Participants in the Bitcoin network are divided into full nodes and light nodes (or light clients). Full nodes are network nodes that have a complete copy of the block chain, participate in block and transaction propagation, and perform full validation of blocks and transactions. An example of a full node is the Bitcoin Core server, the installation of which was described in task 1. Light nodes implement only a subset of the functions of full nodes and are used to perform specific types of interactions with the network. The most common type of light nodes is Bitcoin wallet software. A full Bitcoin node may have a built-in wallet, so with Bitcoin transactions can be manipulated via a full node, but in most cases, a full node is not convenient to be used as a Bitcoin wallet, so most software wallets are implemented as light clients.
A software wallet is software that manages keys for standard unspent transaction outputs (UTXOs). The functions of a simple software wallet include:
- secure storage of cryptographic keys;
- receiving funds:
- interaction with the network to receive information about all new blocks and transactions;
- searching new blocks for transactions that are related to the keys stored by the wallet (hashes of keys in lock scripts in outputs or signatures made by these keys in unlock scripts in transaction inputs).
- sending funds:
- creating new transactions;
- signing new transactions with keys corresponding to the outputs destroyed by these transactions;
- interaction with the network to send new signed transaction.
Most lightweight Bitcoin wallets interact with the network not through
peer-to-peer protocol, but via RPC: instead of direct interaction
with a random set of nodes in the network, the wallet connects to a
specific node similarly to how the bitcoin-cli tool operates, and
executes RPC API commands. This approach has a significant drawback if
the node your wallet connects to does not belong to you (typically,
existing wallets connect to nodes provided by wallet developers). The
drawback is that such a node can collect information about user
transactions for further analysis, so for critically important
transactions, it is advisable to use software wallets that allow the
user to connect to their own full Bitcoin node.
In this lab, we will interact with the Bitcoin network using the software wallet built into the Bitcoin node, as well as using a separate Bitcoin wallet.
To do this lab task, it is recommended to synchronize a Bitcoin node with the testnet network, as setting up a separate software wallet to interact with the regtest network can be quite challenging.
To start the Bitcoin node in testnet mode, execute the command:
bitcoind -testnet -daemonSynchronization takes about 2 hours, but it depends on the device’s hardware, so it is recommended to leave synchronization overnight. The testnet blockchain occupies about 32 GB. You can monitor the synchronization process of the daemonized node using the command:
tail -f ~/.bitcoin/testnet3/debug.logNext, you need to choose a separate software wallet. To do this, you can use the wallet selection dialog on the bitcoin.org website, but please note that one of the search parameters should be support for the testnet network.
After installing the chosen wallet, when you first start it, you will need to initialize your wallet. In most cases, the software wallet will prompt you to write down 12 or 24 words, which are a mnemonic (i.e., “easy to remember”, although this is an exaggeration) representation of the root key of a new hierarchical deterministic wallet (HD wallet). All keys that your wallet will generate when generating new addresses will be deterministically calculated from the root key, so a backup is only necessary for the root key. You can read more about HD wallets in detail here.
Example of mnemonic representation of the root key of an HD wallet:
happy gauge biology view proof over inside assume actress way today true unlock truck feature pitch reunion middle spoon swift sing oak loud buffalo
Please note that these words provide full access to your wallet and all funds that ever enter it, so when working with the real Bitcoin network (and therefore real bitcoin), it is essential to keep these words in the as secure as possible.
The next step is to obtain a small amount of testnet bitcoins. Unlike the regtest network, the testnet network is a fully functioning network with hundreds of active nodes, so generating a new block (and receiving a reward for it) independently can be challenging. Since testnet bitcoins have no value, some resources, such as the Bitcoin Testnet Faucet, distribute them on demand with a request to return them back after testing.
To receive testnet bitcoins, you need to generate new addresses on both wallets (built-in Bitcoin Core one and standalone one) and use the the resource mentioned above. To generate a new address in Bitcoin Core, execute the command:
bitcoin-cli -testnet getnewaddressTo generate a new address in a separate wallet, use the graphical interface “Receive”.
Wait for the funds to arrive on both wallets. In the built-in Bitcoin Core wallet, you can do this by periodically checking the balance:
bitcoin-cli -testnet getbalanceIn the standalone wallet, the graphical interface will automatically display information about the new transaction.
After receiving the funds, you can make transactions from one wallet to another and vice versa. To do this, you first need to generate new addresses. Reusing addresses is not prohibited by the Bitcoin protocol, but it can have various negative consequences for the privacy of your transactions, so it is recommended to always use a new address for each new transaction. To send a transaction from Bitcoin Core, use the command:
bitcoin-cli -testnet sendtoaddress <address> <amount>and to send a transaction from a standalone wallet, use the graphical interface “Send”.
When preparing a lab demo, do the following:
- choose a separate Bitcoin software wallet;
- explain your own choice (explanations like “I liked it because it has a dark theme” are also acceptable :));
- install the chosen software wallet on the work device (consider using an Android or iOS mobile device for the sake of acquiring practical experience with mobile wallets);
- connect the software wallet to the test Bitcoin network (consider trying to connect the wallet to your own Bitcoin Core node);
- perform the initial key generation and backup the key;
- demonstrate sending a transaction using
bitcoin-clito an address generated in a standalone wallet; - demonstrate sending a transaction from a separate wallet to an address generated in the built-in wallet of your Bitcoin node;
- show both transactions in decoded form using
bitcoin-cli.
After completing the demonstration of the lab work, *do not forget to return the testnet bitcoins back to the faucet. To do this, you can send all test bitcoins to the Bitcoin Core wallet and execute the command:
bitcoin-cli -testnet -named sendtoaddress address=<faucet-address> \
amount=<total-amount> \
fee_rate=1 \
subtractfeefromamount=true