Module 8: Developing with Bitcoin Core locally

Learning objectives

Build realistic Bitcoin development environments using regtest
Write scripts to simulate wallet activity and transaction flows
Mock confirmations, chain reorganizations, and mempool states
Understand when and how to separate your wallet and node services in production

Building testing environments using Regtest

regtest is Bitcoin Core’s regression testing mode, designed for isolated, fully controlled environments. You can:

Spin up a node without syncing to any peers
Mine blocks instantly
Generate unlimited test BTC
Simulate any transaction scenario

Use this environment to build and test:

Transaction pipelines
Webhooks and callbacks
Wallet-to-wallet transfers
Payment monitoring flows

A typical developer setup includes:

bitcoind -regtest -daemon
bitcoin-cli or a language-based RPC client
Optional scripts and mocks for block generation, fees, and UTXOs

Example bitcoin.conf for regtest development:

regtest=1
server=1
rpcuser=youruser
rpcpassword=yourpassword

Writing integration scripts in bash and Python

Bitcoin Core exposes a JSON-RPC interface, so any scripting language that supports HTTP requests can interact with it.

Bash script to mine, fund, and send

#!/bin/bash
# Generate 101 blocks to fund wallet
bitcoin-cli -regtest generatetoaddress 101 $(bitcoin-cli -regtest getnewaddress)

Python script using requests

import requests

RPC_URL = "http://127.0.0.1:18443/"
AUTH = ("youruser", "yourpassword")


def rpc(method, params=None):
    payload = {"jsonrpc": "1.0", "id": "python", "method": method, "params": params or []}
    response = requests.post(RPC_URL, json=payload, auth=AUTH)
    return response.json()["result"]


print(rpc("getblockchaininfo"))

Use this setup to build:

CI tests
Sandbox payment flows
Automated funding or sweep logic

Mocking confirmations and network events

Simulating confirmations

Send a transaction:

bitcoin-cli -regtest sendtoaddress <address> <amount>

Then confirm it instantly:

bitcoin-cli -regtest generatetoaddress 1 $(bitcoin-cli -regtest getnewaddress)

Check confirmation count:

bitcoin-cli -regtest gettransaction <txid>

Simulating re-orgs

Invalidate a previously mined block:

bitcoin-cli -regtest invalidateblock <blockhash>

Create a longer competing chain:

bitcoin-cli -regtest generatetoaddress 2 $(bitcoin-cli -regtest getnewaddress)

Use this to simulate:

Dropped/unconfirmed transactions
Edge case user experiences
Fallback logic for timeouts

Production notes

When to Use a Pruned Node A pruned node deletes historical block data but retains the full UTXO set and validates blocks. Use pruning if:

You don’t need to inspect old transactions
You’re running lightweight infrastructure
You want to reduce disk usage (~15GB vs 800GB+)

Set in bitcoin.conf:

prune=550

Pruned nodes still validate consensus and can serve most wallet operations. Separating Wallet Logic from Node Logic In production, it is often best practice to separate your wallet service from your full node for better security, performance, and scalability. Benefits of Separation

Benefit	Description
Security	Wallet (private key logic) can be isolated from the public node.
Multi-tenant Design	A single node can serve many wallets, improving scalability and separation.
Performance	Reduces wallet-specific load on the node, enhancing performance.
Modularization	Enables independent wallet upgrades, migrations, and redundancy setups.
Compliance	Allows wallet services to integrate KYC, usage tracking, or user authentication separately.

Example Workflow Deposit Flow

App requests an address → Wallet service calls getnewaddress
Payment arrives → Wallet service tracks it with gettransaction
Required confirmations reached → App credits the user

Withdrawal Flow

App prepares TX → Wallet service calls createrawtransaction
Wallet signs → signrawtransactionwithwallet
Node broadcasts → sendrawtransaction

Deployment Practices Run wallet service on a locked-down server Use disablewallet=1 on public-facing node Use strict RPC credentials and IP allowlists Consider separate Docker containers for each service Monitor wallet usage and log signing events

Activity

Write a Bash or Python script that:

Starts a wallet
Mines 101 blocks
Sends BTC to 3 addresses
Confirms each transaction with block generation
Verifies balances

Modify the script to simulate:

A zero-conf state
A re-org scenario
Use of decoderawtransaction to verify TXs

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Module 8: Developing with Bitcoin Core locally

Learning objectives

Building testing environments using Regtest

Writing integration scripts in bash and Python

Bash script to mine, fund, and send

Python script using requests

Mocking confirmations and network events

Simulating confirmations

Simulating re-orgs

Production notes

Activity

​Learning objectives

​Building testing environments using Regtest

​Writing integration scripts in bash and Python

​Bash script to mine, fund, and send

​Python script using requests

​Mocking confirmations and network events

​Simulating confirmations

​Simulating re-orgs

​Production notes

​Activity

Learning objectives

Building testing environments using Regtest

Writing integration scripts in bash and Python

Bash script to mine, fund, and send

Python script using requests

Mocking confirmations and network events

Simulating confirmations

Simulating re-orgs

Production notes

Activity