidence that Alice's payment is secure. giving Bob more and more confidence that Alice's payment is secure.
In <<block-alice1>>, we can In <<block-alice1>>, we can see the block that contains Alice's transaction. Below it are
the block which contains Alice's transaction. Below it are
hundreds of thousands of blocks, linked to each other in a chain of hundreds of thousands of blocks, linked to each other in a chain of
blocks (blockchain) all the way back to block #0, known as the _genesis blocks (blockchain) all the way back to block #0, known as the _genesis
block_. Over time, as the "height" of new blocks increases, so does the block_. Over time, as the "height" of new blocks increases, so does the
@ -633,4 +632,4 @@ from owner to owner. We also tracked Alice's transaction, from the
moment it was created in her wallet, through the Bitcoin network and to moment it was created in her wallet, through the Bitcoin network and to
the miners who recorded it on the blockchain. In the rest of this book, the miners who recorded it on the blockchain. In the rest of this book,
we will examine the specific technologies behind wallets, addresses, we will examine the specific technologies behind wallets, addresses,
signatures, transactions, the network, and finally mining. signatures, transactions, the network, and finally, mining.