The Basics of Bitcoins and Blockchains by Antony Lewis

Author:Antony Lewis [Lewis, Antony]
Language: eng
Format: epub
ISBN: 9781633538016
Publisher: Mango Media
Published: 2018-08-07T11:58:59+00:00

QR codes are not magic. They are just text, encoded in a visual way that makes it easy for QR code scanners to read the code and convert it back into text.

Another way is just to copy and paste the address itself:

Account Balance

The wallet needs to access an up to date version of the blockchain in order to be aware of all the transactions going in and out of the addresses it is keeping tabs on. The wallet, software can do this by either storing the entire blockchain and keeping it up to date (this is called a full node wallet) or by connecting to a node elsewhere which does the heavy lifting (this is called a lightweight wallet).

A full node wallet would contain over a hundred gigabytes of data and would need to be constantly connected over the internet to other Bitcoin nodes. So in many cases, especially on mobile phones, this is not practical so the wallet software is lightweight and connects to a server which hosts the blockchain. The wallet software on the phone asks the server ‘What’s the balance of address x?’ and ‘Please give me all the transactions related to address y’.

Bitcoin Payments

As well as reading the account balances, the wallet needs to be able to make payments. To make a Bitcoin payment, the wallet generates a bundle of data called a ‘transaction,’ which includes references to the coins that are going to be spent (transaction inputs consisting of unspent outputs of previous transactions), and which accounts the coins will be sent to (new outputs). We saw this in an earlier section. This transaction is then digitally signed using the relevant private keys of the addresses holding the coins. Once signed, the transaction is sent to neighbouring nodes, via its server node if it is a lightweight wallet, or directly to other peers if it is a full node wallet. The transactions eventually find their way to miners who add them to blocks.

Other Features

Good wallet software has more functionality, including the ability to back up private keys (encrypted with a passphrase) either to a user’s hard drive or to a cloud storage server somewhere, to generate one-time use addresses for privacy, to hold addresses and private keys for multiple cryptocurrencies. Some are even integrated with exchanges to allow users to convert between one cryptocurrency and another directly from within the wallet software.

Often wallets will allow you to split keys or set up addresses that require multiple digital signatures to spend from.

You can split a private key into several parts so that a certain threshold number of parts are needed to create the original private key. This is a process known as ‘sharding’ or ‘splitting’ a private key and a common example is 2-of-3 sharding where a private key is split into 3 parts, any 2 of which can be combined to regenerate the original key. Similarly you can have 2-of-4 or 3-of-4 or any combination of parts and total shards, generically m-of-n. One algorithm to do this is using Shamir’s secret sharing144.

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