Before starting with Payments in Cryptocurrency, we take a look at the topics discussed in the last session where we had cleared the air on software wallets. Today, under Payments in Cryptocurrency, we take a look into the payment processes and other wallet transactions.
Topics to be discussed today in Payments in Cryptocurrency include:
Bitcoin Payments
As well as reading the account balances, the wallet needs to be able to make payments. To make Payments in Cryptocurrency, 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 for 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 to complete the Payments in Cryptocurrency.
Once signed, the transaction is sent to neighboring nodes, via its server node if it is a lightweight wallet, or directly to other peers if it is a full-node wallet. In Payments in Cryptocurrency, the transactions eventually find their way to miners who add them to blocks.
Wallet 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 cryptocurrencies. Some are even integrated with exchanges to allow users to convert between one cryptocurrency and another directly from within the wallet software. In Payments in Cryptocurrency 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 ‘sharing’ 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.
Software Wallet Examples
Under Payments in Cryptocurrency examples of popular Bitcoin software wallets:
- Blockchain.info
- Electrum
- Jaxx
- Bread wallet
However, the wallets used for Payments in Cryptocurrency could have bugs, and hence one must do their own research before picking a wallet to use. Most wallet software is open source, so you can investigate the code and see that there are no backdoors or vulnerabilities in the code before you use them.
In the next session on Cryptocurrency, we take a look into the Hardware Wallets that are operational and discuss their characteristics.
Suggested Topic
Features of Crypto Wallet in respect to the background process
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