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=== What is Bitcoin?
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Bitcoin is collection of concepts and technologies that form the basis of a digital money ecosystem. It includes a currency, with units called bitcoins, that are used to store and transmit value among participants in the bitcoin network. Bitcoin users communicate with each other using the bitcoin protocol, primarily via the Internet, although other transport networks can also be used. The bitcoin protocol stack, available as open source software, can be run on a wide range of computing devices, including laptops and smartphones, making the technology easily accessible.
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Bitcoin is collection of concepts and technologies that form the basis of a digital money ecosystem. Units of currency called bitcoins are used to store and transmit value among participants in the bitcoin network. Bitcoin users communicate with each other using the bitcoin protocol primarily via the Internet, although other transport networks can also be used. The bitcoin protocol stack, available as open source software, can be run on a wide range of computing devices, including laptops and smartphones, making the technology easily accessible.
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Users can transfer bitcoin over the network to do just about anything that can be done with conventional currencies, such as buy and sell goods, send money to people or organizations, or extend credit. Bitcoin technology includes features, based on encryption and digital signatures, to ensure the security of the bitcoin network. Bitcoins can be purchased and sold, exchanged for other currencies at a floating exchange rate, at specialized currency exchanges. Bitcoin in a sense is the perfect form of money for the Internet: fast, secure, borderless.
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Users can transfer bitcoin over the network to do just about anything that can be done with conventional currencies, such as buy and sell goods, send money to people or organizations, or extend credit. Bitcoin technology includes features that are based on encryption and digital signatures to ensure the security of the bitcoin network. Bitcoins can be purchased, sold, and exchanged for other currencies at specialized currency exchanges. Bitcoin in a sense is the perfect form of money for the Internet because it is fast, secure, and borderless.
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Unlike traditional currencies, bitcoins are entirely virtual. There are no physical coins, or even digital coins per se. The coins are implied in transactions which transfer value from sender to recipient. Users of bitcoin own keys which allow them to prove ownership of transactions in the bitcoin network, unlocking the value to spend it and transfer it to a new recipient. Those keys are stored in a digital wallet on each user’s computer. Possession of the key that unlocks a transaction is the only prerequisite to spending bitcoins, putting the control entirely in the hands of each user.
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Unlike traditional currencies, bitcoins are entirely virtual. There are no physical coins or even digital coins per se. The coins are implied in transactions which transfer value from sender to recipient. Users of bitcoin own keys which allow them to prove ownership of transactions in the bitcoin network, unlocking the value to spend it and transfer it to a new recipient. Those keys are stored in a digital wallet on each user’s computer. Possession of the key that unlocks a transaction is the only prerequisite to spending bitcoins, putting the control entirely in the hands of each user.
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Bitcoin is a fully-distributed, peer-to-peer system, and as such there is no "central" server or point of control. Bitcoins are created through a process called "mining", which involves looking for a solution to a difficult problem. Any participant in the bitcoin network (i.e. any device running the full bitcoin protocol stack) may operate as a miner, using their computer's processing power to attempt to find solutions to this problem. Every 10 minutes on average, a new solution is found by someone who then is able to validate the transactions of the past 10 minutes and is rewarded with brand new bitcoins. Essentially, the currency-issuance function of a central bank and the clearing function are de-centralized and turned into a global competition.
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Bitcoin is a fully-distributed, peer-to-peer system. As such there is no "central" server or point of control. Bitcoins are created through a process called "mining", which involves looking for a solution to a difficult problem. Any participant in the bitcoin network (i.e. any device running the full bitcoin protocol stack) may operate as a miner, using their computer's processing power to attempt to find solutions to this problem. Every 10 minutes on average, a new solution is found by someone who then is able to validate the transactions of the past 10 minutes and is rewarded with brand new bitcoins. Essentially, the currency issuance function of a central bank and the clearing function are de-centralized and turned into a global competition.
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The bitcoin protocol includes built-in algorithms that regulate the mining function across the network. The difficulty of the problem that miners must solve is adjusted dynamically so that, on average, someone finds a correct answer every 10 minutes regardless of how many miners (and CPUs) are working on the problem at any moment. The protocol also halves the rate at which new bitcoins are created every 4 years, and limits the total number of bitcoins that will be created to a fixed total of 21 million coins. The result is that the number of bitcoins in circulation closely follows an easily predictable curve that reaches 21 million by the year 2140. As a result, the bitcoin currency is deflationary and cannot be inflated by "printing" new money above and beyond the expected issuance rate.
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The bitcoin protocol includes built-in algorithms that regulate the mining function across the network. The difficulty of the problem that miners must solve is adjusted dynamically so that, on average, someone finds a correct answer every 10 minutes regardless of how many miners (and CPUs) are working on the problem at any moment. The protocol also halves the rate at which new bitcoins are created every 4 years, and limits the total number of bitcoins that will be created to a fixed total of 21 million coins. The result is that the number of bitcoins in circulation closely follows an easily predictable curve that reaches 21 million by the year 2140. As a result, the bitcoin currency is deflationary and cannot be inflated by "printing" new money above and beyond the expected issuance rate.
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Behind the scenes, bitcoin is also the name of protocol, a network and a distributed computing innovation. The bitcoin currency is really only the first application of this invention. As a developer, I see bitcoin as akin to the Internet of money, a network for propagating value and securing the ownership of digital assets via distributed computation. There's a lot more to bitcoin than first meets the eye.
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@ -24,9 +24,9 @@ The emergence of viable digital money is closely linked to developments in crypt
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1. Can I trust the money is authentic and not counterfeit?
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2. Can I be sure that no one else can claim that this money belongs to them and not me? (aka the “double-spend” problem)
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Issuers of paper money are constantly battling the counterfeiting problem, by using increasingly sophisticated papers and printing technology. Physical money addresses the double-spend issue easily because the same paper note cannot be in two places at once. Of course, conventional money is also often stored and transmitted digitally. In this case the counterfeiting and double-spend issues are handled by clearing all electronic transactions through central authorities that have a global view of the currency in circulation. For digital money, which cannot take advantage of esoteric inks or holographic strips, cryptography provides the basis for trusting the legitimacy of a user’s claim to value. Specifically, cryptographic digital signatures enable a user to sign a digital asset or transaction proving the ownership of that asset. With the appropriate architecture, digital signatures also can be used to address the double-spend issue.
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Issuers of paper money are constantly battling the counterfeiting problem by using increasingly sophisticated papers and printing technology. Physical money addresses the double-spend issue easily because the same paper note cannot be in two places at once. Of course, conventional money is also often stored and transmitted digitally. In this case the counterfeiting and double-spend issues are handled by clearing all electronic transactions through central authorities that have a global view of the currency in circulation. For digital money, which cannot take advantage of esoteric inks or holographic strips, cryptography provides the basis for trusting the legitimacy of a user’s claim to value. Specifically, cryptographic digital signatures enable a user to sign a digital asset or transaction proving the ownership of that asset. With the appropriate architecture, digital signatures also can be used to address the double-spend issue.
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In the late 1980s, when cryptography started becoming more broadly available and understood, many researchers began trying to use cryptography to build digital currencies. These early digital currency projects issued digital money, usually backed by a national currency or precious metal such as gold.
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When cryptography started becoming more broadly available and understood in the late 1980s, many researchers began trying to use cryptography to build digital currencies. These early digital currency projects issued digital money, usually backed by a national currency or precious metal such as gold.
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While these earlier digital currencies worked, they were centralized and as a result they were easy to attack by governments and hackers. Early digital currencies used a central clearinghouse to settle all transactions at regular intervals, just like a traditional banking system. Unfortunately, in most cases these nascent digital currencies were targeted by worried governments and eventually litigated out of existence. Some failed in spectacular crashes when the parent company liquidated abruptly. To be robust against intervention by antagonists, be they are legitimate governments or criminal elements, a digital currency is needed to avoid the use of a central currency issuer or transaction clearing authority that could be a single point of attack. Bitcoin is such a system, completely de-centralized by design, lacking any central authority or point of control that can be attacked or corrupted.
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@ -37,7 +37,7 @@ Bitcoin represents the culmination of decades of research in cryptography and di
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* A de-centralized mathematical and deterministic currency issuance (distributed mining), and;
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* A de-centralized transaction verification system (transaction script)
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Bitcoin was invented in 2008 by Satoshi Nakamoto with the publication of a paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System". Satoshi Nakamoto combined several prior inventions such as b-money and HashCash to create a completely de-centralized electronic cash system that does not rely on a central authority for settlement and validation of transactions. The key innovation was to use a Proof-Of-Work algorithm to conduct a global "election" every 10 minutes, allowing the de-centralized network to arrive at _consensus_ about the state of transactions. This elegantly solves the issue of double-spend, a weakness of digital money, where a single currency unit can be spent twice. Previously, the double-spend problem was solved by clearing all transactions through a central clearinghouse.
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Bitcoin was invented in 2008 by Satoshi Nakamoto with the publication of a paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System". Satoshi Nakamoto combined several prior inventions such as b-money and HashCash to create a completely de-centralized electronic cash system that does not rely on a central authority for settlement and validation of transactions. The key innovation was to use a Proof-Of-Work algorithm to conduct a global "election" every 10 minutes, allowing the de-centralized network to arrive at _consensus_ about the state of transactions. This elegantly solves the issue of double-spend where a single currency unit can be spent twice. Previously, the double-spend problem was a weakness of digital currency and was addressed by clearing all transactions through a central clearinghouse.
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The bitcoin network started in 2009, based on a reference implementation published by Nakamoto and since revised by many other programmers. During the first four years of operation, the network has grown to include an enormous amount of Proof-Of-Work computation, thereby increasing its security and resilience. In 2013, the total market value of bitcoin's primary monetary supply measure (M0) is estimated at more than 10 billion US dollars. The largest transaction processed by the network was $150 million US dollars, transmitted instantly and processed without any fees.
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@ -56,7 +56,7 @@ Satoshi Nakamoto's invention is also a practical solution to a previously unsolv
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Bitcoin is a technology, but it expresses money which is fundamentally a language for exchanging value between people. Let's look at the people who are using bitcoin and some of the most common uses of the currency and protocol through their stories. We will re-use these stories throughout the book to illustrate the real-life uses of digital money and how they are made possible by the various technologies that are part of bitcoin.
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North American Retail::
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Alice lives in Northern California, in the Bay Area. She has heard about bitcoin from her techie friends and wants to start using it. We will follow her story as she learns about bitcoin, acquires some and then spends some of her bitcoin to buy a cup of coffee at Bob's Cafe in Palo Alto. This story will introduce us to the software, the exchanges and basic transactions from the perspective of a retail consumer.
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Alice lives in Northern California's Bay Area. She has heard about bitcoin from her techie friends and wants to start using it. We will follow her story as she learns about bitcoin, acquires some and then spends some of her bitcoin to buy a cup of coffee at Bob's Cafe in Palo Alto. This story will introduce us to the software, the exchanges and basic transactions from the perspective of a retail consumer.
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Offshore Contract Services::
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Bob, the cafe owner in Palo Alto is building a new website. He has contracted with an Indian web developer, Gopesh, who lives in Bangalore, India. Gopesh has agreed to be paid in bitcoin. This story will examine the use of bitcoin for outsourcing, contract services and international wire transfers.
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@ -88,24 +88,24 @@ Full Client:: A full client, or "full node" is a client that stores the entire h
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Light 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.
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Web Client:: 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.
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Web Client:: 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.
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.Mobile Bitcoin
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****
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Mobile clients, for smartphones such as those based on the Android system can either operate as full clients, light clients or web clients. Some mobile clients are synchronized with a web or desktop client, providing a multi-platform wallet across multiple devices but with a common source of funds. See <<mobile_bitcoin>>
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Mobile clients for smartphones, such as those based on the Android system, can either operate as full clients, light clients or web clients. Some mobile clients are synchronized with a web or desktop client, providing a multi-platform wallet across multiple devices but with a common source of funds. See <<mobile_bitcoin>>
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****
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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 put 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 setup and use, but the security and control is shared by the user and the owner of the web service, which introduces counterparty risk. If a web-wallet service is compromised, as many have been, the users can lose all their funds. Conversely, if a user has a full client without adequate backups, they may lose their funds through a computer mishap.
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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 tradeoff with a web client is that counterparty risk is introduced because security and control is shared by 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 a user has a full client without adequate backups, they may lose their funds through a computer mishap.
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For the purposes of this book, we will be demonstrating the use of a variety of 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 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.
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For the purposes of this book, we will be demonstrating the use of a variety of 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 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.
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==== Quick Start - Web Wallet
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A web-wallet is the easiest way to start using bitcoin, and is the choice of Alice who we introduced in <<user-stories>>. Alice is not a technical user and only recently heard about bitcoin from a friend. She starts her journey by visiting the official website bitcoin.org, where she finds a broad selection of bitcoin clients. Following the advice on the bitcoin.org site, she chooses a web-wallet by blockchain.info, a popular hosted-wallet service. Following a link from bitcoin.org, she opens the blockchain.info wallet page at https://blockchain.info/wallet and selects "Start a New Wallet". To register her new wallet, she must enter an email address, a password and prove that she is a human by completing a CAPTCHA test.
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A web-wallet is the easiest way to start using bitcoin, and is the choice of Alice who we introduced in <<user-stories>>. Alice is not a technical user and only recently heard about bitcoin from a friend. She starts her journey by visiting the official website bitcoin.org, where she finds a broad selection of bitcoin clients. Following the advice on the bitcoin.org site, she chooses a web-wallet by blockchain.info, a popular hosted-wallet service. Following a link from bitcoin.org, she opens the blockchain.info wallet page at https://blockchain.info/wallet and selects "Start a New Wallet". To register her new wallet, she must enter an email address, enter a password and prove that she is a human by completing a CAPTCHA test.
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[WARNING]
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====
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When creating a bitcoin wallet you will need to provide a password or passphrase to protect your wallet. 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 lower-case characters, numbers and symbols. Avoid personal information such as birthdates 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, at least 12 characters in length. Remember: bitcoin is money and can be instantly moved anywhere in the world - that makes it easy to steal and disappear.
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When creating a bitcoin wallet you will need to provide a password or passphrase to protect your wallet. 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 lower-case characters, numbers and symbols. Avoid personal information such as birthdates 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.
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====
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Once Alice has completed the registration form, she is presented with a Wallet Recovery Mnemonic. This is a series of words that can be used to reconstruct her wallet in case she loses the password or account details. Following the instructions on screen, Alice copies the words onto paper, locking it away in a secure location.
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@ -132,12 +132,13 @@ Alice is now ready to start using her new bitcoin web-wallet.
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[[getting_first_bitcoin]]
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==== Getting your first bitcoins
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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:
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<<<<<<< HEAD
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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. 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:
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* Bitstamp (bitstamp.net), a European currency market that supports several currencies including euros (EUR) and US dollars (USD) via wire transfer
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* 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
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* Coinbase (coinbase.com), a US-based currency market in California that supports US dollar exchange to and from bitcoin. Coinbase can connect to US checking accounts via the ACH system.
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Crypto-currency exchanges such as these operate at the intersection of national currencies and crypto-currencies. 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. It takes several days or weeks to set up the necessary accounts with the above services, as they require various forms of identification to comply with KYC (Know Your Customer) and AML (Anti-Money Laundering) banking regulations, essentially like opening a new bank account. Once you have an account on a bitcoin exchange, you can then buy or sell bitcoins quickly, just like buying a foreign currency with a brokerage account.
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Crypto-currency exchanges such as these operate at the intersection of national currencies and crypto-currencies. 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 the above services because they require various forms of identification to comply with 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.
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A more complete list can be found at http://bitcoincharts.com/markets/, a site that offers price quotes and other market data across many dozens of currency exchanges.
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@ -153,19 +154,19 @@ Alice was introduced to bitcoin by a friend and so she has an easy way of gettin
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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.
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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.
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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.
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First, 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 web sites that can provide the current market rate, here are some of the most popular:
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* 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
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* bitcoinaverage.com, a site that provides a simple view of the volume-weighted-average for each currency.
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* ZeroBlock, a free Android and iOS application that can display a bitcoin price from different exchanges.
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* bitcoinaverage.com, a site that provides a simple view of the volume-weighted-average for each currency
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* ZeroBlock, a free Android and iOS application that can display a bitcoin price from different exchanges
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[[zeroblock-android]]
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.ZeroBlock - A bitcoin market-rate application for Android and iOS
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image::images/zeroblock.png["zeroblock screenshot"]
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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.
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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.
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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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@ -176,15 +177,15 @@ Once Joe has established a fair exchange price, he opens his mobile wallet appli
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.Bitcoin mobile wallet - Send bitcoin screen
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image::images/blockchain-mobile-send.png["blockchain mobile send screen"]
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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 on the QR code icon and activates the smartphone camera, scanning the QR code from Alice's wallet, from the printed page 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.
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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 on 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.
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Joe then enters the bitcoin value for the transaction, 0.10 bitcoin. He carefully checks to make sure he has entered the correct amount, as 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.
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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 by entering her address in the search box. The website will show her a page (https://blockchain.info/address/1Cdid9KFAaatwczBwBttQcwXYCpvK8h7FK) listing all the transactions to and from that address. If Alice is watching that page, soon after Joe hits "Send", it will update to show a new transaction transferring 0.10 bitcoin to her balance.
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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 by entering her address in the search box. The website will show her a page (https://blockchain.info/address/1Cdid9KFAaatwczBwBttQcwXYCpvK8h7FK) 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".
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.Confirmations
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****
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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 miner has discovered a solution to the Proof-of-Work algorithm for this block, 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 is only "trusted" by all when it is included in a newly mined block. The more blocks mined after that block, the more trusted it is, as more and more computation is "piled" on top of it.
|
||||
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 miner has discovered a solution to the Proof-of-Work algorithm for this block (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. The more blocks mined after that block, the more trusted it is, as more and more computation is "piled" on top of it.
|
||||
****
|
||||
|
||||
Alice is now the proud owner of 0.10 bitcoin which 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.
|
||||
|
||||
@ -61,7 +61,7 @@ A description for the payment: "Purchase at Bob's Cafe"
|
||||
Unlike a QR code that simply contains a destination bitcoin address, a "payment request" is a QR encoded URL that contains a destination address, a payment amount and a generic description such as "Bob's Cafe". This allows a bitcoin wallet application to pre-fill the information to send the payment while showing a human-readable description to the user. See <<payment request URL>>, for more details. You can scan the QR code above with a bitcoin wallet application to see what Alice would see.
|
||||
====
|
||||
|
||||
Bob says "That's one-dollar-fifty, or fifteen milliBits".
|
||||
Bob says "That's one-dollar-fifty, or fifteen millibits".
|
||||
|
||||
Alice uses her smartphone to scan the barcode on display. Her smartphone shows a payment of +0.0150 BTC+ to +Bob's Cafe+ and she selects +Send+ to authorize the payment. Within a few seconds (about the same time as a credit card authorization), Bob would see the transaction on the register, completing the transaction.
|
||||
|
||||
@ -83,12 +83,12 @@ Transactions are like lines in a double-entry bookkeeping ledger. In simple term
|
||||
.Transaction As Double-Entry Bookkeeping
|
||||
image::images/Transaction_Double_Entry.png["Transaction Double-Entry"]
|
||||
|
||||
The transaction contains proof of ownership for each amount of bitcoin (inputs) whose value is transferred, in the form of a digital signature from the owner, that 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 contains proof of ownership for each amount of bitcoin (inputs) whose value is transferred, in the form of a digital signature from the owner, that 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.
|
||||
|
||||
|
||||
[TIP]
|
||||
====
|
||||
_Transactions_ move value *from* _transaction inputs_ *to* _transaction outputs_. An input is where the coin value is coming from, usually a previous transaction's output. A transaction output assigns a new owner to the value by associating it with a key. The destination key is called an _encumberance_, it imposes a requirement for a signature for the funds to be redeemed in future transactions. Outputs from one transaction can be used as inputs in a new transaction, thus creating a chain of ownership as the value is moved from address to address.
|
||||
_Transactions_ move value *from* _transaction inputs_ *to* _transaction outputs_. An input is where the coin value is coming from, usually a previous transaction's output. A transaction output assigns a new owner to the value by associating it with a key. The destination key is called an _encumberance_. It imposes a requirement for a signature for the funds to be redeemed in future transactions. Outputs from one transaction can be used as inputs in a new transaction, thus creating a chain of ownership as the value is moved from address to address.
|
||||
====
|
||||
|
||||
|
||||
@ -106,7 +106,7 @@ The most common form of transaction is a simple payment from one address to anot
|
||||
.Most Common Transaction
|
||||
image::images/Bitcoin_Transaction_Structure_Common.png["Common Transaction"]
|
||||
|
||||
Another common form of transaction is a transaction that aggregates several inputs into a single output. This represents the real-world equivalent of exchanging a pile of coins and currency notes for a single larger note. Transactions like these are sometimes generated by wallet applications to cleanup lots of smaller amounts that were received as change for payments.
|
||||
Another common form of transaction is a transaction that aggregates several inputs into a single output. This represents the real-world equivalent of exchanging a pile of coins and currency notes for a single larger note. Transactions like these are sometimes generated by wallet applications to clean up lots of smaller amounts that were received as change for payments.
|
||||
|
||||
[[transaction-aggregating]]
|
||||
.Transaction Aggregating Funds
|
||||
@ -120,7 +120,7 @@ image::images/Bitcoin_Transaction_Structure_Distribution.png["Distributing Trans
|
||||
|
||||
=== Constructing A Transaction
|
||||
|
||||
Alice's wallet application contains all the logic for selecting appropriate inputs and outputs to build a transaction to Alice's specification. Alice only needs to specify a destination and an amount and the rest happens in the wallet application without her seeing the details. Importantly, a wallet application can construct transactions even if it is completely offline. Like writing a cheque at home and later sending it to the bank in an envelope, the transaction does not need to be constructed and signed while connected to the bitcoin network, it only has to be sent to the network eventually for it to be executed.
|
||||
Alice's wallet application contains all the logic for selecting appropriate inputs and outputs to build a transaction to Alice's specification. Alice only needs to specify a destination and an amount and the rest happens in the wallet application without her seeing the details. Importantly, a wallet application can construct transactions even if it is completely offline. Like writing a cheque at home and later sending it to the bank in an envelope, the transaction does not need to be constructed and signed while connected to the bitcoin network. It only has to be sent to the network eventually for it to be executed.
|
||||
|
||||
==== Getting the right inputs
|
||||
|
||||
@ -128,7 +128,7 @@ Alice's wallet application will first have to find inputs that can pay for the a
|
||||
|
||||
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 a 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:
|
||||
|
||||
.Lookup all the unspent outputs for Alice's address 1Cdid9KFAaatwczBwBttQcwXYCpvK8h7FK
|
||||
.Look up all the unspent outputs for Alice's address 1Cdid9KFAaatwczBwBttQcwXYCpvK8h7FK
|
||||
----
|
||||
$ curl https://blockchain.info/unspent?active=1Cdid9KFAaatwczBwBttQcwXYCpvK8h7FK
|
||||
|
||||
@ -154,19 +154,19 @@ The response above shows that the bitcoin network knows of one unspent output (o
|
||||
|
||||
[TIP]
|
||||
====
|
||||
Lookup 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:
|
||||
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:
|
||||
|
||||
https://blockchain.info/tx/7957a35fe64f80d234d76d83a2a8f1a0d8149a41d81de548f0a65a8a999f6f18
|
||||
====
|
||||
|
||||
As you can see, Alice's wallet contains enough bitcoins in a single unspent output to pay for the cup of coffee. Had this not been the case, Alice's wallet application might have to "rummage" through a pile of smaller unspent outputs, like picking coins from a purse, until it could find enough to pay for coffee. In both cases, there might be a need to get some change back, which we will see in the next section, as the wallet application creates the transaction outputs (payments).
|
||||
As you can see, Alice's wallet contains enough bitcoins in a single unspent output to pay for the cup of coffee. Had this not been the case, Alice's wallet application might have to "rummage" through a pile of smaller unspent outputs, like picking coins from a purse until it could find enough to pay for coffee. In both cases, there might be a need to get some change back, which we will see in the next section, as the wallet application creates the transaction outputs (payments).
|
||||
|
||||
|
||||
==== Creating the outputs
|
||||
|
||||
A transaction output is created in the form of a script, that creates an encumberance on the value and can only be redeemed by the introduction of a solution to the script. In simpler terms, Alice's transaction output will contain a script that says something like "This output is payable to whoever can present a signature from the key corresponding to Bob's public address". Since only Bob has the wallet with the keys corresponding to that address, only Bob's wallet can present such a signature to redeem this output. Alice will therefore "encumber" the output value with a demand for a signature from Bob.
|
||||
A transaction output is created in the form of a script that creates an encumberance on the value and can only be redeemed by the introduction of a solution to the script. In simpler terms, Alice's transaction output will contain a script that says something like "This output is payable to whoever can present a signature from the key corresponding to Bob's public address". Since only Bob has the wallet with the keys corresponding to that address, only Bob's wallet can present such a signature to redeem this output. Alice will therefore "encumber" the output value with a demand for a signature from Bob.
|
||||
|
||||
This transaction will also include a second output, because Alice's funds are in the form of a 0.10 BTC output, too much money for the 0.015 BTC cup of coffee. Alice will need 0.085 BTC in change. Alice's change payment is created _by Alice's wallet_ in the very same transaction as the payment to Bob. Essentially, Alice's wallet breaks her funds into two payments, one to Bob, one back to herself. She can then use the change output in a subsequent transaction, thus spending it later.
|
||||
This transaction will also include a second output, because Alice's funds are in the form of a 0.10 BTC output, too much money for the 0.015 BTC cup of coffee. Alice will need 0.085 BTC in change. Alice's change payment is created _by Alice's wallet_ in the very same transaction as the payment to Bob. Essentially, Alice's wallet breaks her funds into two payments: one to Bob, and one back to herself. She can then use the change output in a subsequent transaction, thus spending it later.
|
||||
|
||||
Finally, for the transaction to be processed by the network in a timely fashion, Alice's wallet application will add a small fee. This is not explicit in the transaction, it is implied by the difference between inputs and outputs. If instead of taking 0.085 in change, Alice creates only 0.0845 as the second output, there will be 0.0005 BTC (half a millibitcoin) left over. The input's 0.10 BTC is not fully spent with the two outputs, as they will add up to less than 0.10. The resulting difference is the _transaction fee_ which is collected by the miner as a fee for including the transaction in a block and putting it on the blockchain ledger.
|
||||
|
||||
@ -194,31 +194,31 @@ Since the transaction contains all the information necessary to process, it does
|
||||
|
||||
===== How it propagates
|
||||
|
||||
Alice's wallet application can send the new transaction to any of the other bitcoin clients it is connected to, over WiFi or mobile data, or any Internet connection. Her bitcoin wallet does not have to be connected to Bob's bitcoin wallet directly and she does not have to use the Internet connection offered by the cafe, though both those options are possible too. Any bitcoin network node (other client) that receives a valid transaction it has not seen before, will immediately forward it to other nodes it is connected to. Thus, the transaction rapidly propagates out across the peer-to-peer network, reaching a large percentage of the nodes within a few seconds.
|
||||
Alice's wallet application can send the new transaction to any of the other bitcoin clients it is connected to over any Internet connection: wired, WiFi, or mobile. Her bitcoin wallet does not have to be connected to Bob's bitcoin wallet directly and she does not have to use the Internet connection offered by the cafe, though both those options are possible too. Any bitcoin network node (other client) that receives a valid transaction it has not seen before, will immediately forward it to other nodes it is connected to. Thus, the transaction rapidly propagates out across the peer-to-peer network, reaching a large percentage of the nodes within a few seconds.
|
||||
|
||||
===== Bob's view
|
||||
|
||||
If Bob's bitcoin wallet application is directly connected to Alice's wallet application, it may be the first node to receive the transaction. However, even if Alice's wallet sends it through other nodes, the transaction will reach Bob's wallet within a few seconds. Bob's wallet will immediately identify Alice's transaction as an incoming payment because it contains outputs redeemable by Bob's keys. Bob's wallet application can also independently verify that the transaction is well-formed, uses previously-unspent inputs and contains sufficient transaction fees to be included in the next block. At this point, Bob can assume, with little risk, that the transaction will shortly be included in a block and confirmed.
|
||||
If Bob's bitcoin wallet application is directly connected to Alice's wallet application, it may be the first node to receive the transaction. However, even if Alice's wallet sends it through other nodes, the transaction will reach Bob's wallet within a few seconds. Bob's wallet will immediately identify Alice's transaction as an incoming payment because it contains outputs redeemable by Bob's keys. Bob's wallet application can also independently verify that the transaction is well-formed, uses previously-unspent inputs and contains sufficient transaction fees to be included in the next block. At this point Bob can assume, with little risk, that the transaction will shortly be included in a block and confirmed.
|
||||
|
||||
[TIP]
|
||||
====
|
||||
A common misconception about bitcoin transactions is that they must be "confirmed" by waiting 10 minutes for a new block, or up to sixty minutes for a full six confirmations. While confirmations ensure the transaction has been accepted by the whole network, for small value items like a cup of coffee, such a delay is unnecessary. A merchant may accept a valid small-value transaction with no confirmations, with no more risk than a credit card payment made without ID or a signature, as many do today.
|
||||
A common misconception about bitcoin transactions is that they must be "confirmed" by waiting 10 minutes for a new block, or up to sixty minutes for a full six confirmations. While confirmations ensure the transaction has been accepted by the whole network, such a delay is unnecessary for small value items like a cup of coffee. A merchant may accept a valid small-value transaction with no confirmations, with no more risk than a credit card payment made without ID or a signature, as many do today.
|
||||
====
|
||||
|
||||
=== Bitcoin Mining
|
||||
|
||||
The transaction is now propagated on the bitcoin network. It does not become part of the shared ledger (the _blockchain_) until it is verified and included in a block, in a process called _mining_. See <<mining>> for a detailed explanation.
|
||||
The transaction is now propagated on the bitcoin network. It does not become part of the shared ledger (the _blockchain_) until it is verified and included in a block by a process called _mining_. See <<mining>> for a detailed explanation.
|
||||
|
||||
The bitcoin system of trust is based on computation. Transactions are bundled into _blocks_ which require an enormous amount of computation to prove, but only a small amount of computation to verify as proven, in a process called _mining_. Mining serves two purposes in bitcoin:
|
||||
The bitcoin system of trust is based on computation. Transactions are bundled into _blocks_ which require an enormous amount of computation to prove, but only a small amount of computation to verify as proven. This process is called _mining_ and serves two purposes in bitcoin:
|
||||
|
||||
* Mining creates new bitcoins in each block, almost like a central bank printing new money. The amount of bitcoin created is fixed and diminishes with time
|
||||
* Mining creates new bitcoins in each block, almost like a central bank printing new money. The amount of bitcoin created 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.
|
||||
|
||||
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.
|
||||
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.
|
||||
|
||||
Jing started mining in 2010 using a very fast desktop computer to find a suitable Proof-of-Work for new blocks. As more miners started joining the bitcoin network, the difficulty of the problem increased rapidly. Soon, Jing and other miners upgraded to more specialized hardware, such as Graphical Processing Units (GPU), as used in gaming desktops or consoles. As this book is written, by 2014, the difficulty is so high that it is only profitable to mine with Application Specific Integrated Circuits, essentially hundreds of mining algorithms printed in hardware, running in parallel on a single silicon chip. Jing also joined a "mining pool", which much like a lottery-pool allows several participants to share their efforts and the rewards. Jing now runs two ASIC machines, which are USB connected devices, to mine for bitcoin 24 hours a day. He pays his electricity costs by selling the bitcoin he is able to generate from mining, creating some income from the profits. His computer runs a copy of bitcoind, the reference bitcoin client, as a back-end to his specialized mining software.
|
||||
Jing started mining in 2010 using a very fast desktop computer to find a suitable Proof-of-Work for new blocks. As more miners started joining the bitcoin network, the difficulty of the problem increased rapidly. Soon, Jing and other miners upgraded to more specialized hardware, such as Graphical Processing Units (GPU), as used in gaming desktops or consoles. As this book is written, by 2014, the difficulty is so high that it is only profitable to mine with Application Specific Integrated Circuits, essentially hundreds of mining algorithms printed in hardware, running in parallel on a single silicon chip. Jing also joined a "mining pool", which much like a lottery-pool allows several participants to share their efforts and the rewards. Jing now runs two USB-connected ASIC machines to mine for bitcoin 24 hours a day. He pays his electricity costs by selling the bitcoin he is able to generate from mining, creating some income from the profits. His computer runs a copy of bitcoind, the reference bitcoin client, as a back-end to his specialized mining software.
|
||||
|
||||
=== Mining transactions in blocks
|
||||
|
||||
@ -231,9 +231,9 @@ Alice's transaction was picked up by the network and included in the pool of unv
|
||||
You can see the block that includes Alice's transaction here:
|
||||
https://blockchain.info/block-height/277316
|
||||
|
||||
A few minutes later, a new block, #277317 is mined by another miner. As this new block is based on the previous block (#277316) that contained Alice's transaction, it added even more computation on top of that block, thereby strengthening the trust in those transactions. One block mined on top of the one containing the transaction, is called "one confirmation" for that transaction. As the blocks pile on top of each other, it becomes exponentially harder to reverse the transaction, thereby making it more and more trusted by the network.
|
||||
A few minutes later, a new block, #277317 is mined by another miner. As this new block is based on the previous block (#277316) that contained Alice's transaction, it added even more computation on top of that block, thereby strengthening the trust in those transactions. One block mined on top of the one containing the transaction is called "one confirmation" for that transaction. As the blocks pile on top of each other, it becomes exponentially harder to reverse the transaction, thereby making it more and more trusted by the network.
|
||||
|
||||
In the diagram below, we can see block #277316, the one which contains Alice's transaction. Below it are 277,315 blocks, linked to each other in a chain of blocks (blockchain) all the way back to block #0, the genesis block. Over time, as the "height" in blocks increases, so does the computation difficulty for each block and the chain as a whole. The blocks mined after the one that contains Alice's transaction act as further assurance, as they pile on more computation in a longer and longer chain. The blocks above count as "confirmations". By convention, any block with more than 6 confirmation is considered irrevocable, as it would require an immense amount of computation to invalidate and re-calculate six blocks. We will examine the process of mining and the way it builds trust in more detail in <<mining>>.
|
||||
In the diagram below we can see block #277316, which contains Alice's transaction. Below it are 277,315 blocks, linked to each other in a chain of blocks (blockchain) all the way back to block #0, the genesis block. Over time, as the "height" in blocks increases, so does the computation difficulty for each block and the chain as a whole. The blocks mined after the one that contains Alice's transaction act as further assurance, as they pile on more computation in a longer and longer chain. The blocks above count as "confirmations". By convention, any block with more than 6 confirmations is considered irrevocable, as it would require an immense amount of computation to invalidate and re-calculate six blocks. We will examine the process of mining and the way it builds trust in more detail in <<mining>>.
|
||||
|
||||
[[block-alice]]
|
||||
.Alice's transaction included in block #277,317
|
||||
@ -245,7 +245,7 @@ Now that Alice's transaction has been embedded in the blockchain as part of a bl
|
||||
|
||||
Bob can now spend the output from this and other transactions, by creating his own transactions that reference these outputs as their inputs and assign them new ownership. For example, Bob can pay a contractor or supplier by transferring value from Alice's coffee cup payment to these new owners. Most likely, Bob's bitcoin software will aggregate many small payments into a larger payment, perhaps concentrating all the day's bitcoin revenue into a single transaction. This would move the various payments into a single address, utilized as the store's general "checking" account. For a diagram of an aggregating transaction, see <<transaction-aggregating>>.
|
||||
|
||||
As Bob spends the payments received from Alice and other customers, he extends the chain of transactions, which in turn are added to the global blockchain ledger for all to see and trust. Let's assume that Bob pays his web designer Gopesh in Bangalore for a new web site page. Now the chain of transactions will look like this:
|
||||
As Bob spends the payments received from Alice and other customers, he extends the chain of transactions which in turn are added to the global blockchain ledger for all to see and trust. Let's assume that Bob pays his web designer Gopesh in Bangalore for a new web site page. Now the chain of transactions will look like this:
|
||||
|
||||
[[block-alice]]
|
||||
.Alice's transaction as part of a transaction chain from Joe to Gopesh
|
||||
|
||||
@ -15,7 +15,7 @@ image::images/bitcoin-choose-client.png["bitcoin choose client"]
|
||||
|
||||
If you download an installable package, such as an EXE, DMG or PPA, you can install it the same way as any application on your operating system. For Windows, run the EXE and follow the step-by-step instructions. For Mac OS, launch the DMG and drag the Bitcoin-QT icon into your Applications folder. For Ubuntu, double-click on the PPA in your File Explorer and it will open the package manager to install the package. Once you have completed installation you should have a new application "Bitcoin-Qt" in your application list. Double-click on the icon to start the bitcoin client.
|
||||
|
||||
The first time you run Bitcoin Core it will start downloading the blockchain, a process that may take several days. Leave it running in the background, until it displays "Synchronized" and no longer shows "Out of sync" next to the balance.
|
||||
The first time you run Bitcoin Core it will start downloading the blockchain, a process that may take several days. Leave it running in the background until it displays "Synchronized" and no longer shows "Out of sync" next to the balance.
|
||||
|
||||
[TIP]
|
||||
====
|
||||
@ -29,7 +29,7 @@ image::images/bitcoin-qt-firstload.png["bitcoin-qt first run"]
|
||||
|
||||
==== Bitcoin Core - Compiling the client from the source code
|
||||
|
||||
For developers, there is also the option to download the full source code, either as a ZIP archive or by cloning the authoritative source repository from Github. Go to https://github.com/bitcoin/bitcoin and select "Download ZIP" from the sidebar. Alternatively, use the git command line to create a local copy of the source code on your system. In the example below, we are cloning the source code from a unix-like command-line, in Linux or Mac OS:
|
||||
For developers, there is also the option to download the full source code as a ZIP archive or by cloning the authoritative source repository from Github. Go to https://github.com/bitcoin/bitcoin and select "Download ZIP" from the sidebar. Alternatively, use the git command line to create a local copy of the source code on your system. In the example below, we are cloning the source code from a unix-like command-line, in Linux or Mac OS:
|
||||
|
||||
----
|
||||
$ git clone https://github.com/bitcoin/bitcoin.git
|
||||
@ -53,7 +53,7 @@ When the git cloning operation has completed, you will have a complete local cop
|
||||
$ cd bitcoin
|
||||
----
|
||||
|
||||
By default, the local copy will be synchronized with the most recent code which may be an unstable or "beta" version of bitcoin. Before compiling the code, we want to select a specific version, by checking out a release _tag_. This will synchronize the local copy with a specific snapshot of the code repository identified by a keyword tag. Tags are used by the developers to mark specific releases of the code by version number. First, to find the available tags, we use the +git tag+ command:
|
||||
By default, the local copy will be synchronized with the most recent code which may be an unstable or "beta" version of bitcoin. Before compiling the code, we want to select a specific version by checking out a release _tag_. This will synchronize the local copy with a specific snapshot of the code repository identified by a keyword tag. Tags are used by the developers to mark specific releases of the code by version number. First, to find the available tags, we use the +git tag+ command:
|
||||
|
||||
----
|
||||
$ git tag
|
||||
@ -84,7 +84,7 @@ $
|
||||
----
|
||||
|
||||
|
||||
The source code includes documentation, which can be found in a number of files. Review the main documentation located in README.md in the bitcoin directory, by typing +more README.md+ at the prompt, using the space bar to progress to the next page. In this chapter we will build the command-line bitcoin client, also known as +bitcoind+ on Linux. Review the instructions for compiling the bitcoind command-line client on your platform by typing +more doc/build-unix.md+. Alternative instructions for Mac OSX and Windows can be found in the doc directory, as +build-os.md+ or +build-msw.md+ respectively.
|
||||
The source code includes documentation, which can be found in a number of files. Review the main documentation located in README.md in the bitcoin directory by typing +more README.md+ at the prompt and using the space bar to progress to the next page. In this chapter we will build the command-line bitcoin client, also known as +bitcoind+ on Linux. Review the instructions for compiling the bitcoind command-line client on your platform by typing +more doc/build-unix.md+. Alternative instructions for Mac OSX and Windows can be found in the doc directory, as +build-os.md+ or +build-msw.md+ respectively.
|
||||
|
||||
Carefully review the build pre-requisites which are in the first part of the build documentation. These are libraries that must be present on your system before you can begin to compile bitcoin. If these pre-requisites are missing the build process will fail with an error. If this happens because you missed a pre-requisite, you can install it and then resume the build process from where you left off. Assuming the pre-requisites are installed, we start the build process by generating a set of build scripts using the +autogen.sh+ script.
|
||||
|
||||
@ -140,7 +140,7 @@ Report bugs to <info@bitcoin.org>.
|
||||
$
|
||||
----
|
||||
|
||||
The +configure+ script allows you to enable or disable certain features of bitcoind through the use of the +--enable-FEATURE+ and +--disable-FEATURE+ flags, where +FEATURE+ is replaced by the feature name, as listed in the help output above. In this chapter, we will build the bitcoind client with all the default features, so we won't be using these flags, but you should review them to understand what optional features are part of the client. Next, we run the +configure+ script to automatically discover all the necessary libraries and create a customized build script for our system:
|
||||
The +configure+ script allows you to enable or disable certain features of bitcoind through the use of the +--enable-FEATURE+ and +--disable-FEATURE+ flags, where +FEATURE+ is replaced by the feature name, as listed in the help output above. In this chapter, we will build the bitcoind client with all the default features. We won't be using the configuration flags, but you should review them to understand what optional features are part of the client. Next, we run the +configure+ script to automatically discover all the necessary libraries and create a customized build script for our system:
|
||||
|
||||
----
|
||||
$ ./configure
|
||||
@ -170,7 +170,7 @@ config.status: executing depfiles commands
|
||||
$
|
||||
----
|
||||
|
||||
If all goes well, the +configure+ command will end by creating the customized build scripts that will allow us to compile bitcoind. If there are any missing libraries or errors, the +configure+ command will terminate with an error instead of creating the build scripts as shown above. If an error occurs, it is most likely a missing or incompatible library. Review the build documentation again and make sure you install the missing pre-requisites, then run +configure+ again and see if that fixes the error. Next, we will compile the source code, a process that can take up to an hour to complete. During the compilation process you should see output every few seconds or every few minutes, or an error if something goes wrong. The compilation process can be resumed at any time if interrupted. Type +make+ to start compiling:
|
||||
If all goes well, the +configure+ command will end by creating the customized build scripts that will allow us to compile bitcoind. If there are any missing libraries or errors, the +configure+ command will terminate with an error instead of creating the build scripts as shown above. If an error occurs, it is most likely a missing or incompatible library. Review the build documentation again and make sure you install the missing pre-requisites. Then run +configure+ again and see if that fixes the error. Next, we will compile the source code, a process that can take up to an hour to complete. During the compilation process you should see output every few seconds or every few minutes, or an error if something goes wrong. The compilation process can be resumed at any time if interrupted. Type +make+ to start compiling:
|
||||
|
||||
----
|
||||
$ make
|
||||
@ -201,7 +201,7 @@ make[1]: Leaving directory `/home/ubuntu/bitcoin'
|
||||
$
|
||||
----
|
||||
|
||||
If all goes well, bitcoind is now compiled. The final step is to install the bitcoind executable into the system path, using the +make+ command:
|
||||
If all goes well, bitcoind is now compiled. The final step is to install the bitcoind executable into the system path using the +make+ command:
|
||||
|
||||
----
|
||||
$ sudo make install
|
||||
@ -239,7 +239,7 @@ It is also recommended to set alertnotify so you are notified of problems;
|
||||
for example: alertnotify=echo %s | mail -s "Bitcoin Alert" admin@foo.com
|
||||
----
|
||||
|
||||
Edit the configuration file in your preferred editor and set the parameters, replacing the password with a strong password as recommended by bitcoind. Do *not* use the password shown below. Create a file inside the +.bitcoin+ directory, so that it is named +.bitcoin/bitcoin.conf+ and enter a username and password:
|
||||
Edit the configuration file in your preferred editor and set the parameters, replacing the password with a strong password as recommended by bitcoind. Do *not* use the password shown below. Create a file inside the +.bitcoin+ directory so that it is named +.bitcoin/bitcoin.conf+ and enter a username and password:
|
||||
|
||||
----
|
||||
rpcuser=bitcoinrpc
|
||||
@ -330,7 +330,7 @@ verifymessage "bitcoinaddress" "signature" "message"
|
||||
|
||||
Commands: -daemon, getinfo
|
||||
|
||||
Now, run the bitcoin client. The first time you run it, it will rebuild the bitcoin blockchain. This is a multi-gigabyte file and will take on average 2 days to download in full. You can shorten the blockchain initialization time by downloading a partial copy of the blockchain using bittorrent from +http://sourceforge.net/projects/bitcoin/files/Bitcoin/blockchain/+.
|
||||
Now, run the bitcoin client. The first time you run it the bitcoin blockchain will be rebuilt. This is a multi-gigabyte file and will take on average 2 days to download in full. You can shorten the blockchain initialization time by downloading a partial copy of the blockchain using bittorrent from +http://sourceforge.net/projects/bitcoin/files/Bitcoin/blockchain/+.
|
||||
|
||||
Run bitcoind in the background with the option +-daemon+:
|
||||
|
||||
@ -378,7 +378,7 @@ $ bitcoind getinfo
|
||||
}
|
||||
----
|
||||
|
||||
The data is returned in 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 in 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]
|
||||
====
|
||||
@ -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
|
||||
@ -488,7 +488,7 @@ $ bitcoind getreceivedbyaddress 1hvzSofGwT8cjb8JU7nBsCSfEVQX5u9CL 0
|
||||
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
|
||||
@ -551,7 +551,7 @@ If the transaction has not yet confirmed, the balance returned by getbalance wil
|
||||
==== Exploring and decoding transactions
|
||||
Commands: gettransaction, getrawtransaction, decoderawtransaction
|
||||
|
||||
We'll now explore the incoming transaction that was listed above, using the +gettransaction+. We can retrieve a transaction by its transaction hash, shown at +txid+, above with the +gettransaction+ command:
|
||||
We'll now explore the incoming transaction that was listed above using the +gettransaction+ command. We can retrieve a transaction by its transaction hash, shown at +txid+, above with the +gettransaction+ command:
|
||||
|
||||
----
|
||||
$ bitcoind gettransaction 9ca8f969bd3ef5ec2a8685660fdbf7a8bd365524c2e1fc66c309acbae2c14ae3
|
||||
@ -634,11 +634,11 @@ $ bitcoind decoderawtransaction 0100000001d717...388ac00000000
|
||||
}
|
||||
----
|
||||
|
||||
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 millibits 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 millibit 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 millibits 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 millibit 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.
|
||||
|
||||
Once the transaction we received has been confirmed, by inclusion in a block, the +gettransaction+ command will return additional information, showing the block hash (identifier) in which the transaction was included:
|
||||
Once the transaction we received has been confirmed by inclusion in a block, the +gettransaction+ command will return additional information, showing the block hash (identifier) in which the transaction was included:
|
||||
|
||||
----
|
||||
$ bitcoind gettransaction 9ca8f969bd3ef5ec2a8685660fdbf7a8bd365524c2e1fc66c309acbae2c14ae3
|
||||
@ -715,7 +715,7 @@ $ bitcoind getblock 000000000000000051d2e759c63a26e247f185ecb7926ed7a6624bc31c2a
|
||||
|
||||
The block contains 367 transactions and as you see above, the 18th transaction listed (+9ca8f9...+) is the txid of the one crediting 50 millibits to our address. The +height+ entry tells us this is the 286384'th block in the blockchain.
|
||||
|
||||
We can also retrieve a block by its block height, using the +getblockhash+ command, which takes the block height as the parameter and returns the block hash for that block:
|
||||
We can also retrieve a block by its block height using the +getblockhash+ command, which takes the block height as the parameter and returns the block hash for that block:
|
||||
|
||||
----
|
||||
$ bitcoind getblockhash 0
|
||||
@ -752,7 +752,7 @@ The +getblock+, +getblockhash+ and +gettransaction+ commands can be used to expl
|
||||
|
||||
Commands: listunspent, gettxout, createrawtransaction, decoderawtransaction, signrawtransaction, sendrawtransaction
|
||||
|
||||
Bitcoin's transactions are based on the concept of spending "outputs", which are the result of previous transactions, creating a transaction chain that transfers ownership from address to address. Our wallet has now received a transaction that assigned one such output to our address. Once this is confirmed, we can now spend that output.
|
||||
Bitcoin's transactions are based on the concept of spending "outputs", which are the result of previous transactions, to create a transaction chain that transfers ownership from address to address. Our wallet has now received a transaction that assigned one such output to our address. Once this is confirmed, we can now spend that output.
|
||||
|
||||
First, we use the +listunspent+ command to show all the unspent *confirmed* outputs in our wallet:
|
||||
|
||||
@ -771,7 +771,7 @@ $ bitcoind listunspent
|
||||
]
|
||||
----
|
||||
|
||||
We see that the transaction +9ca8f9...+ created an output (with vout index 0) assigned to the address +1hvzSo...+ for the amount of 50 millibits, which at this point has received 7 confirmations. Transactions use previously created outputs as their inputs, by referring to them by the previous txid and vout index. We will now create a transaction that will spend the 0'th vout of the txid +9ca8f9...+ as its input and assign it to a new output that sends value to a new address.
|
||||
We see that the transaction +9ca8f9...+ created an output (with vout index 0) assigned to the address +1hvzSo...+ for the amount of 50 millibits, which at this point has received 7 confirmations. Transactions use previously created outputs as their inputs by referring to them by the previous txid and vout index. We will now create a transaction that will spend the 0'th vout of the txid +9ca8f9...+ as its input and assign it to a new output that sends value to a new address.
|
||||
|
||||
First, let's look at the specific output in more detail. We use the +gettxout+ to get the details of this unspent output above. Transaction outputs are always referenced by txid and vout and these are the parameters we pass to +gettxout+:
|
||||
|
||||
@ -867,11 +867,11 @@ $ bitcoind decoderawtransaction 0100000001e34ac1e2baac09c366fce1c2245536bda8f7db
|
||||
|
||||
That looks correct! Our new transaction "consumes" the unspent output from our confirmed transaction and then spends it in two outputs, one for 25 millibits to our new address and one for 24.5 millibits as change back to the original address. The difference of 0.5 millibits represents the transaction fee and will be credited to the miner who finds the block that includes our transaction.
|
||||
|
||||
As you may notice, the transaction contains an empty +scriptSig+, because we haven't signed it yet. Without a signature, this transaction is meaningless, we haven't yet proven that we *own* the address from which the unspent output is sourced. By signing, we remove the encumberance on the output and prove that we own this output and can spend it. We use the +signrawtransaction+ command to sign the transaction. It takes the raw transaction hex string as the parameter.
|
||||
As you may notice, the transaction contains an empty +scriptSig+ because we haven't signed it yet. Without a signature, this transaction is meaningless, we haven't yet proven that we *own* the address from which the unspent output is sourced. By signing, we remove the encumberance on the output and prove that we own this output and can spend it. We use the +signrawtransaction+ command to sign the transaction. It takes the raw transaction hex string as the parameter.
|
||||
|
||||
[TIP]
|
||||
====
|
||||
If the wallet is encrypted, you have to unlock it before you sign a transaction, as that operation requires access to the secret keys in your wallet
|
||||
An encrypted wallet must be unlocked before a transaction is signed because signing requires access to the secret keys in the wallet.
|
||||
====
|
||||
|
||||
----
|
||||
@ -935,7 +935,7 @@ $ bitcoind decoderawtransaction 0100000001e34ac1e2baac09c366fce1c2245536bda8f7db
|
||||
|
||||
Now, the inputs used in the transaction contain a +scriptSig+, which is a digital signature proving ownership of address +1hvz...+ and removing the encumberance on the output so that it can be spent. The signature makes this transaction verifiable by any node in the bitcoin network.
|
||||
|
||||
Now it's time to submit the newly created transaction to the network. We do that with the command +sendrawtransaction+ which takes the raw hex string produced by +signrawtransaction+, the same string we just decoded above:
|
||||
Now it's time to submit the newly created transaction to the network. We do that with the command +sendrawtransaction+ which takes the raw hex string produced by +signrawtransaction+. This is the same string we just decoded above:
|
||||
|
||||
----
|
||||
$ bitcoind sendrawtransaction 0100000001e34ac1e2baac09c366fce1c2245536bda8f7db0f6685862aecf53ebd69f9a89c000000006a47304402203e8a16522da80cef66bacfbc0c800c6d52c4a26d1d86a54e0a1b76d661f020c9022010397f00149f2a8fb2bc5bca52f2d7a7f87e3897a273ef54b277e4af52051a06012103c9700559f690c4a9182faa8bed88ad8a0c563777ac1d3f00fd44ea6c71dc5127ffffffff02a0252600000000001976a914d90d36e98f62968d2bc9bbd68107564a156a9bcf88ac50622500000000001976a91407bdb518fa2e6089fd810235cf1100c9c13d1fd288ac00000000
|
||||
@ -1124,7 +1124,7 @@ SpesmiloXchange home page: <http://sx.dyne.org/>
|
||||
|
||||
===== Generating and manipulating keys with sxBitcoin Core
|
||||
|
||||
Generate a new private key, using the operating system's random number generator, with the +newkey+ command. We save the standard output into the file +private_key+:
|
||||
Generate a new private key with the operating system's random number generator by using the +newkey+ command. We save the standard output into the file +private_key+:
|
||||
|
||||
----
|
||||
$ sx newkey > private_key
|
||||
@ -1132,7 +1132,7 @@ $ cat private_key
|
||||
5Jgx3UAaXw8AcCQCi1j7uaTaqpz2fqNR9K3r4apxdYn6rTzR1PL
|
||||
----
|
||||
|
||||
Now, generate the public key from that private key, using the +pubkey+ command. Pass the +private_key+ file into the standard input and save the standard output of the command into a new file +public_key+:
|
||||
Now, generate the public key from that private key using the +pubkey+ command. Pass the +private_key+ file into the standard input and save the standard output of the command into a new file +public_key+:
|
||||
|
||||
----
|
||||
$ sx pubkey < private_key > public_key
|
||||
@ -1140,7 +1140,7 @@ $ cat public_key
|
||||
02fca46a6006a62dfdd2dbb2149359d0d97a04f430f12a7626dd409256c12be500
|
||||
----
|
||||
|
||||
We can re-format the public_key as an address, using the +addr+ command. We pass the +public_key+ into standard input:
|
||||
We can re-format the public_key as an address using the +addr+ command. We pass the +public_key+ into standard input:
|
||||
----
|
||||
$ sx addr < public_key
|
||||
17re1S4Q8ZHyCP8Kw7xQad1Lr6XUzWUnkG
|
||||
@ -1158,7 +1158,8 @@ $ cat seed
|
||||
eb68ee9f3df6bd4441a9feadec179ff1
|
||||
----
|
||||
|
||||
The seed value can also be exported as a word mnemonic that is human readable and easier to store and type than a hexadecimal string, using the +mnemonic+ command:
|
||||
The seed value can also be exported as a word mnemonic that is human readable and easier to store and type than a hexadecimal string
|
||||
using the +mnemonic+ command:
|
||||
|
||||
----
|
||||
$ sx mnemonic < seed > words
|
||||
@ -1166,7 +1167,7 @@ $ cat words
|
||||
adore repeat vision worst especially veil inch woman cast recall dwell appreciate
|
||||
----
|
||||
|
||||
The mnemonic words can be used to reproduce the seed, using the +mnemonic+ command again:
|
||||
The mnemonic words can be used to reproduce the seed using the +mnemonic+ command again:
|
||||
|
||||
----
|
||||
$ sx mnemonic < words
|
||||
@ -1187,7 +1188,7 @@ $ sx genpriv 1 < seed | sx addr
|
||||
1G1oTeXitk76c2fvQWny4pryTdH1RTqSPW
|
||||
----
|
||||
|
||||
With deterministic keys we can generate and re-generate thousands of keys, all derived from a single seed in a deterministic chain. This technique is used in many wallet applications to generate keys that can be backed up and restored with a simple multi-word mnemonic. This is easier than having to backup the wallet with all its randomly generated keys every time a new key is created.
|
||||
With deterministic keys we can generate and re-generate thousands of keys, all derived from a single seed in a deterministic chain. This technique is used in many wallet applications to generate keys that can be backed up and restored with a simple multi-word mnemonic. This is easier than having to back up the wallet with all its randomly generated keys every time a new key is created.
|
||||
|
||||
[TIP]
|
||||
====
|
||||
|
||||
@ -1,13 +1,13 @@
|
||||
[[ch04_wallets_keys]]
|
||||
== Wallets, Keys and Addresses
|
||||
|
||||
Ownership of bitcoin is established through _digital keys_ and _digital signatures_. These keys are not actually stored in the network, but are instead created and stored by end-users, in a file called a _wallet_, or in a database. The keys within each user's wallet allow the user to sign transactions, thereby providing cryptographic proof of the ownership of the bitcoins sourced by the transaction. The keys themselves are completely independent of the bitcoin protocol and can be generated and managed by the end users. Keys can be generated without reference to the blockchain or access to the network. Keys enable many of the interesting properties of bitcoin, including de-centralized trust and control, ownership attestation and the cryptographic-proof security model. Keys can also be converted into unique and public addresses (eg. bitcoin addresses, those that start with a "1"), allowing anyone to create transactions that transfer ownership of bitcoin to our keys.
|
||||
Ownership of bitcoin is established through _digital keys_ and _digital signatures_. These keys are not actually stored in the network, but are instead created and stored by end-users in a file called a _wallet_ or in a database. The keys within each user's wallet allow the user to sign transactions, thereby providing cryptographic proof of the ownership of the bitcoins sourced by the transaction. The keys themselves are completely independent of the bitcoin protocol and can be generated and managed by the end users. Keys can be generated without reference to the blockchain or access to the network. Keys enable many of the interesting properties of bitcoin, including de-centralized trust and control, ownership attestation and the cryptographic-proof security model. Keys can also be converted into unique and public addresses (i.e. bitcoin addresses that start with a "1"), allowing anyone to create transactions that transfer ownership of bitcoin to our keys.
|
||||
|
||||
In this chapter we will introduce wallets, which contain cryptographic keys. We will look at how keys are generated, stored and managed. We will review the various encoding formats used to represent private and public keys, addresses and script addresses. Finally we will look at special uses of keys to sign messages, prove ownership and special addresses uses such as vanity addresses and paper wallets.
|
||||
In this chapter we will introduce wallets, which contain cryptographic keys. We will look at how keys are generated, stored and managed. We will review the various encoding formats used to represent private and public keys, addresses and script addresses. Finally we will look at special uses of keys: to sign messages, to prove ownership and to create vanity addresses and paper wallets.
|
||||
|
||||
[TIP]
|
||||
====
|
||||
Wallets contain keys, not coins. The coins are stored on the blockchain, in the form of transaction-outputs (often noted as vout or txout). Each user has a wallet containing keys. Wallets are really keychains containing pairs of private/public keys (See <<public key>>). Users sign transactions with the keys, thereby proving they own the transaction outputs (their coins).
|
||||
Wallets contain keys, not coins. The coins are stored on the blockchain in the form of transaction-outputs (often noted as vout or txout). Each user has a wallet containing keys. Wallets are really keychains containing pairs of private/public keys (See <<public key>>). Users sign transactions with the keys, thereby proving they own the transaction outputs (their coins).
|
||||
====
|
||||
|
||||
[[wallets]]
|
||||
@ -24,16 +24,16 @@ In the most simple form, the +private key+ is a number. The private key can be u
|
||||
|
||||
===== Generating a private key from a random number
|
||||
|
||||
A private key is a number, between +1+ and +n - 1+ where latexmath:[\(n = 1.158 * 10^\(77\) \)] is the order of the elliptic curve used in bitcoin (See <<secp256k1>>). To create such a key, we just pick a 256-bit random number, and check that it is less than +n - 1+. The constant +n+ is defined in any elliptic curve cryptography library. In programming terms, this is usually achieved by feeding a larger string of random bits, collected from a cryptographically-secure source of randomness, into the SHA-256 hash algorithm which will conveniently produce a 256-bit number.
|
||||
A private key is a number between +1+ and +n - 1+ where latexmath:[\(n = 1.158 * 10^\(77\) \)] is the order of the elliptic curve used in bitcoin (See <<secp256k1>>). To create such a key, we just pick a 256-bit random number and check that it is less than +n - 1+. The constant +n+ is defined in any elliptic curve cryptography library. In programming terms, this is usually achieved by feeding a larger string of random bits, collected from a cryptographically-secure source of randomness, into the SHA-256 hash algorithm which will conveniently produce a 256-bit number.
|
||||
|
||||
|
||||
[TIP]
|
||||
====
|
||||
Do not try and design your own pseudo random number generator (PRNG). Use a cryptographically-secure pseudo-random number generator (CSPRNG) with a seed from a source of sufficient entropy, the choice of which depends on your operating-system. Correct implementation of the CSPRNG is critical to the security of the keys. DIY is highly discouraged unless you are a professional cryptographer.
|
||||
Do not try and design your own pseudo random number generator (PRNG). Use a cryptographically-secure pseudo-random number generator (CSPRNG) with a seed from a source of sufficient entropy, the choice of which depends on the operating-system. Correct implementation of the CSPRNG is critical to the security of the keys. DIY is highly discouraged unless you are a professional cryptographer.
|
||||
====
|
||||
|
||||
|
||||
Below, is a randomly generated private key shown in hexadecimal format (256 binary digits, or bits is shown as 64 hexadecimal digits, each 4-bits):
|
||||
Below is a randomly generated private key shown in hexadecimal format (256 binary digits shown as 64 hexadecimal digits, each 4 bits):
|
||||
|
||||
----
|
||||
1E99423A4ED27608A15A2616A2B0E9E52CED330AC530EDCC32C8FFC6A526AEDD
|
||||
@ -137,7 +137,7 @@ A private key can be converted into a public key, but a public key cannot be con
|
||||
|
||||
==== From Public Key to Address
|
||||
|
||||
An address is a string of digits and characters that can be shared with anyone who wants to send you money. In bitcoin, addresses begin with the digit "1". An address made by hashing the public key twice, through two different hashing algorithms.
|
||||
An address is a string of digits and characters that can be shared with anyone who wants to send you money. In bitcoin, addresses begin with the digit "1". This is an address made by hashing the public key twice through two different hashing algorithms.
|
||||
|
||||
==== Generating keys
|
||||
|
||||
@ -145,12 +145,12 @@ There are many ways to generate keys for use in bitcoin. The simplest is to pick
|
||||
|
||||
[TIP]
|
||||
====
|
||||
The private key is just a number. A public key can be generated from any private key. Therefore, a public key can be generated from any number, up to 256-bits long. You can pick your keys randomly using a method as simple as tossing a coin, pencil and paper. Toss a coin 256 times and you have the binary digits of a random private key you can use in a bitcoin wallet. Keys really are just a pair of numbers, one calculated from the other.
|
||||
The private key is just a number. A public key can be generated from any private key. Therefore, a public key can be generated from any number, up to 256 bits long. You can pick your keys randomly using a method as simple as tossing a coin, pencil and paper. Toss a coin 256 times and you have the binary digits of a random private key you can use in a bitcoin wallet. Keys really are just a pair of numbers, one calculated from the other.
|
||||
====
|
||||
|
||||
===== Type-0 or non-deterministic (random) keys
|
||||
|
||||
The first and most important step in generating keys is to find a secure source of entropy, or randomness. The private key is a 256-bit number, which must be selected at random. Creating a bitcoin key is essentially the same as "Pick a number between 1 and 2^256^". The exact method you use to pick that number does not matter, as long as it is not predictable or repeatable. Bitcoin software will use the underlying operating system's random number generators to produce 256-bits of entropy. Usually, the OS random number generator is initialized by a human source of randomness, which is why you may be asked to wiggle your mouse around for a few seconds. For the truly paranoid, nothing beats dice, pencil and paper.
|
||||
The first and most important step in generating keys is to find a secure source of entropy, or randomness. The private key is a 256-bit number, which must be selected at random. Creating a bitcoin key is essentially the same as "Pick a number between 1 and 2^256^". The exact method you use to pick that number does not matter as long as it is not predictable or repeatable. Bitcoin software will use the underlying operating system's random number generators to produce 256 bits of entropy. Usually, the OS random number generator is initialized by a human source of randomness, which is why you may be asked to wiggle your mouse around for a few seconds. For the truly paranoid, nothing beats dice, pencil and paper.
|
||||
|
||||
|
||||
[[Type0_keygen]]
|
||||
@ -160,7 +160,7 @@ image::images/Type-0 keygen.png["Private key generation"]
|
||||
|
||||
[TIP]
|
||||
====
|
||||
The bitcoin private key is just a number. A public key can be generated from any private key. Therefore, a public key can be generated from any number, up to 256-bits long. You can pick your keys randomly using a method as simple as dice, pencil and paper.
|
||||
The bitcoin private key is just a number. A public key can be generated from any private key. Therefore, a public key can be generated from any number, up to 256 bits long. You can pick your keys randomly using a method as simple as dice, pencil and paper.
|
||||
====
|
||||
|
||||
Once a private key has been generated, the public key equivalent can be derived from it using the elliptic curve multiplication function. Many software implementations of bitcoin use the OpenSSL library, specifically the https://www.openssl.org/docs/crypto/ec.html[Elliptic Curve library].
|
||||
@ -170,7 +170,7 @@ Once a private key has been generated, the public key equivalent can be derived
|
||||
The size of bitcoin's private key, 2^256^ is a truly unfathomable number. It is equal to approximately 10^77^ in decimal. The visible universe contains approximately 10^80^ atoms.
|
||||
====
|
||||
|
||||
This most basic form of key generation, generates what are known as _Type-0_ or _Non-Deterministic_ (ie. random) keys. When a sequence of keys is generated for a single user's wallet, each key is randomly generated when needed
|
||||
This most basic form of key generation generates what are known as _Type-0_ or _Non-Deterministic_ (i.e. random) keys. When a sequence of keys is generated for a single user's wallet, each key is randomly generated when needed.
|
||||
|
||||
[[Type0_chain]]
|
||||
.Type-0 or Non-Deterministic Keys are randomly generated as needed
|
||||
@ -205,7 +205,7 @@ image::images/BIP32-derivation.png["Key generation"]
|
||||
[[public_key]]
|
||||
==== Public key cryptography and crypto-currency
|
||||
((("public key")))
|
||||
Public-key cryptography is like a digital padlock which can only be opened by the owner of a secret, also known as a private key. The owner of that key can hand out as many copies of the padlock, as they want, and others can use it to "lock" bitcoins inside transactions recorded on the blockchain. Only the owner of the private key can then create a signature to unlock and "redeem" these transactions, as only they can open the digital padlock.
|
||||
Public-key cryptography is like a digital padlock which can only be opened by the owner of a secret, also known as a private key. The owner of that key can hand out as many copies of the padlock as they want, and others can use it to "lock" bitcoins inside transactions recorded on the blockchain. Only the owner of the private key can then create a signature to unlock and "redeem" these transactions, as only they can open the digital padlock.
|
||||
|
||||
When Alice pays Bob 15 millibits (0.015 BTC), she is unlocking a set of unspent outputs with _digital signatures_ made with her _private keys_. Like signing a check, she signs a transaction to authorize spending her coins. Then she "locks" a certain amount of bitcoin with Bob's address (made from his _public key_ and freely shared), thereby making a transaction output encumbered by Bob's address and spendable only with Bob's signature.
|
||||
|
||||
@ -213,7 +213,7 @@ Spending can be visualized as unlocking my coins and then locking some of them w
|
||||
|
||||
==== Public Key Cryptography
|
||||
((("public key", "private key")))
|
||||
Public key, or asymmetric cryptography, is a type of cryptography that uses a pair of digital keys. A user has a private and a public key. The public key is derived from the private key with a mathematical function that is difficult to reverse.
|
||||
Public key (or asymmetric) cryptography, is a type of cryptography that uses a pair of digital keys. A user has a private and a public key. The public key is derived from the private key with a mathematical function that is difficult to reverse.
|
||||
|
||||
[[pubcrypto_colors]]
|
||||
.Public Key Cryptography: Irreversible Function as Color Mixing
|
||||
@ -225,7 +225,7 @@ To use public key cryptography, Alice will ask Bob for his public key. Then, Ali
|
||||
|
||||
[TIP]
|
||||
====
|
||||
In most implementations, the private and public keys are stored together as a _key pair_, for convenience. However, it is trivial to re-produce the public key if one has the private key, so storing only the private key is also possible.
|
||||
In most implementations, the private and public keys are stored together as a _key pair_ for convenience. However, it is trivial to reproduce the public key if one has the private key, so storing only the private key is also possible.
|
||||
====
|
||||
|
||||
==== Elliptic Curve Cryptography
|
||||
@ -278,7 +278,7 @@ image::images/ecc-over-F37-math.png["Addition operator on points of an elliptic
|
||||
|
||||
Once a private key has been generated, the public key equivalent can be derived from it using the elliptic curve multiplication function. Many software implementations of bitcoin use the OpenSSL library, specifically the https://www.openssl.org/docs/crypto/ec.html[Elliptic Curve library].
|
||||
|
||||
Here's an example from the reference implementation, generating a public key from an existing private key
|
||||
Here's an example of the reference implementation generating a public key from an existing private key.
|
||||
|
||||
[[ecc_mult]]
|
||||
.Reference Client: Using OpenSSL's EC_POINT_mul to generate the public key from a private key https://github.com/bitcoin/bitcoin/blob/0.8.4/src/key.cpp#L31[bitcoin/src/key.cpp : 31]
|
||||
|
||||
Loading…
Reference in New Issue
Block a user