BA-04 · LESSON 06

Watch-only and air-gapped workflows

KEY DEFINITIONS

Terms used in this lesson

PSBT: Partially Signed Bitcoin Transaction: a format for passing an unsigned or partly signed transaction between constructors and signers.
Descriptor: A machine-readable description of the scripts, keys, and derivation paths a Bitcoin wallet watches or can spend.
QR code: Quick Response code: a square barcode often used to move a PSBT or address across an offline boundary.
UTXO: Unspent transaction output: one discrete chunk of bitcoin that can be used as a transaction input.

A watch-only wallet can observe funds and build transactions without private keys. An offline signer can then review and authorize the exact transaction.

45 min Difficulty 2/5 Not started

VISUAL MODEL

See the whole mechanism before going step by step

Use the diagrams to orient yourself. Then the guided explanation below teaches every part in depth.

4 explanatory views

CONCEPT-SPECIFIC MAP · key derivationWallet material becomes a spending destinationSelect any state to inspect its exact role.

RELATIONSHIP MAPCommitment and derivation tree

01
BACKUPEntropy and policy
Recovery starts from secret entropy plus any passphrase and wallet policy data.
02
TREEDerivation path
A deterministic path selects one child key without changing earlier branches.
03
KEYWatch-only and air-gapped workflows
The Watch-only and air-gapped workflows step determines what secret or public material is available.
04
SCRIPTSpending condition
The destination commits to a script or witness program, not a human identity.
05
OUTPUTValue and script
A payment creates a new output that can be spent only by satisfying its condition.

Rule shown: A wallet derives keys and scripts; the blockchain records spendable outputs, not a wallet account.

STAGE 1 OF 5BACKUP: Entropy and policy

Recovery starts from secret entropy plus any passphrase and wallet policy data.

Governing relationship: A wallet derives keys and scripts; the blockchain records spendable outputs, not a wallet account. Complete path: 1. BACKUP, Entropy and policy. Recovery starts from secret entropy plus any passphrase and wallet policy data. 2. TREE, Derivation path. A deterministic path selects one child key without changing earlier branches. 3. KEY, Watch-only and air-gapped workflows. The Watch-only and air-gapped workflows step determines what secret or public material is available. 4. SCRIPT, Spending condition. The destination commits to a script or witness program, not a human identity. 5. OUTPUT, Value and script. A payment creates a new output that can be spent only by satisfying its condition.

1. State transitionWhat exists, what changes, and what results

BEFORE

The online wallet selects a 150,000-sat UTXO, creates a 100,000-sat payment, 48,000-sat change, and a 2,000-sat fee.

MECHANISM

The coordinator scans the chain, selects UTXOs, obtains fee information, and prepares intended payment and change outputs.

AFTER

The air gap reduces network exposure, while trusted display and policy verification prevent the online host from redirecting the transaction.

Text equivalent: Starting from The online wallet selects a 150,000-sat UTXO, creates a 100,000-sat payment, 48,000-sat change, and a 2,000-sat fee. The mechanism begins when The coordinator scans the chain, selects UTXOs, obtains fee information, and prepares intended payment and change outputs. The resulting lesson is The air gap reduces network exposure, while trusted display and policy verification prevent the online host from redirecting the transaction.

2. Mechanism pathSelect a stage to inspect its job

STAGE 1 OF 5

Watch from an online device

The coordinator scans the chain, selects UTXOs, obtains fee information, and prepares intended payment and change outputs.

Complete path: 1. Watch from an online device: The coordinator scans the chain, selects UTXOs, obtains fee information, and prepares intended payment and change outputs. 2. Package complete signing context: The coordinator creates a PSBT containing the unsigned transaction plus prior-output, script, key-origin, and other data the signer needs. 3. Transfer across the gap: The PSBT is encoded into a medium the offline device can read. The transfer channel may carry malicious data, so the signer must parse defensively. 4. Verify on the signing device: The signer independently displays destination, amount, fee, change, network, and policy before authorizing. Air-gapping does not make an unverified transaction safe. 5. Return signatures for broadcast: The signed PSBT returns online, is finalized into a transaction, independently checked, and broadcast. The private key never needs to cross the gap.

3. Rule and failure boundaryWhat accepts the result and where it can stop

ACCEPTED PATH

The offline display independently checks input, recipient, amount, descriptor-derived change, fee, network, and policy before signing.

CHANGED CONDITION

Balanced amounts do not rescue a substituted recipient or false change output; both packages are rejected and rebuilt before signing.

Important distinction: An air-gapped signer can safely approve any transaction because malware cannot reach the private key over the internet. A malicious coordinator can still present a transaction that steals funds. The signer and user must verify destination, change, amount, fee, and policy.

Text equivalent: The accepted path is enforced by The offline display independently checks input, recipient, amount, descriptor-derived change, fee, network, and policy before signing. If the required condition changes, Balanced amounts do not rescue a substituted recipient or false change output; both packages are rejected and rebuilt before signing.

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Learn the idea

A watch-only wallet knows output descriptors or public keys and can discover balances without private signing keys. An air-gapped signer keeps private keys on a device that does not directly connect to the network. A PSBT, or Partially Signed Bitcoin Transaction, is a structured container for an unsigned transaction plus the metadata and partial signatures needed by coordinators and signers. It can move through QR codes, removable media, or another controlled channel.

GUIDED EXPLANATION1/5 ideas inspected

Watch from an online device

The coordinator scans the chain, selects UTXOs, obtains fee information, and prepares intended payment and change outputs.

The worked example follows the explanation

Inspect every idea above to open it.

Important distinction“An air-gapped signer can safely approve any transaction because malware cannot reach the private key over the internet.”

A malicious coordinator can still present a transaction that steals funds. The signer and user must verify destination, change, amount, fee, and policy.

FINISH LEARNING FIRST

The questions unlock after every required learning activity

Inspect every guided idea, open the worked example, rebuild its mechanism, and complete the deterministic lesson tool. Your progress is saved automatically.