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Blockchain ChatGPT Unit3

The document provides an overview of Bitcoin wallets, detailing their functions, types, and the underlying technology of Bitcoin as a decentralized digital currency. It covers various wallet types including non-deterministic, deterministic, hierarchical deterministic, brain, paper, hardware, online, and mobile wallets, each with its own advantages and disadvantages. Additionally, it explains the Bitcoin network, node communication, payment methods, and tools for developers, along with Bitcoin Improvement Proposals (BIPs).

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3 views5 pages

Blockchain ChatGPT Unit3

The document provides an overview of Bitcoin wallets, detailing their functions, types, and the underlying technology of Bitcoin as a decentralized digital currency. It covers various wallet types including non-deterministic, deterministic, hierarchical deterministic, brain, paper, hardware, online, and mobile wallets, each with its own advantages and disadvantages. Additionally, it explains the Bitcoin network, node communication, payment methods, and tools for developers, along with Bitcoin Improvement Proposals (BIPs).

Uploaded by

brindahemanth994
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Blockchain ChatGPT Unit-3(2)

🔐 Bitcoin Wallets – Overview

 Bitcoin wallets store private/public keys and the user’s Bitcoin address.
 They do not store actual coins—instead, all transaction data is stored on the blockchain.
 Balances are derived from UTXOs (Unspent Transaction Outputs), not stored directly in
wallets.

🧰 Functions of Wallets

 Send and receive Bitcoins.


 Manage keys securely.
 Facilitate interaction with the blockchain.

Types of Bitcoin Wallets

1️⃣ Non-Deterministic Wallets (a.k.a. "Just a Bunch of Keys")

 Private keys are randomly generated and stored individually.


 Bitcoin Core client creates keys on demand.
 ❌ Difficult to manage many keys.
 ⚠️Requires frequent backups—missing a key = loss of associated coins.

2️⃣ Deterministic Wallets

 All keys are derived from a single seed using hash functions.
 The seed is stored as human-readable mnemonic words (defined in BIP39).
 ✅ Easy backup—one seed = all keys.
 ✅ Simplifies private key management.

3️⃣ Hierarchical Deterministic (HD) Wallets

 Defined in BIP32 and BIP44.


 Keys are stored in a tree structure:
o Seed → Master Key → Child Keys → Grandchild Keys, etc.
 HD wallets don’t store keys directly, but key-generation info.
 ✅ Easy recovery and key hierarchy from master private key.
 ✅ High portability and user convenience.

4️⃣ Brain Wallets

 Private key is derived from a memorable password (passphrase).


 Can also generate HD wallets from this password.
 ❌ Vulnerable to brute-force and dictionary attacks.
 ✅ Can use key stretching to make attacks harder.

5️⃣ Paper Wallets

 Key information (public/private keys) is printed on paper.


 ✅ Offline and not hackable digitally.
 ❌ Requires physical security—lost paper = lost Bitcoins.
 Generated using websites like:
o bitcoinpaperwallet.com
o bitaddress.org

6️⃣ Hardware Wallets

 Keys are stored in tamper-resistant physical devices.


 Examples: Trezor, Ledger.
 ✅ Highly secure for long-term storage.
 Can also be embedded in NFC-enabled phones using a Secure Element (SE).

7️⃣ Online Wallets

 Wallets stored and accessed via web/cloud services.


 ✅ Easy access, user-friendly.
 ❌ Requires trust in service provider.
 Commonly used for quick access or online payments.

8️⃣ Mobile Wallets

 Installed on smartphones.
 Feature: Use camera to scan QR codes for instant payments.
 Available for Android and iOS platforms.
 Examples:
o Breadwallet
o Copay
o Jaxx

Bitcoin – In Detail (From the PDF)


1. Bitcoin Basics

 Bitcoin is a decentralized digital currency.


 It operates on a peer-to-peer (P2P) network without a central authority.
 All transactions are recorded in a public distributed ledger called the blockchain.
 Coins don’t physically exist—only transaction records (UTXO model).

2. Bitcoin Network

 The Bitcoin network consists of nodes that exchange blocks and transactions.
 Two types of nodes:
o Full Nodes:
 Perform multiple roles: wallet, miner, blockchain storage, and network
routing.
 Download the entire blockchain.
o SPV (Simplified Payment Verification) or Lightweight Nodes:
 Perform only wallet and networking functions.
 Do not store the full blockchain.

3. Node Communication

 Nodes use protocol messages to communicate, e.g.,:


o version, verack, getaddr, addr, inv, getdata, getblocks, ping.
 Connection starts with a version message exchange followed by a verack (version
acknowledgment).
 DNS seeds help discover peers when a node first starts.

4. Ports Used

 Mainnet (live network): TCP port 8333


 Testnet (for testing): TCP port 18333

5. Bitcoin Wallets

 Store private/public keys, not actual coins.


 Used for sending/receiving bitcoins and managing keys.
 Wallet types include:
o Non-deterministic, Deterministic, HD, Brain, Paper, Hardware, Online, Mobile (see
previous answer for detailed types).

6. Bitcoin Payments

 Bitcoins are used for e-commerce and retail payments.


 Payments made via:
o QR codes and Bitcoin URIs (defined in BIP21).
o POS systems, e.g., 34 Bytes, xbtterminal.
 Bitcoin is not legal tender in many places, but accepted by many merchants.

7. Buying and Selling Bitcoins

 Users can buy/sell via online exchanges.


 Trading methods include:
o Spot trading, margin trading, CFDs, spread betting.
 Exchanges support:
o Buying bitcoins with fiat
o Exchanging bitcoin with other cryptocurrencies
o Providing market data, charts, and analysis (e.g., CEX.IO).

8. Installing Bitcoin Core

 Download from: https://bitcoin.org/en/download


 Available for platforms like Windows, Linux, macOS.
 Installation involves:
o sudo apt-get install bitcoind (daemon)
o sudo apt-get install bitcoin-qt (GUI)

9. Bitcoin Source Code

 Open-source and can be cloned from:


o https://github.com/bitcoin/bitcoin
 Compiled using commands like:
o ./autogen.sh, ./configure, make, sudo make install

10. Configuration File

 bitcoin.conf is used for setting up custom configurations.


 Located typically at ~/.bitcoin/bitcoin.conf

11. Node Operating Modes

 Testnet:
o Used for testing with relaxed rules.
o Faucet available at testnet.manu.backend.hamburg
o Start: bitcoind --testnet -daemon
 Regtest:
o Local blockchain setup for regression testing.
o Allows block generation via: bitcoin-cli -regtest generate 200
 Mainnet:
o The live network.
o Bitcoin Core GUI (bitcoin-qt) shows sync status and allows full blockchain interaction.

12. Command Line Tools

 bitcoind: Daemon that runs the Bitcoin client.


 bitcoin-cli: Interface to interact with the daemon (e.g., getinfo, getbalance).
 bitcoin-qt: GUI version of the wallet and client.

13. Programming with Bitcoin

 Bitcoin Core provides a JSON-RPC API for developers.


 Tools:
o bitcoin-cli (uses JSON-RPC commands)
o REST interface (from version 0.10.0) on TCP port 8332
 Libraries for development:
o Libbitcoin (C++)
o Pycoin (Python)
o BitcoinJ (Java)

14. Bitcoin APIs

 Used for building apps/websites that use Bitcoin.


 Popular API services:
o https://bitcore.io/
o https://bitcoinjs.org/
o https://blockchain.info/api

15. Bitcoin Improvement Proposals (BIPs)

 Mechanism to propose changes or document practices.


 Types of BIPs:
o Standard BIP: Protocol-level changes (e.g., block size).
o Process BIP: Changes to processes outside protocol.
o Informational BIP: Non-mandatory guidance or documentation.

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