The results of this particular fixed computation are 2 filter bytes and 11 hash functions. On the tutorial hand, if a hash is found below the target apithe mining hardware returns the block header with the successful nonce to the mining software. Copies of each tutorial are hashed, api the hashes are then bitcoin, hashed, paired again, and hashed again until a single hash remains, the merkle root of a merkle tree. Such forks activated via a flag day are tutorial as User Activated Soft Forks UASF as they are dependent on having sufficient users nodes to enforce api new rules after the flag api. Currently there are two bitcoin methods of validating the block chain as a client: Now unlike other payment options, like a credit card or PayPal, there is no third party who handles the charge, bitcoin you can't just enter your number or login to pay. We setup our hash function bitcoin using the formula and 0xfba4c constant tutorial in BIP
The sync node can send a non-best but otherwise valid block chain to the IBD node. It should usually be an HTTPS address to prevent man-in-the-middle attacks from modifying the message. The last bit just checks if the status is 1 which means the payment came in and checking the authenticity of the notification. Even today, setting all sequence numbers to 0xffffffff the default in Bitcoin Core can still disable the time lock, so if you want to use locktime , at least one input must have a sequence number below the maximum. The user brings this information to the offline wallet. That message is immediately followed by a getdata message requesting the full block. Although P2SH multisig is now generally used for multisig transactions, this base script can be used to require multiple signatures before a UTXO can be spent.
For this reason, the chain code part of an extended public key should be tutorial secured than standard public keys and users should be advised against exporting even non-extended private keys to possibly-untrustworthy environments. Bitcoin you lose the redeem scriptyou can recreate it api running the same command above, with the public keys listed in the same order. Recall that we created a 2-of-3 multisig pubkey scriptso signatures bitcoin two private keys are needed. Bitcoin can seem a bit tutorial to get started with, but as you can see, it is much simpler then one would think, even simpler then api payment options in most bitcoin. Now the disadvantages are varied. The Payment Protocol has api designed to allow other signing tutorial in the future.
You will have to enter your name, email, website url on which you will implement the API and a description of the items you sell or services you offer on your website. In most cases, your application will be reviewed and you will receive a response within business days. Inside your wallet, you will have to create a new account to be used exclusively for receiving transactions that are facilitated by the API.
This will create a new address for each customer to send payment to. An HTTP notification will be sent to you whenever payments are sent to any of the created addresses.
However, all coins sent to any of the created addresses will be added to the same wallet. As dictated by BIP44, the software of the wallet will not scan more than 20 unused addresses.
The API will return an error, refusing to create new addresses, if more than 20 of the previously created addresses were unused. If you are faced with this error, you will have to either move to a new xPub within the same blockchain. This will not lead to an increase in the number of bitcoin addresses that can be monitored by Blockahin.
Whenever a payment is received, blockchain. The callback URL is limited to a length of characters. If your server returns any other response, or nothing at all, blockchain. Check the index gap between the last address to which payment was successfully sent and the last address generated via the checkgap endpoint. The code pushes a few settings into the request PaymentRequest and details PaymentDetails objects. When we serialize them, PaymentDetails will be contained within the PaymentRequest.
Both options use the X. To use either option, you will need a certificate signed by a certificate authority or one of their intermediaries. A self-signed certificate will not work.
In general, if a certificate works in your web browser when you connect to your webserver, it will work for your PaymentRequests. It should usually be an HTTPS address to prevent man-in-the-middle attacks from modifying the message. As of this writing, the only version is version 1. The certificate must be in ASN. The figure below shows the certificate chain of the www. To be specific, the first certificate provided must be the X. Any intermediate certificates necessary to link that signed public SSL key to the root certificate the certificate authority are attached separately, with each certificate in DER format bearing the signature of the certificate that follows it all the way to but not including the root certificate.
Embedding your passphrase in your CGI code, as done here, is obviously a bad idea in real life. The private SSL key will not be transmitted with your request. If you leave the amount blank, the wallet program will prompt the spender how much to pay which can be useful for donations. First we get a pubkey hash. Next, we plug that hash into the standard P2PKH pubkey script using hex, as illustrated by the code comments. Finally, we convert the pubkey script from hex into its serialized form.
However, effective merge avoidance is not possible under the base BIP70 rules in which the spender pays each script the exact amount specified by its paired amount. Embedded HTML or other markup will not be processed. You can use this to track your invoices, although you can more reliably track payments by generating a unique address for each payment and then tracking when it gets paid. As will be described in a later subsection, the memo field can be used by the spender after payment as part of a cryptographically-proven receipt.
You probably want to give receivers the ability to configure the expiration time delta; here we used the reasonable choice of 10 minutes. If this request is tied to an order total based on a fiat -to- satoshis exchange rate, you probably want to base this on a delta from the time you got the exchange rate. Now that we have PaymentRequest all filled out, we can serialize it and send it along with the HTTP headers , as shown in the code below. The following screenshot shows how the authenticated PaymentDetails created by the program above appears in the GUI from Bitcoin Core 0.
Each code block precedes the paragraph describing it. We start by setting some maximum values defined in BIP We define the number n of elements we plan to insert into the filter and the false positive rate p we want to help protect our privacy. For this example, we will set n to one element and p to a rate of 1-in, to produce a small and precise filter for illustration purposes.
In actual use, your filters will probably be much larger. Using the formula described in BIP37 , we calculate the ideal size of the filter in bytes and the ideal number of hash functions to use. Both are truncated down to the nearest whole number and both are also constrained to the maximum values we defined earlier.
The results of this particular fixed computation are 2 filter bytes and 11 hash functions. We then use nFilterBytes to create a little-endian bit array of the appropriate size. We setup our hash function template using the formula and 0xfba4c constant set in BIP Note that the TXID is in internal byte order. Now we use the hash function template to run a slightly different hash function for nHashFuncs times. The result of each function being run on the transaction is used as an index number: We can see this in the printed debugging output:.
Notice that in iterations 8 and 9, the filter did not change because the corresponding bit was already set in a previous iteration 5 and 7, respectively. This is a normal part of bloom filter operation. We only added one element to the filter above, but we could repeat the process with additional elements and continue to add them to the same filter. To maintain the same false-positive rate, you would need a larger filter size as computed earlier.
Using the filterload message format, the complete filter created above would be the binary form of the annotated hexdump shown below:. Using a bloom filter to find matching data is nearly identical to constructing a bloom filter —except that at each step we check to see if the calculated index bit is set in the existing filter.
Using the bloom filter created above, we import its various parameters. We define a function to check an element against the provided filter.
Testing the filter against the data element we previously added, we get no output indicating a possible match. Recall that bloom filters have a zero false negative rate—so they should always match the inserted elements.
Testing the filter against an arbitrary element, we get the failure output below. It is not possible to set a bloom filter to a false positive rate of zero, so your program will always have to deal with false positives.
For the merkleblock message documentation on the reference page, an actual merkle block was retrieved from the network and manually processed. This section walks through each step of the process, demonstrating basic network communication and merkle block processing. To connect to the P2P network , the trivial Python function above was developed to compute message headers and send payloads decoded from hex.
Peers on the network will not accept any requests until you send them a version message. The receiving node will reply with their version message and a verack message. We set a bloom filter with the filterload message. This filter is described in the two preceeding sections. We request a merkle block for transactions matching our filter, completing our script.
To run the script, we simply pipe it to the Unix netcat command or one of its many clones, one of which is available for practically any platform. For example, with the original netcat and using hexdump hd to display the output:. In the section above, we retrieved a merkle block from the network ; now we will parse it.
Most of the block header has been omitted. For a more complete hexdump, see the example in the merkleblock message section. We parse the above merkleblock message using the following instructions.
Each illustration is described in the paragraph below it. We start by building the structure of a merkle tree based on the number of transactions in the block. The next flag in the example is a 0 and this is also a non- TXID node , so we apply the first hash from the merkleblock message to this node. We go back up to the merkle root and then descend into its right child and look at the next third flag for instructions. The third flag in the example is another 1 on another non- TXID node , so we descend into its left child.
Finally, on the fifth flag in the example a 1 , we reach a TXID node. Receivers do care about the script conditions and, if they want, they can ask spenders to use a particular pubkey script. Unfortunately, custom pubkey scripts are less convenient than short Bitcoin addresses and there was no standard way to communicate them between programs prior to widespread implementation of the BIP70 Payment Protocol discussed later.
To solve these problems, pay-to-script-hash P2SH transactions were created in to let a spender create a pubkey script containing a hash of a second script, the redeem script. Bob creates a redeem script with whatever script he wants, hashes the redeem script , and provides the redeem script hash to Alice. When Bob wants to spend the output , he provides his signature along with the full serialized redeem script in the signature script.
The peer-to-peer network ensures the full redeem script hashes to the same value as the script hash Alice put in her output ; it then processes the redeem script exactly as it would if it were the primary pubkey script , letting Bob spend the output if the redeem script does not return false. The hash of the redeem script has the same properties as a pubkey hash —so it can be transformed into the standard Bitcoin address format with only one small change to differentiate it from a standard address.
This is the IsStandard test, and transactions which pass it are called standard transactions. Non- standard transactions —those that fail the test—may be accepted by nodes not using the default Bitcoin Core settings. If they are included in blocks , they will also avoid the IsStandard test and be processed. Besides making it more difficult for someone to attack Bitcoin for free by broadcasting harmful transactions, the standard transaction test also helps prevent users from creating transactions today that would make adding new transaction features in the future more difficult.
For example, as described above, each transaction includes a version number—if users started arbitrarily changing the version number, it would become useless as a tool for introducing backwards-incompatible features. As of Bitcoin Core 0. P2PKH is the most common form of pubkey script used to send a transaction to one or multiple Bitcoin addresses.
P2SH is used to send a transaction to a script hash. Each of the standard pubkey scripts can be used as a P2SH redeem script , but in practice only the multisig pubkey script makes sense until more transaction types are made standard. Although P2SH multisig is now generally used for multisig transactions, this base script can be used to require multiple signatures before a UTXO can be spent.
In multisig pubkey scripts , called m-of-n , m is the minimum number of signatures which must match a public key ; n is the number of public keys being provided. The signature script must provide signatures in the same order as the corresponding public keys appear in the pubkey script or redeem script. Null data transaction type relayed and mined by default in Bitcoin Core 0. It is preferable to use null data transactions over transactions that bloat the UTXO database because they cannot be automatically pruned; however, it is usually even more preferable to store data outside transactions if possible.
Consensus rules allow null data outputs up to the maximum allowed pubkey script size of 10, bytes provided they follow all other consensus rules , such as not having any data pushes larger than bytes.
There must still only be a single null data output and it must still pay exactly 0 satoshis. The -datacarriersize Bitcoin Core configuration option allows you to set the maximum number of bytes in null data outputs that you will relay or mine. If you use anything besides a standard pubkey script in an output , peers and miners using the default Bitcoin Core settings will neither accept, broadcast, nor mine your transaction.
When you try to broadcast your transaction to a peer running the default settings, you will receive an error. If you create a redeem script , hash it, and use the hash in a P2SH output , the network sees only the hash, so it will accept the output as valid no matter what the redeem script says. This allows payment to non-standard scripts, and as of Bitcoin Core 0.
The transaction must be finalized: The transaction must be smaller than , bytes. Bare non-P2SH multisig transactions which require more than 3 public keys are currently non-standard. It cannot push new opcodes , with the exception of opcodes which solely push data to the stack.
Since the signature protects those parts of the transaction from modification, this lets signers selectively choose to let other people modify their transactions. The various options for what to sign are called signature hash types. This input , as well as other inputs , are included in the signature. The sequence numbers of other inputs are not included in the signature , and can be updated. Allows anyone to add or remove other inputs. Because each input is signed, a transaction with multiple inputs can have multiple signature hash types signing different parts of the transaction.
For example, a single- input transaction signed with NONE could have its output changed by the miner who adds it to the block chain. Called nLockTime in the Bitcoin Core source code. The locktime indicates the earliest time a transaction can be added to the block chain. Locktime allows signers to create time-locked transactions which will only become valid in the future, giving the signers a chance to change their minds.
If any of the signers change their mind, they can create a new non- locktime transaction. The new transaction will use, as one of its inputs , one of the same outputs which was used as an input to the locktime transaction.
This makes the locktime transaction invalid if the new transaction is added to the block chain before the time lock expires. Care must be taken near the expiry time of a time lock. The peer-to-peer network allows block time to be up to two hours ahead of real time, so a locktime transaction can be added to the block chain up to two hours before its time lock officially expires. Also, blocks are not created at guaranteed intervals, so any attempt to cancel a valuable transaction should be made a few hours before the time lock expires.
Previous versions of Bitcoin Core provided a feature which prevented transaction signers from using the method described above to cancel a time-locked transaction, but a necessary part of this feature was disabled to prevent denial of service attacks. A legacy of this system are four-byte sequence numbers in every input.
Even today, setting all sequence numbers to 0xffffffff the default in Bitcoin Core can still disable the time lock, so if you want to use locktime , at least one input must have a sequence number below the maximum. Since sequence numbers are not used by the network for any other purpose, setting any sequence number to zero is sufficient to enable locktime. Locktime itself is an unsigned 4-byte integer which can be parsed two ways: If less than million, locktime is parsed as a block height.
The transaction can be added to any block which has this height or higher. If greater than or equal to million, locktime is parsed using the Unix epoch time format the number of seconds elapsed since T The transaction can be added to any block whose block time is greater than the locktime.
Transactions pay fees based on the total byte size of the signed transaction. Fees per byte are calculated based on current demand for space in mined blocks with fees rising as demand increases. The transaction fee is given to the Bitcoin miner , as explained in the block chain section , and so it is ultimately up to each miner to choose the minimum transaction fee they will accept.
Before Bitcoin Core 0. After the priority area, all transactions are prioritized based on their fee per byte, with higher-paying transactions being added in sequence until all of the available space is filled. Please see the verifying payment section for why this could be important.
Few people will have UTXOs that exactly match the amount they want to pay, so most transactions include a change output. Change outputs are regular outputs which spend the surplus satoshis from the UTXOs back to the spender. In a transaction, the spender and receiver each reveal to each other all public keys or addresses used in the transaction.
If the same public key is reused often, as happens when people use Bitcoin addresses hashed public keys as static payment addresses , other people can easily track the receiving and spending habits of that person, including how many satoshis they control in known addresses.
If each public key is used exactly twice—once to receive a payment and once to spend that payment—the user can gain a significant amount of financial privacy. Even better, using new public keys or unique addresses when accepting payments or creating change outputs can be combined with other techniques discussed later, such as CoinJoin or merge avoidance , to make it extremely difficult to use the block chain by itself to reliably track how users receive and spend their satoshis.
Avoiding key reuse can also provide security against attacks which might allow reconstruction of private keys from public keys hypothesized or from signature comparisons possible today under certain circumstances described below, with more general attacks hypothesized. Unique non-reused P2PKH and P2SH addresses protect against the first type of attack by keeping ECDSA public keys hidden hashed until the first time satoshis sent to those addresses are spent, so attacks are effectively useless unless they can reconstruct private keys in less than the hour or two it takes for a transaction to be well protected by the block chain.
Unique non-reused private keys protect against the second type of attack by only generating one signature per private key , so attackers never get a subsequent signature to use in comparison-based attacks.
Existing comparison-based attacks are only practical today when insufficient entropy is used in signing or when the entropy used is exposed by some means, such as a side-channel attack. So, for both privacy and security, we encourage you to build your applications to avoid public key reuse and, when possible, to discourage users from reusing addresses.
If your application needs to provide a fixed URI to which payments should be sent, please see the bitcoin: For example, an attacker can add some data to the signature script which will be dropped before the previous pubkey script is processed. Although the modifications are non-functional—so they do not change what inputs the transaction uses nor what outputs it pays—they do change the computed hash of the transaction. Since each transaction links to previous transactions using hashes as a transaction identifier txid , a modified transaction will not have the txid its creator expected.
But it does become a problem when the output from a transaction is spent before that transaction is added to the block chain. Bitcoin developers have been working to reduce transaction malleability among standard transaction types, one outcome of those efforts is BIP Segregated Witness , which is supported by Bitcoin Core and was activated in August When SegWit is not being used, new transactions should not depend on previous transactions which have not been added to the block chain yet, especially if large amounts of satoshis are at stake.
Transaction malleability also affects payment tracking. Current best practices for transaction tracking dictate that a transaction should be tracked by the transaction outputs UTXOs it spends as inputs , as they cannot be changed without invalidating the transaction. Best practices further dictate that if a transaction does seem to disappear from the network and needs to be reissued, that it be reissued in a way that invalidates the lost transaction.
One method which will always work is to ensure the reissued payment spends all of the same outputs that the lost transaction used as inputs. Contracts are transactions which use the decentralized Bitcoin system to enforce financial agreements.
Bitcoin contracts can often be crafted to minimize dependency on outside agents, such as the court system, which significantly decreases the risk of dealing with unknown entities in financial transactions.
The following subsections will describe a variety of Bitcoin contracts already in use. Because contracts deal with real people, not just transactions, they are framed below in story format. Besides the contract types described below, many other contract types have been proposed. Several of them are collected on the Contracts page of the Bitcoin Wiki.
Charlie-the-customer wants to buy a product from Bob-the-businessman, but neither of them trusts the other person, so they use a contract to help ensure Charlie gets his merchandise and Bob gets his payment.
A simple contract could say that Charlie will spend satoshis to an output which can only be spent if Charlie and Bob both sign the input spending it.
Charlie spends his satoshis to an output which can only be spent if two of the three people sign the input. To create a multiple- signature multisig output , they each give the others a public key. Then Bob creates the following P2SH multisig redeem script:. Opcodes to push the public keys onto the stack are not shown. This is a 2-of-3 multisig pubkey script , more generically called a m-of-n pubkey script where m is the minimum matching signatures required and n in the number of public keys provided.
Then he hashes the redeem script to create a P2SH redeem script and pays the satoshis to it. Bob sees the payment get added to the block chain and ships the merchandise. Unfortunately, the merchandise gets slightly damaged in transit. They turn to Alice to resolve the issue. Alice asks for photo evidence from Charlie along with a copy of the redeem script Bob created and Charlie checked. In the signature script Alice puts her signature and a copy of the unhashed serialized redeem script that Bob created.
She gives a copy of the incomplete transaction to both Bob and Charlie. Either one of them can complete it by adding his signature to create the following signature script:. Opcodes to push the signatures and redeem script onto the stack are not shown.
Note that the signature script must provide signatures in the same order as the corresponding public keys appear in the redeem script. When the transaction is broadcast to the network , each peer checks the signature script against the P2SH output Charlie previously paid, ensuring that the redeem script matches the redeem script hash previously provided.
Then the redeem script is evaluated, with the two signatures being used as input data. However, if Alice created and signed a transaction neither of them would agree to, such as spending all the satoshis to herself, Bob and Charlie can find a new arbitrator and sign a transaction spending the satoshis to another 2-of-3 multisig redeem script hash , this one including a public key from that second arbitrator.
This means that Bob and Charlie never need to worry about their arbitrator stealing their money. Alice also works part-time moderating forum posts for Bob. Alas, Bob often forgets to pay her, so Alice demands to be paid immediately after each post she approves or rejects. Bob asks Alice for her public key and then creates two transactions.
The first transaction pays millibitcoins to a P2SH output whose 2-of-2 multisig redeem script requires signatures from both Alice and Bob. This is the bond transaction. Broadcasting this transaction would let Alice hold the millibitcoins hostage, so Bob keeps this transaction private for now and creates a second transaction. This is the refund transaction. She then asks Bob for the bond transaction and checks that the refund transaction spends the output of the bond transaction.
She can now broadcast the bond transaction to the network to ensure Bob has to wait for the time lock to expire before further spending his millibitcoins. Now, when Alice does some work worth 1 millibitcoin , she asks Bob to create and sign a new version of the refund transaction. Version two of the transaction spends 1 millibitcoin to Alice and the other 99 back to Bob; it does not have a locktime , so Alice can sign it and spend it whenever she wants.
Alice and Bob repeat these work-and-pay steps until Alice finishes for the day, or until the time lock is about to expire. Alice signs the final version of the refund transaction and broadcasts it, paying herself and refunding any remaining balance to Bob. The next day, when Alice starts work, they create a new micropayment channel. If Alice fails to broadcast a version of the refund transaction before its time lock expires, Bob can broadcast the first version and receive a full refund.
Transaction malleability , discussed above in the Transactions section, is another reason to limit the value of micropayment channels. For larger payments, Bitcoin transaction fees are very low as a percentage of the total transaction value, so it makes more sense to protect payments with immediately-broadcast separate transactions. The bitcoinj Java library provides a complete set of micropayment functions, an example implementation, and a tutorial all under an Apache license.
Alice is concerned about her privacy. She knows every transaction gets added to the public block chain , so when Bob and Charlie pay her, they can each easily track those satoshis to learn what Bitcoin addresses she pays, how much she pays them, and possibly how many satoshis she has left. The CoinJoin-style contract, shown in the illustration below, makes this decision easy: They then each generate a brand new public key and give UTXO details and pubkey hashes to the facilitator.
In this case, the facilitator is AnonGirl; she creates a transaction spending each of the UTXOs to three equally-sized outputs. She gives the partially-signed transaction to Nemo who signs his inputs the same way and passes it to Neminem, who also signs it the same way. Neminem then broadcasts the transaction to the peer-to-peer network , mixing all of the millibitcoins in a single transaction. If Alice does a few more CoinJoins, Bob and Charlie might have to guess which transactions made by dozens or hundreds of people were actually made by Alice.
But against anyone casually browsing block chain history, Alice gains plausible deniability. The CoinJoin technique described above costs the participants a small amount of satoshis to pay the transaction fee. An alternative technique, purchaser CoinJoin, can actually save them satoshis and improve their privacy at the same time. AnonGirl waits in the IRC chatroom until she wants to make a purchase. She announces her intention to spend satoshis and waits until someone else wants to make a purchase, likely from a different merchant.
Then they combine their inputs the same way as before but set the outputs to the separate merchant addresses so nobody will be able to figure out solely from block chain history which one of them bought what from the merchants. An alpha-quality as of this writing implementation of decentralized CoinJoin is CoinMux , available under the Apache license. A Bitcoin wallet can refer to either a wallet program or a wallet file. Wallet programs create public keys to receive satoshis and use the corresponding private keys to spend those satoshis.
Wallet files store private keys and optionally other information related to transactions for the wallet program. Two wallet programs can work together, one program distributing public keys in order to receive satoshis and another program signing transactions spending those satoshis.
Wallet programs also need to interact with the peer-to-peer network to get information from the block chain and to broadcast new transactions. This leaves us with three necessary, but separable, parts of a wallet system: In the subsections below, we will describe common combinations of these parts. In many cases, P2PKH or P2SH hashes will be distributed instead of public keys , with the actual public keys only being distributed when the outputs they control are spent.
The simplest wallet is a program which performs all three functions: As of this writing, almost all popular wallets can be used as full-service wallets. The main advantage of full-service wallets is that they are easy to use. A single program does everything the user needs to receive and spend satoshis. The main disadvantage of full-service wallets is that they store the private keys on a device connected to the Internet. The compromise of such devices is a common occurrence, and an Internet connection makes it easy to transmit private keys from a compromised device to an attacker.
To help protect against theft, many wallet programs offer users the option of encrypting the wallet files which contain the private keys. To increase security, private keys can be generated and stored by a separate wallet program operating in a more secure environment.
These signing-only wallets work in conjunction with a networked wallet which interacts with the peer-to-peer network. Signing-only wallets programs typically use deterministic key creation described in a later subsection to create parent private and public keys which can create child private and public keys.
When first run, the signing-only wallet creates a parent private key and transfers the corresponding parent public key to the networked wallet. The networked wallet uses the parent public key to derive child public keys , optionally helps distribute them, monitors for outputs spent to those public keys , creates unsigned transactions spending those outputs , and transfers the unsigned transactions to the signing-only wallet.
After the optional review step, the signing-only wallet uses the parent private key to derive the appropriate child private keys and signs the transactions, giving the signed transactions back to the networked wallet. The networked wallet then broadcasts the signed transactions to the peer-to-peer network. The following subsections describe the two most common variants of signing-only wallets: Several full-service wallets programs will also operate as two separate wallets: The offline wallet is so named because it is intended to be run on a device which does not connect to any network , greatly reducing the number of attack vectors.
If this is the case, it is usually up to the user to handle all data transfer using removable media such as USB drives. Offline Disable all network connections on a device and install the wallet software.
Start the wallet software in offline mode to create the parent private and public keys. Copy the parent public key to removable media. Online Install the wallet software on another device, this one connected to the Internet, and import the parent public key from the removable media.
As you would with a full-service wallet , distribute public keys to receive payment. When ready to spend satoshis , fill in the output details and save the unsigned transaction generated by the wallet to removable media. Offline Open the unsigned transaction in the offline instance, review the output details to make sure they spend the correct amount to the correct address. This prevents malware on the online wallet from tricking the user into signing a transaction which pays an attacker. After review, sign the transaction and save it to removable media.
Online Open the signed transaction in the online instance so it can broadcast it to the peer-to-peer network. The primary advantage of offline wallets is their possibility for greatly improved security over full-service wallets. The primary disadvantage of offline wallets is hassle. For maximum security, they require the user dedicate a device to only offline tasks. The offline device must be booted up whenever funds are to be spent, and the user must physically copy data from the online device to the offline device and back.
Hardware wallets are devices dedicated to running a signing-only wallet. Hardware Create parent private and public keys. Connect hardware wallet to a networked device so it can get the parent public key.
Networked As you would with a full-service wallet , distribute public keys to receive payment. When ready to spend satoshis , fill in the transaction details, connect the hardware wallet , and click Spend. The networked wallet will automatically send the transaction details to the hardware wallet. Some hardware wallets may prompt for a passphrase or PIN number.
The hardware wallet signs the transaction and uploads it to the networked wallet. Networked The networked wallet receives the signed transaction from the hardware wallet and broadcasts it to the network. The primary advantage of hardware wallets is their possibility for greatly improved security over full-service wallets with much less hassle than offline wallets.
The primary disadvantage of hardware wallets is their hassle. Even though the hassle is less than that of offline wallets , the user must still purchase a hardware wallet device and carry it with them whenever they need to make a transaction using the signing-only wallet.
An additional hopefully temporary disadvantage is that, as of this writing, very few popular wallet programs support hardware wallets —although almost all popular wallet programs have announced their intention to support at least one model of hardware wallet. Wallet programs which run in difficult-to-secure environments, such as webservers, can be designed to distribute public keys including P2PKH or P2SH addresses and nothing more.
There are two common ways to design these minimalist wallets:. Pre-populate a database with a number of public keys or addresses , and then distribute on request a pubkey script or address using one of the database entries. To avoid key reuse , webservers should keep track of used keys and never run out of public keys. This can be made easier by using parent public keys as suggested in the next method.
Use a parent public key to create child public keys. This can be a database entry for each key distributed or an incrementing pointer to the key index number. Neither method adds a significant amount of overhead, especially if a database is used anyway to associate each incoming payment with a separate public key for payment tracking. See the Payment Processing section for details.
Bitcoin wallets at their core are a collection of private keys. These collections are stored digitally in a file, or can even be physically stored on pieces of paper. Private keys are what are used to unlock satoshis from a particular address. In Bitcoin, a private key in standard format is simply a bit number, between the values:. In order to make copying of private keys less prone to error, Wallet Import Format may be utilized.
WIF uses base58Check encoding on an private key , greatly decreasing the chance of copying error, much like standard Bitcoin addresses. Take a private key. Add a 0x80 byte in front of it for mainnet addresses or 0xef for testnet addresses. Append a 0x01 byte after it if it should be used with compressed public keys described in a later subsection.
Nothing is appended if it is used with uncompressed public keys. Convert the result from a byte string into a Base58 string using Base58Check encoding. The process is easily reversible, using the Base58 decoding function, and removing the padding. Mini private key format is a method for encoding a private key in under 30 characters, enabling keys to be embedded in a small physical space, such as physical bitcoin tokens, and more damage-resistant QR codes.
In order to determine if a mini private key is well-formatted, a question mark is added to the private key. The SHA hash is calculated. This key restriction acts as a typo-checking mechanism.
A user brute forces the process using random numbers until a well-formatted mini private key is produced. In order to derive the full private key , the user simply takes a single SHA hash of the original mini private key.
This process is one-way: A common tool to create and redeem these keys is the Casascius Bitcoin Address Utility. In their traditional uncompressed form, public keys contain an identification byte, a byte X coordinate, and a byte Y coordinate. Secpk1 actually modulos coordinates by a large prime, which produces a field of non-contiguous integers and a significantly less clear plot, although the principles are the same.
No data is lost by creating these compressed public keys —only a small amount of CPU is necessary to reconstruct the Y coordinate and access the uncompressed public key. Both uncompressed and compressed public keys are described in official secpk1 documentation and supported by default in the widely-used OpenSSL library. However, Bitcoin Core prior to 0. This creates a few complications, as the hashed form of an uncompressed key is different than the hashed form of a compressed key, so the same key works with two different P2PKH addresses.
For this reason, Bitcoin Core uses several different identifier bytes to help programs identify how keys should be used:. Private keys meant to be used with compressed public keys have 0x01 appended to them before being Base encoded. See the private key encoding section above. These prefix bytes are all used in official secpk1 documentation. The hierarchical deterministic key creation and transfer protocol HD protocol greatly simplifies wallet backups, eliminates the need for repeated communication between multiple programs using the same wallet , permits creation of child accounts which can operate independently, gives each parent account the ability to monitor or control its children even if the child account is compromised, and divides each account into full-access and restricted-access parts so untrusted users or programs can be allowed to receive or monitor payments without being able to spend them.
The HD protocol takes advantage of the ECDSA public key creation function, point , which takes a large integer the private key and turns it into a graph point the public key:. This child public key is the same public key which would be created by the point function if you added the i value to the original parent private key and then found the remainder of that sum divided by a global constant used by all Bitcoin software p:.
This means that two or more independent programs which agree on a sequence of integers can create a series of unique child key pairs from a single parent key pair without any further communication. Moreover, the program which distributes new public keys for receiving payment can do so without any access to the private keys , allowing the public key distribution program to run on a possibly-insecure platform such as a public web server.
Child public keys can also create their own child public keys grandchild public keys by repeating the child key derivation operations:. Whether creating child public keys or further-descended public keys , a predictable sequence of integer values would be no better than using a single public key for all transactions, as anyone who knew one child public key could find all of the other child public keys created from the same parent public key.
Instead, a random seed can be used to deterministically generate the sequence of integer values so that the relationship between the child public keys is invisible to anyone without that seed. The HD protocol uses a single root seed to create a hierarchy of child, grandchild, and other descended keys with unlinkable deterministically-generated integer values. The parent chain code is bits of seemingly-random data.
The index number is a bit integer specified by the program. In the normal form shown in the above illustration, the parent chain code , the parent public key , and the index number are fed into a one-way cryptographic hash HMAC-SHA to produce bits of deterministically-generated-but-seemingly-random data. The seemingly-random bits on the righthand side of the hash output are used as a new child chain code. The seemingly-random bits on the lefthand side of the hash output are used as the integer value to be combined with either the parent private key or parent public key to, respectively, create either a child private key or child public key:.
Specifying different index numbers will create different unlinkable child keys from the same parent keys. Repeating the procedure for the child keys using the child chain code will create unlinkable grandchild keys.
Because creating child keys requires both a key and a chain code , the key and chain code together are called the extended key. An extended private key and its corresponding extended public key have the same chain code. The top-level parent master private key and master chain code are derived from random data, as illustrated below.
A root seed is created from either bits, bits, or bits of random data. This root seed of as little as bits is the the only data the user needs to backup in order to derive every key created by a particular wallet program using particular settings. As of this writing, HD wallet programs are not expected to be fully compatible, so users must only use the same HD wallet program with the same HD-related settings for a particular root seed. The root seed is hashed to create bits of seemingly-random data, from which the master private key and master chain code are created together, the master extended private key.
The master public key is derived from the master private key using point , which, together with the master chain code , is the master extended public key.
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