What is Bitcoin?
Bitcoin (BTC) is a digital currency with a constant amount of 21 million yuan. Like the Internet, it is decentralized, global and anonymous. Sending Bitcoins to the other side of the world is as simple, low-cost and unlimited as sending an email. Bitcoin is therefore used for cross-border trade, payments, remittances and more.
Due to its broad prospect and huge imagination space, the price of bitcoin has continued to rise since its birth in 2009. In 2011, the price of Bitcoin reached $1, and in 2013, the highest price reached $1200, which is more than the price of 1 ounce gold, and has the good name of “digital gold” (the current price of bitcoin is about $450).
Bitcoin began in 2008 with the paper “Bitcoin: A Peer-to-Peer Electronic Cash System (Chinese Version)” by the mysterious Satoshi Nakamoto. In the six years since its birth, Bitcoin has survived numerous market tests and technical attacks as an unprecedented new type of currency. It has grown into a currency system with millions of users, tens of thousands of merchants accepting payments and a market value of up to 10 billion dollars worldwide.
Bitcoin-related businesses have also attracted nearly $1 billion in venture equity investment from hundreds of well-known venture capital funds, companies, and individuals,
Some of them are traditional financial giants, such as Visa, Nasdaq and Citi: “Visa, Nasdaq and other giants invest $30 million in blockchain company Chain”; MasterCard: “MasterCard, New York Life Insurance Join Digital Currency Group in New Funding Round”; Goldman Sachs, IDG Capital: Bitcoin Company Circle Raises $50 Million in Funding; Co-founder of PayPal, co-founder of eBay, and Qualcomm: “Startup Bitcoin Company 21 receives massive $116 million Funding”; New York Stock Exchange (NYSE) : “Coinbase officially Closes $75 Million Series C Funding Round”; Yahoo founder Jerry Yang, Lee Ka-shing’s venture capital: “Bitcoin business transaction platform BitPay raises $30 million, valuation reaches $160 million”, etc.
Some venture capital funds have bought bitcoins directly. For example, Tim Draper, one of Silicon Valley’s most prominent investors (the leader of Baidu, Hotmail, Skype and Tesla), spent $20 million to buy 32,000 bitcoins in an auction of bitcoins seized by the FBI on the dark web. The Bitcoin Investment Trust in the United States bought 48,000 bitcoins, among others. (NetEase News “Three Anonymous Bidders Buy 50,000 Bitcoins from Silk Road”)
The Internet has broken the regional and national boundaries of information transmission, and the freedom of information has greatly promoted the development of human economy, politics and culture. Bitcoin will further break the barriers of financial and value transmission based on national boundaries, causing a profound impact on the world.
Bhagwan Chowdhry, a finance professor at the University of California, had this to say when he nominated Mr. Nakamoto for the Nobel Prize in economics:
I strongly recommend that this award be given to Satoshi Nakamoto. The invention of Bitcoin was nothing short of revolutionary. Nakamoto’s contribution will not only completely change our way of thinking about money, it is likely to overturn the role played by the central bank in monetary policy, and will destroy such high-cost remittance services as Western Union, completely eliminate such as Visa, MasterCard and Paypal they charge 2-4% middleman transaction tax, Eliminating laborious and expensive notary and intermediary services would, in fact, revolutionize the way legal contracts are conducted.
How does Bitcoin work?
In its operation, Bitcoin is essentially a decentralized ledger on the Internet.
Centralized ledger (bank) The bank is A centralized ledger, which is stored in the central database of the bank. It says: Zhang SAN’s A account balance of 3000 yuan, Li Si’s B account balance of 2000 yuan… When Zhang SAN wanted to transfer 1000 yuan to Li Si’s B account through account A:
â‘ Zhang SAN went to the bank and submitted the transfer request to the bank.
â‘¡ The bank confirmed the identity of Zhang SAN through the bank card password and other ways, and checked whether Zhang SAN’s A account has enough balance.
â‘¢ After the inspection, the bank added A transfer record: A account transfer 1000 yuan to B account, and modify the balance: A account balance =3000-1000=2000 yuan, B account balance =2000+1000=3000 yuan.
Suppose there is such A small village, people do not rely on the bank, but their own books to record who has how much money, everyone’s books are written: Zhang SAN’s A account balance of 3000 yuan, Li Si’s B account balance of 2000 yuan… When Zhang SAN wanted to transfer 1000 yuan to Li Si’s B account through account A,
â‘ Zhang SAN roared: everyone attention, I use A account to transfer 1000 yuan to Li Si’s B account.
â‘¡ The villagers near Zhang SAN heard that it was really Zhang SAN’s voice and checked whether there was enough balance in Zhang SAN’s A account.
â‘¢ After the inspection, the villagers wrote on their account books: A account transfer 1000 yuan to B account, and modify the balance: A account balance =3000-1000=2000 yuan, B account balance =2000+1000=3000 yuan.
â‘£ The villagers near Zhang SAN tell the villagers farther away about the transfer, one by one, until everyone knows about the transfer, so as to ensure the consistency of the accounts of all people.
Decentralized ledger (Bitcoin)
A Bitcoin user runs Bitcoin client software on a computer, called a node. A large number of nodes are connected to each other, forming a P2P (peer-to-peer) network like a spider web.
When Zhang SAN wanted to transfer 1 bitcoin to Li Si’s B account through account A,
â‘ Zhang SAN broadcast the transfer transaction requirements to the surrounding nodes: Account A transfers 1 bitcoin to account B and signs it with the private key of account A. (The private key of account A can be simply understood as the password of account A. As long as you know the private key of account A, you can use the bitcoin of account A)
â‘¡ The nodes around Zhang SAN check the authenticity of the transaction signature through the public key of account A, and check whether Zhang SAN’s account A has enough balance.
â‘¢ After passing the check, the node writes to its account book: Account A transfers 1 bitcoin to account B, and changes the balance: account A balance =3 bitcoin -1 bitcoin =2 bitcoin, account B balance =2 bitcoin +1 bitcoin =3 bitcoin.
â‘£ The node broadcasts the transaction to its neighbors, passing it around until all the nodes have received the transaction. Bitcoin’s decentralized public ledger is called the blockchain. This is a simplified description of how Bitcoin works, but it’s much more complicated than that, and we’ll talk more about that later.
The unreplicable Bitcoin
In the real world, you give someone a $100 bill and you don’t have one. But everything in the digital world is replicable, you copy a file to someone, you still have the file. You copy $100 to someone, and you still have $100 (this is called double-spending). As a result, money in the digital world must be managed in a centralized way, such as a central server at a bank that manages your money.
But Bitcoin solves this problem. If you give someone a bitcoin, you don’t have that bitcoin anymore. If you try to pay someone another bitcoin, the surrounding nodes will check that you don’t actually have any bitcoin anymore and refuse to spread your illegal payment. Bitcoin’s breakthrough was to create, for the first time in the digital world, something that was neither replicable nor centralized. Bitcoin is a very different thing from electronic fiat money. Bitcoin is the first real digital currency.
Online fiat money (Alipay or e-banking) is not a real digital currency. Your money in e-banking is just a reflection of real money, rooted in the real world, while Bitcoin has its roots in the digital world. Bitcoin is an irreversible invention. What is an irreversible invention? It doesn’t matter when it’s not there, but once it’s there, the world can’t go back to being without it. Wheels, sewers, flush toilets, gear, engine, photocopiers, Internet, mobile phones, sensors, social software and so on, is this kind of invention, no, no one would think that what this world less, but they once appear, once was invented, people began to use, once some people began to use up, The world will no longer be able to live without these things, and people will even feel unable to move on without them (from “The Bitcoin World Survival Guide (Advanced)” by Lee Xiaolai).
The meaning of Bitcoin’s decentralization
The Bitcoin network is controlled by all Bitcoin users, and no one or organization can change or stop the operation of Bitcoin unless the vast majority of Bitcoin users agree to make a change (such as a rule change or version upgrade).
The problems with centralization are many. Central banks can print money and plunder your wealth without your consent. Your money in the bank is not really your money, it’s a liability to you. You can’t always get your money out of the bank. The bank may only allow you to withdraw 60 euros a day (” Greek banks Reopen on Monday and only 60 euros a day per person “), or it may even force you to confiscate your savings (” Cypriot State Openly ‘robbed’ Large deposits partially or confiscate them “).
Although private property is sacrosanct, there is nothing people can do about it. These misbehaviors will no longer exist in Bitcoin, which is a completely bank-free, Internet-only monetary system that cannot be seized or confiscated even by government law enforcement. You can’t shut down the Bitcoin network unless you shut down the Internet altogether.
In the Bitcoin system, you can actually control your money, rather than indirectly controlling your money through a bank, and for the first time in human history, Bitcoin guarantees the sanctity of private property by technological means.