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4
book.asciidoc
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@ -2,4 +2,8 @@
= Mastering Bitcoin = Mastering Bitcoin
include::preface.asciidoc[]
include::ch01.asciidoc[] include::ch01.asciidoc[]
include::ch02.asciidoc[]
include::ch03.asciidoc[]
include::ch04.asciidoc[]

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ch01.asciidoc
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@ -132,7 +132,7 @@ Alice is now ready to start using her new bitcoin web-wallet.
[[getting_first_bitcoin]] [[getting_first_bitcoin]]
==== Getting your first bitcoins ==== Getting your first bitcoins
It is not possible to buy bitcoins at a bank, or foreign exchange kioks, at this time. It is not possible to use a credit card to buy bitcoins, either. At the time this book is being written, in 2013, 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: It is not possible to buy bitcoins at a bank, or foreign exchange kiosks, at this time. It is not possible to use a credit card to buy bitcoins, either. At the time this book is being written, in 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:
* Bitstamp (bitstamp.net), a European currency market that supports several currencies including euros (EUR) and US dollars (USD) via wire transfer * Bitstamp (bitstamp.net), a European currency market that supports several currencies including euros (EUR) and US dollars (USD) via wire transfer
* Coinbase (coinbase.com), a US-based currency market, based in California, that supports US dollar exchange to and from bitcoin. Coinbase can connect to US checking accounts via the ACH system * Coinbase (coinbase.com), a US-based currency market, based in California, that supports US dollar exchange to and from bitcoin. Coinbase can connect to US checking accounts via the ACH system
@ -151,7 +151,7 @@ Alice was introduced to bitcoin by a friend and so she has an easy way of gettin
==== Sending and receiving bitcoins ==== Sending and receiving bitcoins
Alice has created her bitcoin web-wallet and she is now ready to receive funds. Her web-wallet application generated a bitcoin address and the corresponding key (an elliptic curve private key, describe 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 generated a bitcoin address and the 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 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. 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.
@ -165,7 +165,7 @@ First, Joe has to figure out the exchange rate so that he can give the correct a
.ZeroBlock - A bitcoin market-rate application for Android and iOS .ZeroBlock - A bitcoin market-rate application for Android and iOS
image::images/zeroblock.png["zeroblock screenshot"] image::images/zeroblock.png["zeroblock screenshot"]
Using one of the applications or websites above, 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 milli-bits, in return for the $10 US dollars she gave him. Using one of the applications or websites above, 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.
Once Joe has established a fair exchange price, he opens his mobile wallet application and selects to "send" bitcoin. He is presented with a screen requesting two inputs: Once Joe has established a fair exchange price, he opens his mobile wallet application and selects to "send" bitcoin. He is presented with a screen requesting two inputs:

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ch02.asciidoc
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@ -176,7 +176,7 @@ The resulting transaction can be seen using a blockchain explorer web applicatio
.Alice's transaction to Bob's Cafe .Alice's transaction to Bob's Cafe
image::images/AliceCoffeeTransaction.png["Alice Coffee Transaction"] image::images/AliceCoffeeTransaction.png["Alice Coffee Transaction"]
Use the following link to see it the transaction on the bitcoin blockchain: Use the following link to see the transaction on the bitcoin blockchain:
[[transaction-alice-url]] [[transaction-alice-url]]
.Link to Alice's transaction on the bitcoin blockchain .Link to Alice's transaction on the bitcoin blockchain
@ -186,7 +186,7 @@ https://blockchain.info/tx/0627052b6f28912f2703066a912ea577f2ce4da4caa5a5fbd8a57
==== Adding the transaction to the ledger ==== Adding the transaction to the ledger
The transaction created by Alice's wallet application is 258 bytes long and contains everything necessary to confirm ownership of the funds and assign new onwers. Now, the transaction must be transmitted to the bitcoin network where it will become part of the distributed ledger, the blockchain. In the next section we will see how a transaction becomes part of a new block and how the block is "mined". Finally, we will see how the new block, once added to the blockchain is increasingly trusted by the network as more blocks are added. The transaction created by Alice's wallet application is 258 bytes long and contains everything necessary to confirm ownership of the funds and assign new owners. Now, the transaction must be transmitted to the bitcoin network where it will become part of the distributed ledger, the blockchain. In the next section we will see how a transaction becomes part of a new block and how the block is "mined". Finally, we will see how the new block, once added to the blockchain is increasingly trusted by the network as more blocks are added.
===== Transmitting the transaction ===== Transmitting the transaction

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ch03.asciidoc
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@ -378,7 +378,7 @@ $ bitcoind getinfo
} }
---- ----
The data is returned as a JavaScript Object Notation (JSON), a format which can easily be "consumed" by all programming languages but is also quite human-readable. Among this data we see the version of the bitcoin software client (9000), protocol (70002) and wallet file (60000). We see the current balance contained in the wallet, which is zero. We see the current block height, showing us how many blocks are known to this client, 286216. We also see various statistics about the bitcoin network and the settings related to this client. We will explore these settings in more detail in the rest of this chapter. The data is returned as a JavaScript Object Notation (JSON), a format which can easily be "consumed" by all programming languages but is also quite human-readable. Among this data we see the version of the bitcoin software client (90000), protocol (70002) and wallet file (60000). We see the current balance contained in the wallet, which is zero. We see the current block height, showing us how many blocks are known to this client, 286216. We also see various statistics about the bitcoin network and the settings related to this client. We will explore these settings in more detail in the rest of this chapter.
[TIP] [TIP]
==== ====
@ -397,7 +397,7 @@ wallet encrypted; Bitcoin server stopping, restart to run with encrypted wallet.
$ $
---- ----
We can verify the wallet has been encrypted, by running +getinfo+ again. This time you will notice a new entry +unlocked_until+ which is a counter showing how long the wallet decryption password will be stored in memory, keeping the wallet unlocked. At first this will be set to zero, meaning the wallet is locked: We can verify the wallet has been encrypted by running +getinfo+ again. This time you will notice a new entry +unlocked_until+ which is a counter showing how long the wallet decryption password will be stored in memory, keeping the wallet unlocked. At first this will be set to zero, meaning the wallet is locked:
---- ----
$ bitcoind getinfo $ bitcoind getinfo
@ -479,7 +479,7 @@ $ bitcoind getnewaddress
1hvzSofGwT8cjb8JU7nBsCSfEVQX5u9CL 1hvzSofGwT8cjb8JU7nBsCSfEVQX5u9CL
---- ----
Now, we can use this address to send a small amount of bitcoin to our bitcoind wallet from an external wallet (assuming you have some bitcoin in an exchange, web wallet or othe bitcoind wallet held elsewhere). For this example, we will send 50 millibits (0.050 bitcoin) to the address returned above. Now, we can use this address to send a small amount of bitcoin to our bitcoind wallet from an external wallet (assuming you have some bitcoin in an exchange, web wallet or other bitcoind wallet held elsewhere). For this example, we will send 50 millibits (0.050 bitcoin) to the address returned above.
We can now query the bitcoind client for the amount received by this address, and specify how many confirmations are required before an amount is counted in that balance. For this example, we will specify zero confirmations. A few seconds after sending the bitcoin from another wallet, we will see it reflected in the wallet. We use +getreceivedbyaddress+ with the address and the number of confirmations set to zero (0): We can now query the bitcoind client for the amount received by this address, and specify how many confirmations are required before an amount is counted in that balance. For this example, we will specify zero confirmations. A few seconds after sending the bitcoin from another wallet, we will see it reflected in the wallet. We use +getreceivedbyaddress+ with the address and the number of confirmations set to zero (0):
@ -488,7 +488,7 @@ $ bitcoind getreceivedbyaddress 1hvzSofGwT8cjb8JU7nBsCSfEVQX5u9CL 0
0.05000000 0.05000000
---- ----
If we ommit the zero from the end of this command, we will only see the amounts that have at least +minconf+ confirmations, where +minconf+ is the setting for the minimum number of confirmations before a transaction is listed in the balance. The +minconf+ setting is specified in the bitcoind configuration file. Since the transaction sending this bitcoin was only sent in the last few seconds, it has still not confirmed and therefore we will see it list a zero balance: If we omit the zero from the end of this command, we will only see the amounts that have at least +minconf+ confirmations, where +minconf+ is the setting for the minimum number of confirmations before a transaction is listed in the balance. The +minconf+ setting is specified in the bitcoind configuration file. Since the transaction sending this bitcoin was only sent in the last few seconds, it has still not confirmed and therefore we will see it list a zero balance:
---- ----
$ bitcoind getreceivedbyaddress 1hvzSofGwT8cjb8JU7nBsCSfEVQX5u9CL $ bitcoind getreceivedbyaddress 1hvzSofGwT8cjb8JU7nBsCSfEVQX5u9CL
@ -634,7 +634,7 @@ $ bitcoind decoderawtransaction 0100000001d717...388ac00000000
} }
---- ----
The transaction decode shows all the compoenents of this transaction, including the transaction inputs, and outputs. In this case we see that the transaction that credited our new address with 50 milibits used one input and generated two outputs. The input to this transaction was the output from a previously confirmed transaction (shown as the vin txid starting with +d3c7+ above). The two outputs correspond to the 50 milibit credit and an output with change back to the sender. The transaction decode shows all the components of this transaction, including the transaction inputs, and outputs. In this case we see that the transaction that credited our new address with 50 milibits used one input and generated two outputs. The input to this transaction was the output from a previously confirmed transaction (shown as the vin txid starting with +d3c7+ above). The two outputs correspond to the 50 milibit credit and an output with change back to the sender.
We can further explore the blockchain by examining the previous transaction referenced by its txid in this transaction, using the same commands (eg. +gettransaction+). Jumping from transaction to transaction we can follow a chain of transactions back as the coins are transmitted from owner address to owner address. We can further explore the blockchain by examining the previous transaction referenced by its txid in this transaction, using the same commands (eg. +gettransaction+). Jumping from transaction to transaction we can follow a chain of transactions back as the coins are transmitted from owner address to owner address.
@ -1191,6 +1191,10 @@ With deterministic keys we can generate and re-generate thousands of keys, all d
[TIP] [TIP]
==== ====
The sx toolkit offers many useful commands for encoding and decoding addresses, converting to and from different formats and representations. Use them to explore the various formaat such as base58, base58check, hex etc. <<<<<<< HEAD
The sx toolkit offers many useful commands for encoding and decoding addresses, converting to and from different formats and representations. Use them to explore the various format such as base58, base58check, hex etc.
=======
The sx toolkit offers many useful commands for encoding and decoding addresses, converting to and from different formats and representations. Use them to explore the various formats such as base58, base58check, hex etc.
>>>>>>> Update ch03.asciidoc - spelling
==== ====