introduction
Bitcoin and blockchain always make people feel unpredictable, and a search on the Internet will always find various things: decentralization, distribution, and even anarchy and other things that are more confusing. Which is right and which is wrong, let's discuss next.
Blockchain technology was born from Bitcoin, so everything has to start with Bitcoin!
What is Bitcoin?
Bitcoin is a virtual currency, just like QQ coins, game coins, etc., and the underlying technology of Bitcoin is called blockchain technology. The mystery of this technology is that it allows Bitcoin to operate without a third party. Traded online for more than 7 years under warranty. The game currency and QQ currency are managed and controlled by the game and Tencent, and every transaction has to be reviewed by the server.
Origin of Bitcoin
On October 31, 2008, Satoshi Nakamoto sent an email to the cryptography mailing list, saying: "I have been working on a new electronic cash system, completely peer-to-peer, without any trusted third party".
On January 11, 2009, Satoshi Nakamoto released the first version of the Bitcoin wallet, version 0.1. On the right is the client version 0.10.1 of one of the Bitcoin versions.
Since then, Satoshi Nakamoto has never appeared again, and no one knows who Satoshi Nakamoto is.
Why is Bitcoin on fire?
Bitcoin's first transaction
On May 22, 2010, an American programmer used 10,000 bitcoins to buy two pizzas on a forum. Now a bitcoin has been fired to 40,000, which is really the most expensive pizza in the world. This is also the first transaction for Bitcoin.
Bitcoin's reward system
No matter how much Satoshi Nakamoto knows about financial currency and economics, no matter how much cryptography and technology the Bitcoin wallet covers to increase trust, in the eyes of ordinary people, this is a very simple or even rudimentary little software. As soon as you turn on your computer and run this little software, you will be rewarded with bitcoins.
Because wallets communicate through P2P, each computer in the network can act as a server and a requester, thus completing the sharing and exchange of information. When Bitcoin is traded between wallets, each node will automatically act as a server to facilitate the transaction. So as long as you open the software, you may have a few more bitcoins in your wallet as a reward for acting as a server, without any other effort.
Transaction is more convenient
When the first transaction took place, 10,000 bitcoins for two pizzas, people found that bitcoins also had value. The reward and punishment system in the Bitcoin wallet, as well as the gold standard currency and finance, have prompted more and more people to join this simple game.
In order to facilitate transactions, many Bitcoin enthusiasts have created transaction websites with simple and elegant design of transfer interface and bank account link. Mt.Gox was created in July 2010 and is the earliest bitcoin trading website. Around 2013, the popularity of Bitcoin rose rapidly, and various trading websites emerged one after another, lowering the entry threshold for countless speculators around the world. In addition to the trading website, the company has also made practical apps such as bitcoin cash machines, merchant QR code payment, and global transfers.
Another reason is that blockchain technology has detonated the financial technology circle, and many financial bigwigs have begun to talk about blockchain disruption, which has also promoted the soaring price of Bitcoin.
What is mining?
Increase the probability of being rewarded
The rule of the game to improve Bitcoin above is that as long as you need to trade, you need to open a Bitcoin wallet, then you may be rewarded with Bitcoin. This is like Xunlei Acceleration. When you open Xunlei, it will automatically upload the existing resources on your computer. P2P technology treats your computer as a small server. You help others save their download time, so you should be rewarded.
If Bitcoin is a universal currency, and there are more than 7 billion people in the world, then there will be transactions every moment, and countless computers will help others to facilitate transactions every moment. So who should be rewarded? The answer is: random. There are 100 computers in the whole network, and you have 1 computer, then your probability: 1%, if you have 20 computers, the probability is: 20%.
Bitcoin is starting to become "valuable" and can be exchanged for a real tradable currency, and it's not cheap. If I run 100 computers and keep them running all the time, I can increase the probability of getting a bitcoin reward. Of course, if I buy a high-end computer and your computer is low-end, then the probability of my bitcoin reward will also increase.
The principle of reward
After opening the bitcoin wallet, I will earn bitcoins, and I will earn more bitcoins if I buy more computers to run or a higher configuration computer. What is its principle?
The Bitcoin wallet will automatically synchronize the transaction data of the entire network in the last 10 minutes and put it in a data structure called a block. At this time, the Bitcoin wallet will do some mathematical calculations on this block, which is actually enumerating random numbers until the values meet the system requirements. So whoever enumerates faster is more likely to be rewarded.
Invention of mining machines and mining pools
After knowing this simple mathematical principle, in order to improve the speed of their own operations, someone invented parallel computing with a graphics card, which can improve the probability, because you can enumerate 10 million times in one second with a computer, and I can count 100 million times. From CPU, GPU, FPGA to ASIC, in order to improve their reward probability, people spare no effort to innovate.
Three concepts are defined here:
- Mining: We call this act of running a Bitcoin wallet not for the purpose of trading, but actively hanging up and wasting electricity as mining;
- Mining machine: The computing device that runs the Bitcoin wallet is called a mining machine;
- Mining pool: A place where many mining machines are gathered together for mining is called a mining pool.
There are also some merchants who saw the business opportunity and made the invented ASIC into a beautiful host, and then sold it online. This kind of host specially used for mining is called a mining machine. The most representative one is Butterfly Lab's research and development of mining machines, which are sold all over the world. However, on September 23, 2014, the US Federal Trade Commission filed a lawsuit for deceptively promoting bitcoin mining machines and was closed down.
I am thinking that even if there is no mining behavior, Bitcoin will still run very well. Its coins will not be more or less, and will approach 21 million along a logarithmic curve until the issuance is completed. Because the Bitcoin system stipulates that the total number is 21 million, no matter how many miners are added, it will automatically adjust the complexity, so that the time for enumerating random numbers can be controlled within 10 minutes on average.
At the beginning, the Bitcoin wallet took into account the two tasks of transfer and mining. Later, people extracted it separately and made a small software called CGMiner. Through it, you can automatically call the graphics card for mining, or you can join some mining pools, mine together, and then divide.
Why did Bitcoin safely run transactions for more than 7 years?
distributed
Users conduct WeChat and Alipay transactions, and the transaction data will flow through the Ali server for verification. This method is called centralized.
The difference between a bitcoin trading website and Alipay is that the data on the website is exactly the same as the data on each bitcoin wallet. The website only provides an interface and its own account system, and those bitcoin wallets on the entire network are still needed to facilitate transactions. P2P communication is used between wallets, and they are small servers, which is called distributed.
method of data verification
The way to prevent data from being tampered with in a computer is to perform data verification. Remember that when you downloaded Windows software from the website, you would have an MD5 value? This MD5 can be used to verify that the downloaded software has not been tampered with. Because the Windows system is flooded with viruses, it is easy to download software that has been tampered with. The MD5 value is called the hash value (Hash). Bitcoin uses SHA-256, and the principle is the same. Both generate a 32-byte string by hashing a file.
It can be seen that one character in the above string has changed, and the generated hash values are completely different. Therefore, the hash value generated by SHA-256 can be used to verify whether the data has been tampered with.
proof of work
Every time a transaction occurs, other nodes in the entire network will be notified through the P2P protocol. The Bitcoin wallet will automatically synchronize the transaction data of the entire network in the last 10 minutes and put it in a data structure called a block.
In addition to containing all transaction data for 10 minutes, the block also has a random number. The miner will continuously enumerate the random number, and then generate a hash value with SHA-256 until the hash value satisfies the first character of 0. Even if one character of the file changes, the generated hash value is completely random, so by enumerating random numbers, different hash values will be randomly generated. When the hash value starts with 0 is completely random.
Every ten minutes or so, the miners in the entire network start to enumerate at the same time, until a computer enumerates a random number that meets the requirements, which also marks the generation of a block. Then he will broadcast the message to other nodes through the P2P protocol, and other nodes will stop enumeration.
Bitcoin will adjust the time for generating blocks by controlling the number of 0s in front of the hash value produced, so that this time is maintained at 10 minutes. So how many computers there are, it takes about 10 minutes to enumerate together to find a random number that meets the requirements. This workload is huge, so the cost of tampering with data becomes larger, which is called proof of work. The first miner to discover the random number is the lucky one, who is rewarded with a certain amount of Bitcoin.
block + connection = blockchain
The reason for linking blocks is to further increase the cost of blocks being tampered with. If you want to take out a block by itself and tamper with its data, you have to find a random number by yourself to make its hash value meet the requirements. In the past, it took all the computers on the network to work together for 10 minutes to calculate. Suppose you have used it for 10 years and finally found a random number that meets the requirements.
At this time, you will find that many connected blocks are generated after 10 years. When calculating the hash value of the next block, the hash value of the previous block will be referenced. Where is the solitary block that you tampered with, because data verification will never traverse the block you tampered with, unless you search all subsequent blocks for random numbers.
Generally, it takes 1 hour to trade Bitcoin to be safest. This means that the hash value of your transaction block will be referenced by the following blocks. To tamper with your block, you need to calculate the random numbers of about 6 blocks later, which becomes very difficult.
What are the technical problems with the Bitcoin system itself?
Satoshi Nakamoto stipulated a block of 10 minutes, and the size of each block of Bitcoin is limited to 1M. In this way, the world can only complete a maximum of 7 transactions per second. It is said on the Internet that the capacity will be expanded in November this year, at which time the Bitcoin blockchain will be forked into two. It is equivalent to re-creating a new bitcoin, and the credibility is not high.
In the past, each computer needed to download all the transaction information for more than 7 years, and it took one day to verify the verification. Of course, a lightweight version is also available now.
Why is Satoshi Nakamoto anonymous?
Satoshi Nakamoto explained his principle of peer-to-peer electronic cash in 9 pages. After a few months, he made a client and made the kernel open source. Since then, it has disappeared, and more and more people have participated in this game. A single spark can start a prairie fire. Countless people have profited from this game, and countless people have lost their money. No one knows who Satoshi Nakamoto is, and no one knows whether Satoshi Nakamoto is a person or an organization.
What we know is:
- In 1998, Bernard Vonno was arrested for creating private currency, convicted of piracy, fraud, and conspiracy, and sentenced to 22 years in federal prison;
- In 2014, MtGox, the world's largest bitcoin trading website, went bankrupt after losing more than 800,000 bitcoins due to hacker attacks;
- In 2014, the founder and CEO of BitInstant, the earliest bitcoin trading website in the United States, was convicted of money laundering and arrested.
What is the Internet of Value?
On the Internet, when you send an email or a photo to your friend, what the other party actually receives is a copy, because you can't send the original to him. But in real life, I give you 100 yuan, and I really need to make sure that I don't have the 100 yuan in my hands. This shows that the Internet does not have value transmission.
Because of the lack of Internet value transfer function, people now need to transfer money to each other through Alipay, banks, etc. But Bitcoin is very special, it realizes the transfer of value between two nodes in the network. In fact, delivering value is not just digital transactions, it can be music, movies, e-books, etc. They come with their own digital signature. If you buy enough, only your account can be opened. After you transfer it to others, the digital signature will change. In this way, you can't open it, and realize the same value transfer as in real life.
The myth of decentralization
Centralization is a very broad term, and it is easy to mislead people, because centralization can be a company, a country, or a government, which can make people confused. When it is clear that the blockchain is a technology, it can solve some trust problems and realize the value transfer between strangers in the Internet without third-party guarantees, so the understanding will be clearer.
Huobi Zhu Jiawei also mentioned in the article "Don't Overly Deify Blockchain": From a technical point of view, the ultimate problem that blockchain technology needs to solve is the problem of trust, that is, blockchain technology can be used in untrusted individuals or organizations. Build trust between them. Due to the natural need to reach a consensus in the entire network, the blockchain must sacrifice efficiency compared with centralized applications. In other words, decentralized applications must be less efficient than centralized ones.
Let's talk about trust again
Trust can facilitate people's transactions and reduce transaction costs. There are three ways to increase trust:
- repeat transaction
- Third Party Guarantee and Regulation
- input additional cost
Repeat transaction:
In the era of no Internet, when you go to an unfamiliar place, you will choose a place with many people. Because more people represent a high possibility of repeat transactions, it is more credible. Of course, now with the Internet, we have an evaluation system, which greatly reduces the cost of people's repeated transactions. Those merchants who used to buy and sell at one time also have to calculate their own damage costs, because although you have not fallen, you can see the experience of others.
Third Party Guarantee and Supervision:
Why people trust strangers they have never met on Taobao is because Alipay is the guarantee. Of course, if you eat at a restaurant in a scenic spot, and if a certain restaurant has a brand such as: Sanitary Permit Grade A, Scenic High-Quality Merchant, etc., it can also enhance trust and promote transactions.
Input additional cost:
Some hotels, they engrave their names on the carpets, towels, bed sheets, it means they intend to stay in business for a long time and won't leave easily. If it's just short-term investment and making quick money, it won't be like this. This is a way to win people's trust, and there is a huge amount of advertising costs.
What trust can blockchain increase?
Before the blockchain, to reduce transaction costs, people need to actively participate and invest cost and energy to build trust. Just like before the first industrial revolution, there was no steam engine, and a lot of labor needed to be done manually. Above we have introduced three ways for people to increase trust in the market economy, and the blockchain will have a revolutionary impact on third-party guarantees and supervision.
According to a market research company in the United States, the regulatory cost of all industries in the United States in 2015 was: 1.885 trillion US dollars. It is equivalent to the 9th largest GDP in the world, surpassing the GDP of Russia and Canada.
Now there is a very hot technology in the financial technology circle called: regulatory technology. The application of blockchain technology in settlement, clearing and auditing is currently the focus of exploration by major financial institutions. Because a financial group needs to submit various regulatory submissions to the China Securities Regulatory Commission, the China Banking Regulatory Commission, the China Insurance Regulatory Commission, the Ministry of Finance and even the Central Bank. Leveraging blockchain technology can build trust among various stakeholders, enabling smart and automated regulation.
Because of the immutability of its data, the blockchain also greatly increases the cost of fraud. Therefore, in addition to application and financial industry supervision, paper certificates such as contracts, graduation certificates, real estate certificates, etc. may disappear in the future.
What is the current state and future of blockchain?
This is a patent distribution map from the birth of the blockchain to the present. It can be roughly seen that the current influence of the blockchain in various industries is still the most invested in the financial field. A friend of mine is in the public sector, and their company has started to use blockchain technology to cooperate with banks.
The core of the blockchain lies in the transfer of value, the enhancement of trust, the foundation of identity authentication and digital assets is not yet mature, and the blockchain currently only plays the role of record. Therefore, the true maturity of blockchain applications in the future may need to be based on identity verification and the popularity of digital currencies. When value assets such as digital currency are relocated online, blockchain applications will explode on a large scale.
Finally, I quote a sentence from various celebrities: Blockchain is still in its infancy, and it is too early to talk about subversion!
Bibliography and Links
- "Blockchain: Defining the New Pattern of Future Finance and Economy", "Blockchain Revolution", "Illustration of Blockchain", "Blockchain Technology Guide", "Xue Zhaofeng's Peking University Economics Course"
- Ten Trends of Global Blockchain Application of CAICT
- Huobi Zhu Jiawei: Don’t over-deify the blockchain
- The technology that will have the greatest impact on the future
- Dawei Wu: The Potential Impact of FinTech on Regulation - RegTech, Blockchain
- Explain the principle and operation mechanism of Bitcoin in detail
- Bitcoin: the ultimate form of money
- The rise of bitcoin