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Explanation of Bitcoin Principles

We do not understand Bitcoin and its basic knowledge, but only know that Bitcoin exists and its prices have skyrocketed. The following information is collected online about why Bitcoin appears and its several basic properties.

1、 The Evolution of Currency

Let's first review the evolution of human currency, which can be divided into the following stages:

a. Original version: Natural currency (shells, livestock, gold and silver...)

At this stage, currency is based on the rarity or practicality of general equivalents, and there is no possibility of artificially manipulated overissuance of currency.

b. Ming Dynasty version: Early banknotes, banknotes to standard banknotes

As trade volume grew, physical currency became too inconvenient, and people realized that they didn't really care about the value of the currency itself. They only cared about whether so much currency could be exchanged for enough goods. As a result, paper currency, as a credit currency, gradually emerged, and was issued and planned by banks, local governments, and central banks.

However, paper currency itself has no value. At this stage, monetary confidence is based on national credit or national violence. We believe that the value of currency can be stable, although this is often not the case, we have to accept it.

c. Modern version: The era of card swiping

This stage is actually not fundamentally different from the era of paper currency, except that cash has been digitized and the issuance of currency by the state has become simpler. Simply add a few zeros to the database of the People's Bank of China and transfer them to the accounts of major banks.

d. Future version: Cryptocurrency

But when the country's credit is blown out, what else can we believe? In fact, anything that relies on people's participation in decision-making cannot be completely eradicated from dark scenes and selfishness.

Actually, there is one thing that can truly be trusted, which is mathematics! But even if we all believe that mathematics is trustworthy enough, how can we create a currency based on mathematics? In the era without the Internet, this problem remains unsolved. Now, the true third generation currency has indeed been born, although it is still in a conceptual stage that most people cannot understand.

2、 What exactly is Bitcoin

a. Essence: A Cryptographic Public Accounting System

Baidu Baike writes as follows: Bitcoin is an electronic currency generated by open-source P2P software and is a virtual currency on the internet. Bitcoin does not rely on specific currency institutions for issuance, but is generated through extensive calculations using specific algorithms. The Bitcoin economy uses a distributed database composed of numerous nodes in the entire P2P network to confirm and record all transaction behaviors. The decentralized nature of P2P and the algorithm itself can ensure that currency value cannot be artificially manipulated through the mass production of Bitcoin.

At first glance, it appears to be full of slang, which is probably difficult for non professionals to understand. Simply put, the essence of the Bitcoin system is a public accounting system. Every amount flow for each account is recorded. And everyone has a complete ledger on hand, which can calculate every transaction of each account in history, and of course, it can also calculate the current balance of a specific account.

The most crucial point here is that everyone has a complete ledger, and no one in this system has the sole decision-making power. This means that no one can decide to add currency to this system or change rules, as individual modifications will be rejected by the entire network. Unless someone can modify more than 50% of people's accounts, this is the so-called 51% attack in the Bitcoin system, which is obviously not likely to occur, and as the network increases, the difficulty also increases.

b. What is mining (BTC) doing

Along with Bitcoin, what kind of mining is needed. This is really puzzling. What is mining for? Where was Bitcoin dug up? This is really a science fiction thing!

In fact, the essence of mining is to compete for accounting rights. In the world of Bitcoin, a data block is recorded on the public ledger every approximately ten minutes, which contains globally validated transactions within that ten minute period. But who is responsible for recording and submitting this record needs to be robbed, and how to rob will be explained in the later mathematical section. Why compete for accounting rights? Because the person who has seized the accounting rights is allowed to add an amount to their account, the current amount is 25 Bitcoin.

c. How to limit the issuance quantity

As mentioned earlier, when Bitcoin was created, the rules restricted the issuance of only 50 shares per ten minutes to those who had seized accounting rights, and this amount was halved every four years. Now it has been reduced to 25 shares. Using mathematics to calculate the limit, it can be calculated that by 2140, a total of 21 million copies will be issued, with a current circulation of approximately 16 million. To change the rules, 51% attacks are still required. The current circulation can be queried here: https://blockchain information/

d. What is a mining pool

With the increasing computing power of the entire network, the computing power of ordinary computers has almost no chance of seizing accounting rights. So let's team up and form a mining pool. If the mining pool seizes the accounting rights, the money will be distributed according to the calculated contribution.

3、 The Mathematical Foundations of Bitcoin

a. What is the receiving address

The most memorable thing for those who have just come into contact with Bitcoin is probably the garbled list of addresses. What is that thing? Will it repeat with others? What is the private key mentioned in many articles?

Here we introduce the first important cryptographic concept: asymmetric encryption algorithms.

Usually, there is only one password for encryption and decryption in the concept, such as adding a password when compressing a file, and then entering the same password when decompressing can unlock it. In fact, until the 1970s, cryptography remained at this level, commonly known as symmetric encryption algorithms.

Until the 1970s, two outstanding mathematicians emerged and proposed a new cryptographic idea, which required different ciphers for encryption and decryption. By using mathematical methods, a pair of keys A and B are generated. When A is used to encrypt a piece of data, B must be used to decrypt it; To encrypt data using B, A must be used to unlock it; And it is easy to calculate B based on A, but the opposite is not true. A is called a private key, and B is called a public key. As the name suggests, A is confidential and B is public. It doesn't sound like anything special, does it!

After careful consideration, you will find that this solves two problems:

1) Anyone who wants to send me an encrypted file only needs to use my public key B to encrypt it and publicly place it on the network, without having to tell me the password from a secret channel at the same time, because only those who have the private key A can decrypt it.

2) When I want to prove that something was indeed published by me, all I need to do is encrypt it with private key A, and then publish it. When people find that my public key B can decrypt it, they can believe that it is indeed published by me, because only I have the private key. This process is also known as digital signature.

That's right, the wallet address is that public key! Because public and private keys need to be generated in pairs using special algorithms, they cannot be manually set like regular passwords, and they also appear to have no regularity. Usually generated automatically by the system after installing the Bitcoin client. And the private key is hidden in the wallet file. To gain a deeper understanding of Bitcoin's asymmetric algorithms, please copy the link: Elliptic Curve Algorithm (http://baike. baidu. com/view/531769. chm).

So how many addresses are there? Will you run into someone else? Let's describe it this way: if there is an Earth in every grain of sand, then the number of addresses is roughly equal to the total number of sand in all the sand on Earth. If you generate an address where someone else has a balance, congratulations on winning! If you are willing, this money belongs to you!

b. How to pay for Bitcoin

In an image metaphor, the payment method of Bitcoin is actually posting on Weibo, where the private key is the Weibo password and the Weibo username is the public key. When A wants to pay B, he just needs to say 'I will pay @ B 1 Bitcoin' on his Weibo account, and then the mining classmates will verify if you have enough money. If the verification is successful, he will forward your Weibo account along with other verified Weibo accounts within ten minutes. When there are enough people forwarding (usually 6 are considered sufficient), it is considered that the payment has been successful.

If you post a Weibo message saying 'DL paid me 1 Bitcoin', it is obviously illegal, and no one will help you forward it because only those who have the private key of B have permission to say this sentence.

Of course, this forwarding behavior requires certain conditions to be met before it can be allowed, in order to avoid you being able to find 6 accounts to help you forward. Please refer to the following section for detailed conditions.

c. How to compete for accounting rights

The way to compete for accounting rights is actually to play a cryptography game called Hash, and more specifically, SHA-256.

The characteristic of hashing is that it can calculate a large value based on any piece of data, and the calculation results are quite random and cannot predict the size. What everyone is comparing is to see who can find a number and the hash of the previous data block within ten minutes, as well as Weibo verified within ten minutes to calculate the minimum hash value. Whoever calculates the smallest gains the accounting rights. Similarly, it must be at least less than a certain value to be allowed to have forwarding rights, and the smaller this value, the higher the difficulty coefficient of the Bitcoin network.

Due to the randomness of the calculation results, there is no way to optimize the algorithm. We can only start from 0 and continue to calculate upwards, which means that whoever calculates faster has a chance to find this number first.

If you don't get the bookkeeping rights within these ten minutes, it's nothing and you'll move on to the next round.

Worried about SHA-256 being cracked, right? In fact, worrying about this is more reliable than worrying about the destruction of the universe.

4、 Characteristics of Bitcoin

a. Where is my coin

This is the most confusing and incomprehensible question for many people. There is an amount in my address, but where is it!? Is it on my computer? Or in the wallet?

Actually, there is no such 'sum of money' in existence! It's everywhere and actually doesn't exist at all!

It exists on everyone's bills, and everyone just knows that you have such a sum of money without worrying about where it is. In fact, there is indeed no form of existence. For example, do you care where the cash corresponding to the amount in the bank card is placed? Actually, as long as my card can be swiped, that's enough. When using Bitcoin, one does not give a particular coin to the other party, but only sends a statement 'Weibo' using a private key.

b. Easy to track

Because everyone maintains bills, it is easy to track the flow of funds on any account.

For example, in the recent Lushan earthquake, One Foundation received donations from Bitcoin and can stamp here( http://blockchain . info/fb/1dumifq) Query the details, and the arrival time, amount, and expenses of each transaction can be clearly seen. Dear, this is equivalent to directly querying the original bank statement!

c. Privacy protection

Although we can check the flow information of each account, we cannot match the account with the actual person. Everyone can have almost unlimited addresses if they want.

This is the first time in human history that private property has been technologically guaranteed to be sacred, inviolable, untraceable, and unfrozen.

d. Paper wallet and brain wallet

We usually hide the private key in the wallet file, but in fact, it is just a string, slightly longer than the address. We can copy or print it onto a piece of paper, and then solemnly put it in the safe. That string carries all your Bitcoin wealth!

A more interesting creation based on Bitcoin is the brain wallet, which is completely beyond imagination! On this website (http://brainwallet. org/), a pair of public and private keys can be generated in one sentence. As long as you can remember this sentence, you can generate a private key based on it again and extract your Bitcoin anywhere with a network connection. But make sure to choose a sentence that is globally unique, otherwise the chance of collision will greatly increase. Of course, this is also easy, such as a casual sentence: My bank card number XXXXXXXXXX is my daughter's XXx birthday password. It's probably difficult to collide with.

This means that you can store all your wealth in your brain, doesn't it feel like it's enough to instantly kill everything!

e. Provable and unprovable

Imagine that when you use a brain wallet, there will be no evidence in this world to prove that you have such a sum of money, which will only be lost unless you have memory loss or death.

Similarly, it can also be easily proven that you have wealth at a certain address. Just use a private key to encrypt a piece of information and publish it, and everyone can confirm your ownership of the account without having to disclose the private key to prove it. The official Bitcoin client comes with this feature.

f. Lost and cannot be retrieved

Many people want to know one thing, if I lose my wallet file or forget my private key, can I still retrieve this money?

Sorry! Even immortals can't help you! There is no need to retrieve this code with my ID card here, and that part of the coin will disappear forever.

Other FAQs:

a. What is the difference between Bitcoin and Qcoin?

Please read the above article again.

b. Is Bitcoin a scam

If you still think there are any similarities between Bitcoin and the Ponzi scheme after reading it, then consider it a scam.

c. What challenges does Bitcoin face?

Generally speaking, there are four points: government blockades, counterfeit coins, hacker attacks, and possible self defects.

d. If there are network issues, won't Bitcoin be unusable

If there is a problem with the network, swiping the card will also be unusable.

e. What should we do if the country prohibits it?

At present, the country does not have the ability to legislate to prohibit a person from owning a certain file on a computer, or to prohibit you from remembering a certain sentence.

f. Why is the amount of the wallet address inconsistent with the query on blockchain?

This is also a confusion for many people. In fact, a batch of addresses have been generated in the wallet, and we only see one. The other addresses are used for change, and payment from the wallet will automatically select the most suitable amount from multiple addresses for payment. If you want to save with a paper wallet or a brain wallet, transfer all to your paper/brain wallet account.

g. Bitcoin goes beyond existing laws

Yes, everything should keep up with the times, shouldn't it

h. What Bitcoin Means

The so-called appreciation of internet hype is secondary, and the true significance lies in the fact that networks and algorithms are beginning to attempt to take over human functions in finance, which may have a profound impact on the future social architecture. A bottom-up force based on sufficient connectivity and computational power is sufficient to reconstruct society!

i. What are the drawbacks of Bitcoin

Of course, there are many articles discussing shortcomings online, and it is more suitable to view them from a currency experiment perspective.