Mastering bitcoin unlocking digital cryptocurrencies pdf

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A lightweight client, also known as a simplified-payment-verification SPV client, connects to Bitcoin full nodes mentioned previously for access to the Bitcoin transaction information, but stores the user wallet locally and independently creates, validates, and transmits transactions. Lightweight clients interact directly with the Bitcoin network, without an intermediary. A third-party API client is one that interacts with Bitcoin through a third-party system of application programming interfaces APIs , rather than by connecting to the Bitcoin network directly.

The wallet may be stored by the user or by third-party servers, but all transactions go through a third party. Combining these categorizations, many Bitcoin wallets fall into a few groups, with the three most common being desktop full client, mobile lightweight wallet, and web third-party wallet. The lines between different categories are often blurry, as many wallets run on multiple platforms and can interact with the network in different ways. For the purposes of this book, we will be demonstrating the use of a variety of downloadable Bitcoin clients, from the reference implementation Bitcoin Core to mobile and web wallets.

Some of the examples will require the use of Bitcoin Core, which, in addition to being a full client, also exposes APIs to the wallet, network, and transaction services. If you are planning to explore the programmatic interfaces into the Bitcoin system, you will need to run Bitcoin Core, or one of the alternative clients.

Alice, who we introduced in Bitcoin Uses, Users, and Their Stories , is not a technical user and only recently heard about Bitcoin from her friend Joe. While at a party, Joe is once again enthusiastically explaining Bitcoin to all around him and is offering a demonstration.

Intrigued, Alice asks how she can get started with Bitcoin. Joe says that a mobile wallet is best for new users and he recommends a few of his favorite wallets. Alice downloads "Bluewallet" available for iOS and Android and installs it on her phone. When Alice runs her wallet application for the first time, she chooses the option to create a new Bitcoin wallet, and takes a moment away from Joe and all other parties to write down a secret mnemonic phrase in order on a piece of paper.

As explained by the mobile wallet and by Joe earlier, the mnemonic phrase allows Alice to restore her wallet in case she loses her mobile device and grants her access to her funds on another device. After creating her wallet and securing her mnemonic phrase, Alice can tap on her wallet to see her bitcoin amount, transaction history, as well as two buttons that allow her to either receive or send bitcoin, shown in Alice uses the Receive screen on her Bluewallet mobile Bitcoin wallet, and displays her address to Bob in a QR code format.

A modern Bitcoin wallet will provide a mnemonic phrase also sometimes called a "seed" or "seed phrase" for Alice to back up. The mnemonic phrase consists of English words, selected randomly by the software, and used as the basis for the keys that are generated by the wallet.

The mnemonic phrase can be used by Alice to restore all the transactions and funds in her wallet in the case of an event such as a lost mobile device, a software bug, or memory corruption. The correct term for these backup words is "mnemonic phrase". We avoid the use of the term "seed" to refer to a mnemonic phrase, because even though its use is common it is incorrect.

Alice needs to be careful to store the mnemonic phrase in a way that balances the need to prevent theft and accidental loss. If she protects it too much, her mnemonic will be at risk of being permanently lost. The recommended way to properly balance these risks is to write two copies of the mnemonic phrase on paper, with each of the words numbered as the order matters.

Once Alice has recorded the mnemonic phrase, she should plan to store each copy in a separate secure location such as a locked desk drawer or a fireproof safe. Never attempt a "DIY" security scheme that deviates in any way from the best practice recommendation in Storing the Mnemonic Safely. Do not cut your mnemonic in half, make screenshots, store on USB drives, email or cloud drives, encrypt it, or try any other non-standard method.

You will tip the balance in such a way as to risk permanent loss or theft. Many people have lost funds, not from theft but because they tried a non-standard solution without having the expertise to balance the risks involved. The best practice recommendation is carefully balanced by experts and suitable for the vast majority of users. The main wallet view displays the bitcoin amount, transaction history, and Receive and Send buttons. The Buy Bitcoin button would allow Alice to purchase Bitcoin in this fashion.

Alice is now ready to start using her new bitcoin wallet. At this point, her Bitcoin addresses are not known to the Bitcoin network or "registered" with any part of the Bitcoin system. Her Bitcoin addresses are simply random numbers that correspond to her private key that she can use to control access to the funds. The addresses are generated independently by her wallet without reference or registration with any service.

Until the moment an address is referenced as the recipient of value in a transaction posted on the bitcoin ledger, the Bitcoin address is simply part of the vast number of possible addresses that are valid in bitcoin. Only once an address has been associated with a transaction does it become part of the known addresses in the network.

Alice uses the Receive button, which displays a QR code along with a Bitcoin address. Of note, when receiving funds to a new mobile wallet for the first time, many wallets will often re-verify that you have indeed secured your mnemonic phrase.

This can range from a simple prompt to requiring the user to manually re-enter the phrase. Bitcoin addresses start with 1, 3, or bc1. Like email addresses, they can be shared with other bitcoin users who can use them to send bitcoin directly to your wallet. There is nothing sensitive, from a security perspective, about the Bitcoin address. It can be posted anywhere without risking the security of the account. Unlike email addresses, you can create new addresses as often as you like, all of which will direct funds to your wallet.

In fact, many modern wallets automatically create a new address for every transaction to maximize privacy. A wallet is simply a collection of addresses and the keys that unlock the funds within. She can exchange some of her national currency e. USD at a cryptocurrency exchange. She can buy some from a friend, or an acquaintance from a Bitcoin Meetup, in exchange for cash. She can find a Bitcoin ATM in her area, which acts as a vending machine, selling bitcoin for cash.

All of these methods have varying degrees of difficulty, and many will involve paying a fee. However, with all these methods, Alice will be able to receive bitcoin. One of the advantages of bitcoin over other payment systems is that, when used correctly, it affords users much more privacy. Acquiring, holding, and spending bitcoin does not require you to divulge sensitive and personally identifiable information to third parties.

However, where bitcoin touches traditional systems, such as currency exchanges, national and international regulations often apply. In order to exchange bitcoin for your national currency, you will often be required to provide proof of identity and banking information. Users should be aware that once a Bitcoin address is attached to an identity, all associated bitcoin transactions are also easy to identify and track.

This is one reason many users choose to maintain dedicated exchange accounts unlinked to their wallets. Alice was introduced to bitcoin by a friend so she has an easy way to acquire her first bitcoin. Next, we will look at how she buys bitcoin from her friend Joe and how Joe sends the bitcoin to her wallet. Before Alice can buy bitcoin from Joe, they have to agree on the exchange rate between bitcoin and US dollars. This brings up a common question for those new to bitcoin: "Who sets the bitcoin price?

Bitcoin, like most other currencies, has a floating exchange rate. That means that the value of bitcoin vis-a-vis any other currency fluctuates according to supply and demand in the various markets where it is traded. For example, the "price" of bitcoin in US dollars is calculated in each market based on the most recent trade of bitcoin and US dollars.

As such, the price tends to fluctuate minutely several times per second. A pricing service will aggregate the prices from several markets and calculate a volume-weighted average representing the broad market exchange rate of a currency pair e.

There are hundreds of applications and websites that can provide the current market rate. Here are some of the most popular:. A service listing the market capitalization and exchange rates of hundreds of crypto-currencies, including bitcoin. A reference rate that can be used for institutional and contractual reference, provided as part of investment data feeds by the CME. In addition to these various sites and applications, most bitcoin wallets will automatically convert amounts between bitcoin and other currencies.

Joe will use his wallet to convert the price automatically before sending bitcoin to Alice. Joe then selects Send on his Bluewallet smartphone wallet and is presented with a screen containing the following inputs:. In the input field for the Bitcoin address, there is a small Scan button.

He can use this field to add some information regarding his transaction for future reference. This function is for his record keeping only. The transaction note will be stored in his wallet and only Joe will be able to see it. It will not be sent to Alice, nor stored on the blockchain. He also selects a transaction fee for his transaction. The higher the transaction fee, the faster his transaction will be confirmed included in a block by a miner. The price of bitcoin has changed a lot over time, and an incredible amount since the first edition of this book was written.

Many examples in this book reference real-life past transactions, when the price of bitcoin was much lower and transactions with zero fees were still possible. Think about how generous of a friend Joe would have been if he had made the same agreement with Alice today! Using Bluewallet, Joe carefully checks to make sure he has entered the correct amount, because he is about to transmit money and mistakes are irreversible.

For simplicity sake, we will assume that Joe does not pay any transaction fees. The purpose and setting of transaction fees are covered in subsequent chapters. After double-checking the address and amount, he presses Send to transmit the transaction. As the transaction is transmitted via the peer-to-peer protocol, it quickly propagates across the Bitcoin network.

Each bitcoin can be subdivided into million units, each called a "satoshi" singular or "satoshis" plural. To be confirmed, a transaction must be included in a block and added to the blockchain, which happens every 10 minutes, on average. In traditional financial terms this is known as clearing. This book will cover in detail the propagation, validation, and clearing or confirmation of bitcoin transactions.

Alice is now the proud owner of 0. In the next chapter we will look at her first purchase with bitcoin, and examine the underlying transaction and propagation technologies in more detail. Skip to content. Star Permalink develop.

Branches Tags. Could not load branches. Could not load tags. Latest commit abb Oct 25, History. Introduction What Is Bitcoin? Raw Blame. Open with Desktop View raw View blame. A decentralized peer-to-peer network the Bitcoin protocol A public transaction ledger the blockchain A set of rules for independent transaction validation and currency issuance consensus rules A mechanism for reaching global decentralized consensus on the valid blockchain Proof-of-Work algorithm.

Can I trust that the money is authentic and not counterfeit? Can I be sure that no one else can claim this money belongs to them and not me? North American high-value retail Carol is an art gallery owner in San Francisco.

Offshore contract services Bob, the cafe owner in Palo Alto, is building a new website. Web store Gabriel is an enterprising young teenager in Rio de Janeiro, running a small web store that sells Bitcoin-branded t-shirts, coffee mugs, and stickers. Mining for bitcoin Jing is a computer engineering student in Shanghai. Getting Started Bitcoin is a protocol that can be accessed using a client application that speaks the protocol.

Choosing a Bitcoin Wallet Bitcoin wallets are one of the most actively developed applications in the Bitcoin ecosystem. Bitcoin wallets can be categorized as follows, according to the platform:. Desktop wallet A desktop wallet was the first type of Bitcoin wallet created as a reference implementation and many users run desktop wallets for the features, autonomy, and control they offer. As a programmer who was a bit wary of tackling the Account Options Sign in. Try the new Google Books.

Check out the new look and enjoy easier access to your favorite features. Try it now. No thanks. Get print book. Go to Google Play Now ». Mastering Bitcoin : Unlocking Digital Cryptocurrencies. Andreas M. This book includes: A broad introduction to bitcoin—ideal for non-technical users, investors, and business executives An explanation of the technical foundations of bitcoin and cryptographic currencies for developers, engineers, and software and systems architects Details of the bitcoin decentralized network, peer-to-peer architecture, transaction lifecycle, and security principles Offshoots of the bitcoin and blockchain inventions, including alternative chains, currencies, and applications User stories, analogies, examples, and code snippets illustrating key technical concepts.

Preview this book ». What people are saying - Write a review. LibraryThing Review User Review - rmagahiz - LibraryThing It gives a good basic understanding of the algorithms behind transactions, the blockchain, and some of the better known vulnerabilities.

Excellent overview of bitcoin technology User Review - Samuel A. Selected pages Table of Contents. Contents Chapter 1 Introduction. Chapter 2 How Bitcoin Works. Chapter 3 The Bitcoin Client. Chapter 4 Keys Addresses Wallets. Chapter 5 Transactions. Chapter 6 The Bitcoin Network. Chapter 7 The Blockchain. Chapter 8 Mining and Consensus.