Science | Xinhua Daily: Bitcoin is the first successful application of blockchain technology

Author: Geng strong (Nanjing University Business School professor) Luo Yu Han

Source: Xinhua Daily

Bitcoin is undoubtedly one of the hottest topics in recent years. Is it the inevitable trend of future currency development, or is it another "tulip bulb" that is frantically hyped?

First of all, Bitcoin is not a tangible currency. It is produced and operated on the Internet. It is an open source P2P (Peer to Peer) digital "currency". Unlike the early days of gold and silver, which were chosen for their natural attributes, they are different from Fiat Money, which has been used for nearly 100 years. Banknotes supported by national laws and sovereign credit, Bitcoin is completely born in the modern technology Internet. era.

Bitcoin is the first successful application of blockchain technology. The transaction records of the traditional financial system are kept in the database of the bank center, and the blockchain is the book of Bitcoin. The ownership of the bitcoin generated at any time and the transaction record are recorded in the blockchain book. Anyone who downloads the client can receive the relevant information.

The address and private key of Bitcoin are similar to personal accounts and payment passwords. The bitcoin owned by the individual is locked on the personal address, and only the private key can be used to unlock and send it to another address to realize the transaction. During the transaction, a bill will be sent to the whole network, and other users will check it. Once verified, the transaction will be successful. The first user to verify that the transaction is valid will be rewarded with a bitcoin. The bonus bitcoin is divided into two parts: one is the transaction fee, which is paid by the transferor, which is the existing bitcoin in the system; the other is the newly generated bitcoin reward of the system. The greater the computer's power, the more likely it is to get a bitcoin reward. The so-called "miners" are people who specialize in verifying transaction information and updating records.

In general, Bitcoin has the following characteristics:

The total amount is limited and the issue will not go out of control. The only source of Bitcoin is the underlying reward for the system after successful accounting. The basic rewards start with 50 bitcoins. After creating 210,000 blocks, the rewards will be halved. So far, the halving has happened twice, and successful accounting will only get 12.5 bitcoins. It is estimated that by 2140, the total amount of Bitcoin will reach the upper limit of 21 million.

Good anonymity, the identity of the account holder will not be known to anyone. People can freely transfer money through Bitcoin without having to verify various identity information like bank transfer, not to bind to any bank card. However, this feature also makes Bitcoin widely used in illegal transactions such as money laundering. Currently, the most important uses of bitcoin payments are black market transactions and "dark net" transactions.

The production and maintenance of Bitcoin consumes a lot of energy. "Mining" solves complex mathematical problems every time a new bitcoin is produced by performing an encryption process on a high-performance computer. Since the amount of money obtained by mining is directly proportional to the computing power of the machine, in terms of probability, the higher the performance of the hardware, the higher the proportion of computing power among all miners, and the easier access to bitcoin. In order to obtain higher profits, the "miners" competed in each other's computing power. The total computing power of the top 10 mining pools in the world accounted for 75% of the bitcoin computing power. The computing power is highly concentrated and maintains distribution. Decentralized accounts require a lot of energy.

The price of Bitcoin is subject to large fluctuations. Bitcoin is just a bunch of data. If it is not linked to real money and physical goods, it is difficult to ensure the stability of its price. The promise of national sovereign credit makes the French currency not depreciate sharply in a short period of time, so people are willing to use legal currency instead of returning to the gold and silver currency. Unlike legal currency, in the absence of legal constraints, physical owners can hook and decouple with Bitcoin as they wish, making Bitcoin very susceptible to irrational emotions and large fluctuations in prices.