BDK wallet as a BIP157 SPV light client

# Introduction

# Compact Filters:

Compact filters are the latest specification of Bitcoin SPV node implementation as per BIP157 (opens new window) and BIP158 (opens new window). Such light clients were envisioned by Satoshi himself in his original white paper, but due to lack of robust privacy and trust guarantees using conventional bloomfilters (opens new window), these type of nodes never got popular.

Enters BIP157 (opens new window), which described a new type of filters for Bitcoin Blockchain data, known as compact_filters. The Neutrino (opens new window) project pioneered the use of compact filter based light client nodes for using with Lightning Network wallets. Using compact filters, a light-node can talk to one or more full nodes, and fetch relevant information from the blockchain, with much more robust privacy and security guarantees than previously possible. Compact filter based nodes are best suitable to be used with mobile wallets, to create more trustless mobile applications on Bitcoin. Any wallet application that needs to have an "eye on the blockchain" has an use for such light clients.

BIP157 type filters allows to create tiny sized SPV nodes, that can fetch blockchain data and can identify inconsistency, so it can actively defend itself, while also preserving its privacy. Such nodes are most useful for Lightning Network mobile applications.

Example of such compact_filters wallets in wild is Breeze (opens new window) Lightning mobile wallet.

Bitcoin core supports serving BIP157 type filters from v0.21.0.

# BDK and Compact filters

BDK is a bitcoin wallet development library that can be used to create bitcoin wallets with custom Database and Blockchain backends. BDK is a descriptor (opens new window) based wallet, i.e. the wallet keychain is described by a set of descriptors.

Using BDK one can instantiate wallets of various kinds as per requirement. BDK abstracts away all the heavy lifting works, and allow wallet devs to concentrate on logic that they care about, i.e. writing wallet codes. For more detailed documentation on BDK capabilities check these blog (opens new window), bog (opens new window) and docs (opens new window).

The main three components of abstraction in BDK are

Database
Descriptors
Blockchain

BDK comes with default implementations of all them that developers can start with out of the box. Developers can also create their own custom implementations and plug it into BDK (thanks to rust magic of Traits).

BDK also supports BIP158 (opens new window) communication protocol, which allows creation of BIP157 type compact filter SPV nodes. This capability is extended to wallet with BDK's Blockchain data structure. The API (opens new window) for compact_filters backend is similar to any other kind of backends, so wallet devs don't need to worry about all the details. Its ok if the dev haven't even heard of BIP157, BDK takes care of that in background.

This capability can be unlocked by compiling BDK with the compact_filters feature. Once enabled, BDK will be able to create wallets with the compact_filters type Blockchain backend. (The default backend is electrum server)

# bdk-cli

bdk-cli is a lightweight REPL (opens new window) wrapper over the BDK library to facilitate quick and easy demonstration of BDK capabilities in command-line. Wallet devs can use this tool to quickly try out different possibilities with BDK.

In this tutorial, We will use bdk-cli to demonstrate some basic wallet functionalities using compact_filters backend.

# Tutorial Scope

Basic wallet workflow we will cover:

create and sync a wallet,
receive a transaction,
create a transaction,
sign and broadcast the transaction,
fetch updated balance,

The BDK wallet will have a BIP157 SPV backend (aka compact_filters backend) that will connect with a Bitcoin core node serving filter data.

It will publish and extract transaction data through that node.

We will have a Bitcoin Core wallet and a BDK wallet, sending and receiving transactions between each other, in regtest.

# Prerequisites

Following things are required to start with the tutorial.

A Bitcoin Core regtest node listening at localhost:18444 signalling for compact filter support.
bdk-cli compiled with compact_filter features.

If you already have these two setup and working, you can skip this and jump to the Tutorial section.

# Install and run `bitcoind`

You can definitely do it with your own bitcoind installation. BIP157 support has been included in Bitcoin Core v0.21.0. So anything above that will work.

You also need to ensure proper configuration settings for signalling compact_filters support.

For ease of testing, the BDK project hosts docker images that can be used to spawn Bitcoin Core with all the relevant configurations.

spawn a regtest node using bitcoin-regtest-box (opens new window) docker file.

Start the regtest box docker container.
```
$ docker run --detach --rm -p 127.0.0.1:18443-18444:18443-18444/tcp --name bdk-box bitcoindevkit/bitcoind
```
This will spin up a docker container running bicoind and listening to port 18444 and 18333. You can keep this terminal alive to see communication events with BDK and the node.

Check node is reachable

In another terminal try connecting to the node with bitcoin-cli

$ docker exec -it bdk-box /root/bitcoin-cli -regtest getnetworkinfo
{
  "version": 210000,
  "subversion": "/Satoshi:0.21.1/",
  "protocolversion": 70016,
  "localservices": "0000000000000449",
  "localservicesnames": [
    "NETWORK",
    "WITNESS",
    "COMPACT_FILTERS",
    "NETWORK_LIMITED"
    ...
  ],
}

In the output, the version should show 210000. localservicesnames should contain "COMPACT_FILTERS". If you see this, then Bitcoin Core is correctly configured.

# Install and run bdk-cli

Install bdk-cli with compact_filters feature

$ cargo install --git https://github.com/bitcoindevkit/bdk-cli.git bdk-cli --features compact_filters

Check installation

$ bdk-cli --help
...
USAGE:
    bdk-cli [OPTIONS] <SUBCOMMAND>
FLAGS:
    -h, --help Prints help information
    -V, --version Prints version information
OPTIONS:
    -n, --network <NETWORK> Sets the network [default: testnet]

SUBCOMMANDS:
    help      Prints this message or the help of the given subcommand(s)
    key       Key management sub-commands
    repl      Enter REPL command loop mode
    wallet    Wallet options and sub-commands

Once these are setup correctly, you can start with the tutorial next.

# Tutorial

[Note: For brevity bdk-cli results are stored in command line variables using jq tool. It is recommended to check the full results to see different information returned by bdk-cli commands.]

# Bitcoin Core Wallet Generation

This is standard procedure with bitcoin-cli.

Create a wallet and generate 101 blocks.

$ docker exec -it bdk-box /root/bitcoin-cli -regtest createwallet test
{
  "name": "test",
  "warning": ""
}

$ docker exec -it bdk-box /root/bitcoin-cli -regtest getnewaddress
bcrt1qatd7yq0jukwusuaufltlejmeydpvnpv43r5gc2

$ docker exec -it bdk-box /root/bitcoin-cli -regtest generatetoaddress 101 bcrt1qatd7yq0jukwusuaufltlejmeydpvnpv43r5gc2
[
"3813ed6eb716f4743b9657d918799acf743add985a8ded28d8aa3629dd4496b6",
"70da855913bdf791b6e458c611cebdef79b7a9840eb103ce58c71c1c7e3c49bc",
"682ca732ef72719cd6f82c5047c7690fb1cd2df2543d035ac4ea99e974b8d172",
"78799e4771017d4f46aa3c240054e2d61f54cea07ec44cb18ae712761e0aaa1e",
...
]

$ docker exec -it bdk-box /root/bitcoin-cli -regtest getbalance
50.00000000

Now the core wallet has generated new blocks and is funded with test bitcoin.

# BDK Wallet Generation

BDK is a descriptor based wallet library. So in order to use it we will need some descriptors to work with.

BDK wallet will ask for two descriptors as input, corresponding to receive and change addresses. Its recommended to have these two descriptors separate as BDK will handle them separately and ensure change addresses are never used for receiving funds.

Or developers can decide to use a single descriptor too, in that case BDK will use that descriptor for deriving both receive and change addresses.

We will use bdk-cli itself to generate such descriptors.

# Generate a privatekey
```
$ BDK_xprv=$(bdk-cli key generate | jq -r '.xprv')
$ echo $BDK_xprv
tprv8ZgxMBicQKsPefY7tdq7EKny81n9tfSvUYfSHAZByXdjPAZVysvaB6sFd2YavqfqMBgbHaXUG5oWM6sYvdJn6vnUizzQKTYAJ36bQsfPv4N
```
bdk-cli key generate will generate a fresh master key with mnemonic and xprv. We have extracted the value of extended private key and stored it in BDK_xprv variable.

The returned mnemonic can be used to restore back the wallet if wallet data directory is lost.
# Generate Descriptors

bdk-cli key derive can derive an xpubs given a master key and derivation_path.

We will use the following paths for our receive and change descriptors
- receive path: m/84h/1h/0h/0
- change path: m/84h/1h/0h/1,
We can then simply wrap them in a "wpkh()" to create our descriptors string and store them.

When asked for a new address, BDK will derive one from the receive descriptor.

And while constructing transaction, BDK will use the change descriptor to derive change address.
```
$ BDK_recv_desc="wpkh($(bdk-cli key derive --path m/84h/1h/0h/0 --xprv $BDK_xprv | jq -r '.xprv'))"
$ echo $BDK_recv_desc
wpkh([ff09c7c9/84'/1'/0'/0]tprv8hkdEGgwLLnqsdfkJFidpTj5d6z5qFdP6Qwzsviea3HrS9C2mXXaDivPKCCgcaWvnGNX9eciLUQs91PWYXJqrChfnAagViCgG6L5phaNyWr/*)
```
```
$ BDK_chng_desc="wpkh($(bdk-cli key derive --path m/84h/1h/0h/1 --xprv $BDK_xprv | jq -r '.xprv'))"
$ echo $BDK_chng_desc
wpkh([ff09c7c9/84'/1'/0'/1]tprv8hkdEGgwLLnqtbYkGG7fSy7v43RF2SQGGjNuZtmBzEHh7H8xgpXBETQAbVPqi8rkvLNFKLYY4rDzXA4fn5Ha1yuazZqhQPe3uNKmFS7648s/*)
```
Note: BDK_xprv has been used as the master key, this will allow BDK to have signing capabilities. We could have used an xpub master key here instead, that would create an watch-only wallet.
# Create and Sync a wallet

We will now instruct BDK to create a new wallet with following instructions
```
$ bdk-cli --network regtest wallet --node "127.0.0.1:18444" --wallet bdk-test -d $BDK_recv_desc -c $BDK_chng_desc sync
{}
```
- name (--wallet) bdk-test,
- receive descriptor (-d) as $BDK_recv_desc and change descriptor (-c) as $BDK_chng_desc,
- connected to a full node (--node) listening at 127.0.0.1:18444,
- and finally create and sync the wallet with the sync command.
If you are using a regtest node, also add --network regtest, the default is testnet.

bdk-cli makes multiple parallel connections that can be configured with the --conn-count parameter (default is 4). This makes syncing parallel and fast. Use bdk-cli --help to see all other options.

Getting an empty return means wallet creation succeeded.

BDK has created a wallet named bdk-test in its data directory. Which is by default stored at ~/.bdk-bitcoin/compact_filters folder.

Looking into that folder different files and directories maintained by BDK can be seen.
```
$ ls .bdk-bitcoin/compact_filters/
000004.log  CURRENT   LOCK  MANIFEST-000003  OPTIONS-000010
bdk-test    IDENTITY  LOG   OPTIONS-000008
```

# Recieve Coins

We will use the core wallet to send 5 BTC to ourbdk-test wallet.

Fetch a new address using bdk-cli

$ bdk-cli --network regtest wallet --node "127.0.0.1:18444" --wallet bdk-test -d $BDK_recv_desc -c $BDK_chng_desc get_new_address
{
  "address": "bcrt1qx2479wywulf50pqx5uy64zhxq9f3tuvlh8u0s9"
}

Transfer funds to the previous address and generate a block, using bitcoin-cli

$ docker exec -it bdk-box /root/bitcoin-cli -regtest sendtoaddress bcrt1qx2479wywulf50pqx5uy64zhxq9f3tuvlh8u0s9 5


$ docker exec -it bdk-box /root/bitcoin-cli -regtest generatetoaddress 1 bcrt1qw3ht9xtc9pgyvmqay0ap9fw8mxd27az8el0uz3

core has sent 5 BTC to our bdk-test wallet. Which is confirmed in a new block.

bdk-test can see that now by syncing again.

(Note: BDK required explicit sync() calls to give wallet developers flexibility on when to sync).

$ bdk-cli --network regtest wallet --node "127.0.0.1:18444" --wallet bdk-test -d $BDK_recv_desc -c $BDK_chng_desc sync
{}

$ bdk-cli --network regtest wallet --node "127.0.0.1:18444" --wallet bdk-test -d $BDK_recv_desc -c $BDK_chng_desc get_balance
{
  "satoshi": 500000000
}

We can see 500000000 sats balance in our bdk-test wallet.

BDK has fetched blockchain details concerning its wallet descriptors, from the core node, using compact filters.

# Creating a transaction.

Now we want to create a transaction sending coins from bdk-test wallet to the core wallet.

fetch a new core address

$ core_addrs=$(docker exec -it bdk-box /root/bitcoin-cli -regtest getnewaddress | tr -d '\r')

Create a raw transaction using bdk-cli to the above address. This will generate a psbt which we will sign.

$ psbt=$(bdk-cli --network regtest wallet --node "127.0.0.1:18444" --wallet bdk-test -d $BDK_recv_desc -c $BDK_chng_desc create_tx --to $core_addrs:200000000 | jq -r '.psbt')

(Recommended to check all the other information returned by bdk-cli create_tx)

# Sign and Broadcast the transaction

Asking BDK to sign a transaction is as straight forward as it can get. BDK already holds the xprv deatils to sign a transaction. It returns a finalised signed_psbt which we will next broadcast to the network.

Sign the transaction

$ signed_psbt=$(bdk-cli --network regtest wallet --node "127.0.0.1:18444" --wallet bdk-test -d $BDK_recv_desc -c $BDK_chng_desc sign --psbt $psbt | jq -r '.psbt')

Broadcast the transaction

$ bdk-cli --network regtest wallet --node "127.0.0.1:18444" --wallet bdk-test -d $BDK_recv_desc -c $BDK_chng_desc broadcast --psbt $signed_psbt
{
  "txid": "c343f5b25372e285308eba912d1fe8fade9f64afde6d95306e248e52e0852252"
}

This makes BDK broadcast the transaction via the connected core node, and it returns the corresponding Txid.

# Confirming the Transaction

The transaction has been received by the core node and waiting in its mempool for inclusion in block. We can see the transaction via its txid received in previous step.

Check transaction in mempool

$ docker exec -it bdk-box /root/bitcoin-cli -regtest gettransaction c343f5b25372e285308eba912d1fe8fade9f64afde6d95306e2248e52e0852252
{
  "amount": 2.00000000,
  "confirmations": 0,
  "trusted": false,
  "txid": "c343f5b25372e285308eba912d1fe8fade9f64afde6d95306e248e52e0852252",
  "walletconflicts": [
  ],
  "time": 1621697202,
  "timereceived": 1621697202,
  "bip125-replaceable": "no",
  "details": [
    {
      "address": "bcrt1q3h4hs6mve5dcl7da3d4acmlp20hh8c3t4mldwe",
      "category": "receive",
      "amount": 2.00000000,
      "label": "",
      "vout": 1
    }
  ],
  "hex": "01000000000101d84e8cb7477f9fe6f265b56d5416ff47da9a70be18f65ec50731b8257c67f2bd0100000000ffffffff0273a2e11100000000160014874270187001febc4cebd8cb083cf2c783e8f1ac00c2eb0b000000001600148deb786b6ccd1b8ff9bd8b6bdc6fe153ef73e22b0247304402201037d9ef5b80392296311c8899b1f12a0987778d694a442a88bafa6fbd7a7c9a022011293176255897444d9c71b0b9cd13b2aedb749b142577566c90a63d61025e2c01210202427d16b29c1c8546255363a74326ee9ab3196770bb3fccc7b679d52f9c1ccf00000000"
}

This means, core has recieved the transaction in its mempool and waiting for confirmation.

Generate 1 block to confirm the transaction

$ docker exec -it bdk-box /root/bitcoin-cli -regtest generatetoaddress 1 bcrt1qatd7yq0jukwusuaufltlejmeydpvnpv43r5gc2
[
  "55436ff0169bbb3e70ab10cb7cdd45ab86204d5d7864a109142d91120d023197"
]

Sync the bdk-test wallet and ask for available balance.
```
  $ bdk-cli --network regtest wallet --node "127.0.0.1:18444" --wallet bdk-test -d $BDK_recv_desc -c $BDK_chng_desc sync
  {}

  $ bdk-cli --network regtest wallet --node "127.0.0.1:18444" --wallet bdk-test -d $BDK_recv_desc -c $BDK_chng_desc get_balance
  {
  	"satoshi": 299999859
  }
```
If you see the balance updated, voila!

What happened here is:
- core created a new block containing the transaction.
- bdk-cli fetched the corresponding filter data.
- It noticed it got a concerning transaction.
- It asked for the details of that transaction from the core node.
- It updated its wallet details with this new information.
- The update is reflected in the wallet balance.

# Shutdown Docker

You may now shutdown the regtest docker container.

Note: This will also clean up any data in the bitcoin core, including the wallet.

$ docker kill bdk-box

# End Words

In this tutorial we went through the process of receiving, creating, signing and broadcasting transaction using the BDK wallet with compact_filters feature. This demonstrates how BDK capabilities can be used to create SPV light wallets with integrated BIP157 type compact_filters node.

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