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Bitcoin remittance and collection is done by the client software or Internet. The payee will have their own address, after remittance party received their address, they will be able to make transaction and exchange Bitcoin to that address. For using the address of Bitcoin, the private key in the “wallet” is needed.
Bitcoin Address
An “address” is needed when making a Bitcoin’s payment. Address is formed by numbers and letter around 33 characters in length, beginning with the digit 1 or 3. For example: “16Q5yQyTf6czeDaL1iK7fp7TJxuFwA43Qv”. The probability of Bitcoin address is more than 2160. Which mean, there are about 263 grain of sand in the world, if there is an earth in every grain of sand, Bitcoin’s addresses are much more than the quantity of the sands of all the “earth”.
Handling Charge
Handling charge can be pay via the transaction of Bitcoin payment. Theoretically, this would help to improve the speed of trade. Until the year of 2012, there’s no handling charge for most of the Bitcoin transaction. If a transaction amount is large, such as payment from drawing multiple addresses, that will form a relatively large data, therefore the Bitcoin network will require an additional minor handling charge.
Payment confirmation
After the Bitcoin transactions data is being packaged into a “data block” (Block), it is initial confirmation of the transaction. When then next block line to the previous block, the transaction will be further confirmation. After 6 consecutive of confirmation, the deal is basically to treat as irrevocable.
The Bitcoin network will store all the transaction history in “Blockchain”. The blockchain is prolonging, the block is unchangeable once it is being added to blockchain. Blockchain is actually the data base which consisted by all scattered participants, it is all of the Bitcoin transactions record.
The inventor is expected the user will prefer the data not to be store in local when the data size is increasing. In order to achieve the goal, the method of Markle tree is needed. With Markle tree, the user’s local clients will be able to actively weed out those never to part. For example, some very earlier Bitcoin transactions records.
The validation process of a transaction is carry out by the Proof-of-work system to solve the difficulties of computational. Proof-of-work system requires computer to be in the situation of limited computing power, so that the process need some time to solve, with that, the attacker unable to re-write the history of the transaction unless he has others system with better computing power than Bitcoin system to produce blockchain faster. Proof-of-work system adjust the difficulty automatically, therefore the average time to produce a new block is 10 minutes. The system will detect the validity of the transactions and block with ignore any transactions or block that against the rule, such as the relevant transactions that the sender produces the wrong number of bitcoin blocks or repeatedly sending the same bitcoin.
The terminal participate in processing block’s payment will obtain a certain amount of new issued Bitcoin and the relevant transaction handling fee. In order to obtain the new issued Bitcoin, the terminal that participate in processing the payment need a lot of time and computing power, this process are similar to Bitcoin mining. Therefore, the inventor named it as “Bitcoin Miner”, and named the activity of processing payment as Bitcoin mining. The new generated Bitcoin can be use to reward those processed the system’s payment. Their computing works provide security to the Bitcoin payment network’s process. Through Bitcoin mining, Bitcoin system injects money into the economy.
Wallet Encryption
Wallet encryption refers to a private key storage wallet is automatically conduct storage encryption.
Bitcoin official client support wallet encryption from version 0.4.0. Encrypted wallet will prompt you for your password every time you’re making payment. If the password is wrong, the client will reject the payment. If replace it with the first backup wallet (wallet.dat), ordinary transactions can be remain. With the principle of bitcoin we could found, as long as private key (wallet) exist, it can prove that you’re the rightful owner of the wallet, regardless of the wallet is encrypted or deleted, it’s undeniable. When backup bitcoin wallet, also note that because of bitcoin exchange mechanism in existence (for example, if 50 btc from a complete 100 btc were sent to an address, system will send 50 btc to the opposite side address and return 50 btc to your client’s new address, the address will not be displayed directly in your address list), Please re-backup wallet after sending of every 100 bitcoins to other address or after used 100 different address for receiving the bitcoin, otherwise the bitcoin received afterward will be lost permanently.
Besides wallet encryption, user can also create a paper wallet or brainwallet by themselves.
Paper wallet mean as long as before wallet encryption, key in “dumpprivkey your bitcoin address” (do not key in symbol) on the bitcoin console input of the client debug window to view your private key. Then, print out the private key and store it somewhere, remove the wallet file on the computer, and the network isolation of the wallet is done. For brainwallet, it is using a script of javasript, according to a phrase that memorable forever (must be unique, recommend at least 16 words and above, either in English or Chinese) that set by user, to generate a pair of public key and private key. Thereafter, the user transfer all the bitcoin to the address (public key). In future, users just need to remember the phrase and they can restore their wealth anytime in everywhere. (Unless your phrase is unfortunately known by others and has been transferred)
To ensure maximum security, Armory clients separate wallet and client, the wallet in the off-line client will be encrypt strictly. If the online client intends to make a payment, they need the permission from the off-line wallet’s computer, and export it through the online client. Although blockchain.info is an online wallet service, but all user’s private key has been pass through Java virtual machine to encrypted on the user’s webpage browser, blockchain.info store only the key file after encryption. With that, the users could just let others to handle their private key without the necessary to trust the blockchain.info administrator.
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