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Intermediate

Receiving Funds

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This lesson is designed to guide you through the process of receiving Bitcoin, from generating addresses to confirming transaction receipts. We'll cover the fundamental practices for ensuring the security and efficiency of receiving funds in Bitcoin, providing you with the knowledge to manage transactions confidently.
Video length: 5 mins 57 secs

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Transcript

Today, we're focusing on a crucial aspect of navigating the Bitcoin network: receiving funds. Whether you're a seasoned Bitcoin user or new to the digital currency, understanding how to securely and effectively receive Bitcoin is essential. Let's dive into the mechanics of generating addresses, sharing them, and confirming transactions.

Generating and Sharing Addresses
Whenever you want to receive satoshis, you need to generate a Bitcoin address. For example, you may want to receive funds in return for selling your old bicycle or for completing a freelance task. You will also need to create a Bitcoin address if you want to send the bitcoins you bought on a crypto exchange to your own personal wallet account.

Most Bitcoin wallets will generate a new address for you by clicking the “Receive” button. It's a best practice to use a new address for each transaction to enhance your privacy and security. The wallet will provide you an address in the form of a short text that starts with “1”, “3”, or ideally “bc1”, depending on which type of address you use. The wallet will also provide you with a QR code that includes the same address. People can send you any amount of satoshis to this address right away.

If the receiver can’t send to the most modern types of addresses starting with “bc1q” or "bc1p" you generated, many wallets have an option to generate an old address type starting with “3” hidden in advanced options.

If you wish to specify the amount being requested, most wallets enable you to set a precise value in satoshis, dollars, or other fiat currencies, which is then incorporated into the QR code.

You have the option to distribute your Bitcoin address either as a textual representation or via a QR code through various channels such as email, messaging apps, or other forms of communication. It's safe to share your Bitcoin address; however, keep in mind that this address is now known by the sender and is linked to your identity. Therefore, you might want to think twice before posting an address on social media or any public forum, unless you're comfortable with the association.

To illustrate the point made earlier with a precautionary tale: In Bitcoin's early days, several well-known YouTubers made their bitcoin addresses public to solicit donations, amassing large sums. Since these addresses were openly accessible, it was possible for anyone, including regulatory bodies, to look up on a blockchain explorer the amount of Bitcoin they had accumulated. This visibility led to privacy issues, especially as the value of Bitcoin surged significantly. In contrast, the current practice for collecting Bitcoin donations involves using a new address for each transaction, making it challenging to track donation amounts.

QR codes can be handy if the sender is able to scan it, making it easier for them to capture your address and optionally the amount without errors. Spelling out the address over the phone is not recommended because it’s easy to make a mistake that way.

Never share your private keys or seed phrase with anyone. You should only share the address starting with “1”, “3”, or “bc1”.

Confirming Transaction Receipts
After the sender has broadcasted the transaction, it will appear in your wallet account as unconfirmed initially. At this point you need to wait until the transaction confirms on the blockchain.

A confirmation means that the transaction is included in a block and added to the blockchain. On average a block is mined every 10 minutes, but the arrival of blocks is random. You may receive a confirmation in just a minute or in 20 minutes.

The wait time also depends on the fee level. If the blockchain is busy and the transaction is urgent, the sender needs to pay a higher than normal fee to get the transaction into the next block.

If the sent amount is small, you can consider the transaction completed after the first confirmation is received. You should be able to see the transaction confirmed in your account as well. At this point the funds are yours and you could immediately send them forward to someone else.

As additional blocks are mined, the transaction gets more confirmations.

If the sent amount is large, you may want to wait between 3 and 6 confirmations. Bitcoin exchanges typically wait for 3 confirmations when you deposit funds.

You can verify and monitor the transaction independently by using a block explorer, such as mempool.space. You need to look up the transaction ID and you will be presented with the bitcoin transaction and associated information, such as which address it was sent from, the amount, the destination address, and the confirmation status. You should verify that the target address is the one you shared, the amount is correct, and the transaction has received at least one confirmation.

Wallets typically provide a link to the transaction, so you don’t have to manually search for the transaction ID.

If you don’t know the transaction ID, you can also look up the address you shared with the sender and it will show all the transactions that are related to the given address.

Through this lesson, you've learned the essential steps and best practices for receiving funds in Bitcoin. By adhering to these guidelines, you can confidently manage incoming transactions, ensuring the security and privacy of your digital assets. In our next lesson, "Sending Funds," we'll explore the other side of transactions, giving you a comprehensive understanding of how to navigate the Bitcoin network effectively.

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