There are a lot of professional introductory articles about Bitcoin, the most popular digital currency at the moment, and some people try to interpret it through comics, but they are always incomprehensible or jerky. Today, Observer will explain the characteristics and meaning of Bitcoin through the most vernacular language and examples .
Think Before You Read :
In a remote village without any bank and other bookkeeping and clearing institutions, what interesting things will happen when villager Zhang San prepares to transfer 1,000 yuan to Li Si?
What is Bitcoin?
In layman's terms , Bitcoin is a digital currency with a constant total amount of 21 million , which has the same characteristics of decentralization, globalization, and anonymity as the Internet . Sending bitcoins to the other side of the world is as easy as sending an email, low cost and with no restrictions. Bitcoin is therefore used for cross-border trade, payments, remittances, and more.
Strictly speaking (it can be skipped), Bitcoin is an electronic cryptocurrency that is decentralized, global, and does not require third-party institutions or individuals, and is based on blockchain as a payment technology. Bitcoin was invented and founded by Satoshi Nakamoto (pseudonym) on January 3, 2009, based on a peer-to-peer network without borders, and was invented and created by consensus initiative open source software. The most valuable cryptocurrency. Anyone can participate in bitcoin activities, which can be issued through a computer operation called mining. The number of Bitcoin protocols is capped at 21 million to avoid inflation problems. The use of Bitcoin uses the private key as a digital signature, allowing individuals to pay directly to others without going through third-party institutions such as banks, clearing centers, securities dealers, etc., thus avoiding high handling fees, cumbersome processes, and regulatory issues .
In the eight years since its birth , Bitcoin, as an unprecedented new currency, has experienced countless market tests and technical attacks, and has always stood firm . Bitcoin has now grown into a currency system with millions of users around the world, tens of thousands of merchants accepting payments, and a market value of hundreds of billions of dollars.
How does Bitcoin work?
Operationally, Bitcoin is actually a decentralized ledger on the Internet.
Centralized ledgers commonly used in financial services in our daily lives. For example , a bank is a typical centralized ledger , and the ledger is stored in the central database of the bank.
How to understand the decentralized ledger?
Suppose there is such a small village, everyone does not rely on the bank, but uses their own account books to record who has how much money. Everyone's account books are written: Zhang San's account A has a balance of 3,000 yuan, and Li Si's account B has a balance of 2,000 yuan. Yuan……
When Zhang San wants to transfer 1,000 yuan to Li Si's B account through account A:
①Zhang San roared: Everyone pay attention, I used the A account to transfer 1,000 yuan to Li Si's B account.
②The villagers near Zhang San heard that it was indeed Zhang San's voice, and checked whether Zhang San's A account had sufficient balance.
③ After the check is passed, the villagers write in their account book: Account A transfers 1,000 yuan to Account B, and modify the balance: Account A balance=3000-1000=2000 yuan, Account B balance=2000+1000=3000 yuan.
④The villagers near Zhang San told the farther villagers about the transfer, and passed it on and on until everyone knew about the transfer, so as to ensure the consistency of everyone's ledger.
Of course, this is one of the simplest and most popular descriptions of how Bitcoin works, and its actual operation is far more complicated than that.
What is the relationship between bitcoin and blockchain?
Satoshi Nakamoto proposed the concept of "blockchain" in the "Bitcoin White Paper" in 2008, and in 2009 he founded the Bitcoin social network and developed the first block, the "genesis block".
Blockchain technology is the underlying technology of Bitcoin, but not many people paid attention to the underlying technology of Bitcoin in the early days. But when Bitcoin is operated and managed by any centralized organization, it has been running very stably for many years without any problems. Therefore, many people have noticed that the underlying technology may have a great mechanism, and it may not only be used in Bitcoin, but may be able to apply this technology in many fields. So from a certain point of view, Bitcoin can be regarded as the first application of the blockchain, and the blockchain is more similar to the underlying technology such as TCP/IP, and will expand to more and more industries in the future .
What are the benefits of using decentralized blockchain technology?
Taking the financial industry as an example (such as a bank), if a hacker attack or a system error causes the accounting data to be tampered with or damaged, it may lead to a crisis or even collapse of the entire system. In addition, because of the uniqueness of the ledger, this mode of operation relies on the credit of the center, that is, the credit of the bank. If there is a problem with the credit of the "center", such as the bank tampering with data without authorization, the rights and interests of customers will also be infringed (for example, There have been numerous incidents of bank employees taking advantage of their positions to steal money from depositors).
To prevent single points of failure and systemic risks , traditional financial institutions need to conduct layers of audits to control financial risks, but this also results in high internal costs. According to a report released by Santander, Spain’s largest bank , around 2020, if banks around the world use blockchain technology internally, it will save about $20 billion in costs every year .
In addition, due to historical reasons, traditional financial institutions rely on central clearing houses for settlement and clearing, and the resulting problem is inefficiency. If all financial systems can achieve decentralized real-time settlement and clearing, it will not only greatly improve global financial efficiency, but also change the global financial landscape .
Moreover, a network like Bitcoin is jointly controlled by all Bitcoin users, and no one or organization can change or stop unless the vast majority of Bitcoin users agree to make a change (such as a rule revision or version upgrade) Bitcoin runs .
The total amount of Bitcoin is 21 million, how is it distributed?
Miners have the opportunity to get rewards for participating in the competition for the accounting rights. At the beginning, the system will reward the fastest and best person with 50 bitcoins every 10 minutes, and then the 50 will be halved every four years. There will be no new bitcoins around 2140. The cap of 21 million will be reached . After that, miners will be rewarded with transaction fees .
Is Bitcoin a Ponzi Scheme or a MLM?
The flow of funds in the Bitcoin trading market is similar to that of the stock market, in which new investors buy investments (bitcoins or stocks) from unspecified old investors, and no old or new investor can guarantee profits. The definition of "Ponzi scheme" is: the behavior of absorbing funds by paying back the money of the later "investors" to the previous "investors" as a return. The act of absorbing and distributing funds.
In the bitcoin/stock market, the elderly have no advantage over the newcomers, and they must rely on their own ability to judge the ups and downs to make profits; while in the Ponzi scheme/pyramid scheme, the elderly have a mandatory advantage over the newcomers, and the elderly are forced to obtain funds from the newcomers. Therefore, although the bitcoin/stock market and Ponzi scheme/MLM are both driven by latecomer funds, the bitcoin market and the stock market belong to the same category, not a Ponzi scheme or MLM. Many people actually confuse the three completely different concepts of "bubble", "MLM" and "Ponzi scheme".
What is the difference between Bitcoin and Q coins, game coins, etc.?
Both Q coins and RMB are typical centralized currencies. The government can have as much renminbi as it wants. At the beginning, it had to print paper money. Now, just change the numbers in the computer. Ma Huateng can have as many Q coins as he wants. Move your fingers. Bitcoin, like gold, is a decentralized currency. No one can conjure gold out of thin air—except by burning money to mine or buy it, and no one can conjure bitcoin out of thin air—except by burning money to mine or pay for it. After the Bitcoin blockchain is launched, even Satoshi Nakamoto has no ability to conjure Bitcoins out of thin air, or add or subtract other people's Bitcoins. In addition, Q coins and RMB are both local currencies, Q coins can only be consumed within the Tencent system, and RMB is mainly circulated in the mainland. Gold and Bitcoin are both global currencies .
How to own Bitcoin?
In the world of bitcoin, if you want to own bitcoin, you need to apply for a bitcoin wallet and get a bitcoin address . Just like when you make a deposit in a bank, you need to open an account, and then you have this account. With your own account, you can deposit money to your account, and others can transfer money to your account. When you need to withdraw money or transfer money to others, you need to show a key that can open this address, which is your private key , just like you need to provide a password when you withdraw money at an ATM.