Understanding the Ether Pre-Sale Mechanics

In the lead-up to the ether auction, we will be publishing a sequence of blog articles about our development strategies and planned organizational framework. Today, we outline some of the foundational aspects of the ether sale module. The sale module will be featured on our website at https://www.ethereum.org for the entire duration of the sale.

What is it?

The ether sale is an HTML/JavaScript web application that allows individuals and entities to pre-purchase ether tokens using bitcoin. Ether may be acquired by parties wishing to utilize it in their development of decentralized applications on the Ethereum framework or merely to pay for the usage of applications on the platform once the genesis block is released. The application functions predominantly within the browser, featuring pseudo random number generation (PRNG) and encryption/decryption of user secrets.

Furthermore, we will provide a standalone pure Python application that can be operated via a command line interface to buy ether instead of using the website shop.

Website workflow:

1. After accepting the store’s Terms and Conditions, the purchaser inputs the desired quantity of ether to buy, their email address, a password for encryption, and generates a “random” seed that forms the foundation for their transaction-specific bitcoin & Ethereum addresses.
2. The user purchaser sends payment in bitcoin to the generated address displayed on the store page and included in a downloadable encrypted wallet file. When the browser, which tracks the bitcoin blockchain, detects sufficient funds have been sent to this generated address, it initiates a new transaction forwarding the bitcoin to the genesis sale address. This transaction is authenticated by the buyer’s browser and relayed to the bitcoin network. No transaction data is retained on the any servers, as the Bitcoin blockchain acts as the purchase ledger.
3. Once the transaction has been successfully processed, the user purchaser is prompted once more to download a backup of their encrypted wallet and will be emailed another backup file. The buyer should realize that retaining the wallet as an email attachment poses a risk. The email attachment should be stored on a secure computer as soon as possible, and the email should be deleted from the email system.

(What follows is technical information, the GUI we have developed presents all this in a very user-friendly manner)

Wallet encryption procedure: 

1. Generate a SEED randomly.
2. BKPKEY = sha3(SEED + “x02″)[:16]
3. KEY = pbkdf2(PW)
4. ENCSEED = encrypt(KEY, SEED)
5. WALLET = [ ENCSEED, BKPKEY ] (plus non-sensitive information such as ethereum and bitcoin addresses)

The BTC and ETH private keys and addresses are derived from the SEED.

Seed recovery procedure: 

1. WALLET + PW recovery: (normal)
2. KEY = pbkdf2(PW)
3. SEED = decrypt(KEY, ENCSEED)

Summary of website steps for executing an ether purchase:

1. Purchaser clicks “Buy Ether” and accepts the Terms & Conditions
2. Purchaser inputs initial buying information
   
   1. Purchaser specifies the amount of ether they wish to buy
   2. Purchaser submits email address for the wallet backup file
   3. Purchaser sets a passphrase, which acts as an encryption seed. A robust passphrase is strongly encouraged

3. Purchaser generates randomness by moving their mouse or tapping their screen. A “seed” is created based on this randomness along with other random system inputs. When the required randomness length is achieved, the wallet is generated utilizing the seed. The wallet comprises:
   
   1. a unique BTC address to receive the funds
   2. a unique ETH address
   3. an encrypted seed
   4. a backup encrypted seed

4. The browser sale application verifies the newly created BTC address to check for incoming funds. Before any funds are sent, the purchaser has the chance to download the wallet. If any issues occur between transactions, funds sent to the buyer’s personal deposit address will be recoverable with the passphrase. If the unspent balance of the BTC address exceeds 0.01 BTC, the browser sale application generates a signed transaction from the newly created BTC address with two designated outputs:
   
   1. an output of the total unspent balance minus miner fees to the main sale BTC address—this btc address is where all funds are directed, it’s a fixed, known BTC address.
   2. an output of 10000 satoshi to a BTC address derived from the (string) ETH address—this bitcoin address is for confirming ethereum addresses and is distinct for every transaction.

5. The browser sale application prompts the buyer to download their wallet again & additionally sends the buyer an email containing a backup for the ether wallet. The same warning mentioned earlier applies.  Do not retain the wallet as an email attachment in an email system.  Download at the earliest convenience and ensure the email is deleted.
6. The browser sale application will indicate the quantity of bitcoin transaction confirmations

So that’s the gist of it! Although many technical processes occur in the background, the GUI we have created will facilitate the process as a step-by-step operation.