Notes on Bitcoin 43

The document discusses various security threats to bitcoin wallets, including Man-in-the-Middle attacks, social engineering, and insider threats, while also suggesting protective measures like using VPNs, secure backup procedures, and multi-signature wallets. It explains the mechanics of bitcoin transactions, detailing inputs and outputs, and how they relate to wallet addresses and ownership verification. Additionally, it highlights the importance of securely storing paper wallets and creating multiple copies to enhance security.

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Notes on Bitcoin 43

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prototype199191

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Man-in-the-Middle (MitM) Attacks: MitM attacks involve intercepting communication between the

wallet and the server, allowing attackers to steal data or alter transactions.

Social Engineering: Social engineering attacks manipulate individuals into divulging confidential
information. Social engineering attacks can include impersonation, psychological manipulation, or
exploiting trust.

Physical Threats: Physical theft or loss of bitcoin wallet devices can result in unauthorized access.

Insider Threats: Insiders with privileged access, such as employees or contractors, can pose
significant risks to wallet security.

Use of VPNs: Users may utilize Virtual Private Networks (VPNs) when accessing the bitcoin wallet
over public or untrusted networks to secure further communications.

Secure Backup Procedures: Users need to store seed phrases and private keys offline in safe
locations.

Proactive Updates: Regularly update the app to patch vulnerabilities and improve security features.

Multi-Signature Wallets: These wallets require multiple private keys to authorize a transaction,
reducing the theft risk. This approach distributes the key management responsibility and enhances
security by making it more difficult for a single compromised key to result in a breach.

Threshold Cryptography: Like multi-signature schemes, threshold cryptography divides private keys
into multiple shares, requiring a subset (threshold) to sign transactions. This method enhances
security and fault tolerance by ensuring that some key shares can be lost or compromised without
jeopardizing the entire wallet.

A bitcoin paper wallet contains all the data necessary to generate private keys forming a wallet of
private keys. It is used to store bitcoins securely and includes public keys and redeemable codes. A
paper wallet is not connected to the Internet, can’t be hacked, and is not a third party you rely on.
However, it is a paper wallet, making it subject to theft, fire or water damage, getting lost, or being
redeemed by someone else.

Storing a paper wallet inside a vault or safe deposit box is a good way of securing your funds. Get it
laminated so it doesn’t tear or fade. Use a device like Cryptosteel to make it disaster proof.

A robust method includes creating several copies of the paper wallet, each holding only part of the
private key or seed phrase. If you create three partial copies such that any two of them can create the
whole private key, you can leave each copy at a different location and make it harder for someone to
obtain your private key if they only stole one copy.
Bitcoin Transactions

[ Figuring Transactions ]
A bitcoin transaction is a transfer of digital ownership of a certain amount of BTC on the bitcoin
network.

Inputs exist only within the context of a specific transaction. They reference UTXOs that are
associated with wallet addresses and sign them to prove ownership. Outputs define the recipients
and amounts in a transaction. They persist as either Unspent Transaction Outputs (UTXOs), if not yet
spent, or Spent TXOs, If used as inputs in future transactions. Every input in a Bitcoin transaction is
tied to a specific UTXO, which is itself tied to a wallet address. The wallet controlling the private key
for that address must digitally sign the input to prove ownership of the Bitcoin being spent.

In order for a bitcoin transaction to be deemed “valid,” there has to be at least one input, although
multiple inputs are possible a well. An input is a reference to an output(spent TXO) from a previous
transaction. Note that every input associated with a bitcoin transaction has to be an unspent
output(UTXO) of a previous transaction. Furthermore, every input in a bitcoin transaction must be
digitally signed, which occurs through the private key associated with the bitcoin address initiating the
transfer of BTC.

If multiple inputs are associated with one bitcoin transaction then the amount being sent(UTXOs) is
coming from multiple bitcoin wallet addresses. If you send 2 BTC to a friend and 1 BTC comes from
wallet address X, 0.33 BTC comes from wallet address Y, and the remainder comes from wallet
address Z then multiple inputs are associated with one bitcoin transaction.

If multiple outputs are associated with one bitcoin transaction it indicates a bitcoin transaction has
been sent out to be split over multiple addresses. A balance of 3 BTC in an account sent over to
friends A,B & C as 1 BTC, 0.5 BTC and 1.5 BTC will have three different outputs on the blockchain,
one going to A, one to B, and the third one to C.

Bitcoin and cash payments are not so different in terms of transactions. The amount of bitcoin
associated with all of the transaction inputs combined can be greater than the amount of money being
spent, which creates “change.” With traditional fiat currency, change is issued to the customer in bills
or coins. With bitcoin, change is issued in the form of digital ownership of BTC associated with your
wallet address. Should the amount of inputs be greater than the amount associated with the
transaction outputs, an additional output to the originating address will be created for the “change”
amount.

There are several ways to send bitcoin transactions. You could acquire the recipient’s bitcoin address
and send the money through the bitcoin software on your computer or mobile device. For mobile