Money originated from barter exchange. Economic development and related scientific and technological innovation play a decisive role in the change of money form. The form of money is not a subjective choice, but an objective result of adapting to the trading mode of The Times under the influence of science and technology and economic development level. The development trend of currency forms is “shifting from real to virtual”, which is the inevitable result of the transformation of transaction forms in the era of big data when bitcoin and other digital currencies appear.
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Ok, stop, “Blockchain 100 lectures” is not a “book bag”, background, historical reasons, currency history, etc., ask Baidu. This article just wants to tell you what bitcoin is in its simplest form.
1
The creation of bitcoin
On October 31, 2008, an article titled Bitcoin: A Peer-to-peer Electronic Cash System appeared on the Internet. A peer-to-peer Electronic Cash System), the author is A person named Satoshi Nakamoto. In 2009, Nakamoto packaged the first block, generating the first mining reward — 50 Bitcoins.
Bitcoin is based on cryptography rather than credit, allowing any consensual participant to make payments directly with it, without the involvement of any third-party credit agency. This feature of Bitcoin upended traditional payment systems, including electronic money, and immediately attracted the attention of people sensitive to new Internet technologies.
As bitcoin grew, it gained acceptance: Germany was the first country in the world to accept bitcoin payments; Well-known companies such as Microsoft and Dell are also accepting bitcoin payments. For example, you can buy an American-made alien computer directly with Bitcoin. Not only that, but investors can also invest in bitcoin on digital asset exchanges and trade at a profit.
Based on the design of the Bitcoin system, bitcoin is not created indefinitely, but has a certain number of coins. The reward for mining is halved every four years. Based on this calculation, bitcoin is expected to be issued in 2140 years, a total of 21 million coins. Bitcoin’s own market price has fluctuated, climbing to nearly $20,000 a coin in December 2017. In addition to trading in a special circle of hobbyist bitcoin holders, a growing number of merchants in different countries are accepting bitcoin payments, with the CBOE even launching bitcoin futures.
2
Getting Bitcoin: Mining and trading
Bitcoin is created by mining.
In the Bitcoin system, transaction information and data are permanently recorded in the form of files, and each file is a block. Miners are rewarded with Bitcoins for digging up blocks and broadcasting them to the entire web. This increases the incentive for nodes to support the network and provides a way to distribute electronic money into circulation without a centralized authority issuing it. (” Mining “will be covered in a follow-up article)
Of course, the block’s creator did not get the bitcoin for free, but for a price. This method of continuously adding a certain amount of new money to the monetary system requires the use of a reasonably powerful computer, a fixed amount of time, and a certain amount of electricity. And according to the programming of the bitcoin technology, the more difficult it becomes to acquire the bitcoin, the more energy it consumes, which means the higher the cost of calculating a bitcoin. This is very similar to using resources to dig up gold and pump it into circulation.
Bitcoins can also be acquired through digital currency transactions.
3
Use of Bitcoin
In the actual use of Bitcoin, the owner first installs a Wallet on a computer terminal. Each transaction party has a unique address, which automatically generates a pair of keys — private key and public key. The public key is anonymously disclosed, and the private key is a specific identity information through which the owner can dispose of his bitcoin at any time. In other words, the private key gives the owner control over the bitcoin in order to buy or sell it.
4
Is Bitcoin property, money, or a Ponzi scheme?
Since its inception, bitcoin has been questioned by many as a new kind of Ponzi Scheme or Pyramid Scheme. Even those who agree that bitcoin has some value disagree about whether it is property or money.
In the constant questioning and debate, on the one hand, more and more people recognize and accept Bitcoin as currency, its market price continues to rise, and its use is more and more widely; On the other hand, in practice, there have been many cases of not recognizing the nature of its currency, and governments in some countries have taken an increasingly strict attitude towards bitcoin, or even strictly banned it.
What is the nature of Bitcoin, an online scam? Virtual property or future currency?
The reason many people think bitcoin is a Ponzi scheme is that enough people must keep buying at all times for bitcoin to survive. Money from new investors is paid to earlier investors to maintain the illusion that the scheme is making real profits.
Once it can’t raise enough money from new investors, the scam will collapse and virtual currency investors will try to bail themselves out before the price plummets, accelerating a vicious cycle that will plunge bitcoin’s price to near zero.
People are understandably wary of the new, especially the expensive unknown. Both the steam engine in the physical world and the Internet in the virtual space were regarded as formidable beasts when they first appeared. This is especially true with bitcoin, which defies common sense and upends conventional wisdom. But the way bitcoin works and works in practice, it’s not a Ponzi scheme. Here’s why:
First, the rules and operating mechanism of the Bitcoin system are open and transparent. A typical Feature of a Ponzi scheme is that someone makes up some kind of truth to gain the trust of new entrants. All the information in the Bitcoin system is real and reliable, and no one can manipulate it.
Second, bitcoin comes at a real economic cost. Bitcoin was originally acquired through mining, which cost both time and physical capital. This basically conforms to Marx’s theory of labor value, and bitcoin is the product of labor of “miners”.
Third, bitcoin has a high use value, and its value depends on market demand. Bitcoin, a virtual currency that exists in cyberspace, makes it easy for people to pay for “online” transactions. Brick-and-mortar stores in many countries and regions now accept Bitcoin. In effect, bitcoin already has payment functions similar to traditional currencies.
Fourth, Bitcoin contributes to society the highly valuable underlying technology — Blockchain. It is estimated that no matter what the real value of Bitcoin is, the blockchain technology it provides has obvious advantages such as decentralization, openness and transparency, impossibility of tampering, non-manipulation and trust consensus, which provides technical possibilities for the reconstruction of credit system in various fields of society and has broad application prospects.
According to the World Bank, people tend to fear what they don’t understand and hide behind their fears. Blind attacks sound right, but they are just as ignorant, if not more. Bitcoin clearly does not fall within the definition of a “Ponzi scheme” and its main value is likely to be providing central banks with lessons about the future of electronic money and how to improve efficiency and reduce transaction costs.
Of course, in recent years, as Bitcoin becomes more and more known to the society, more and more people participate in its investment, especially speculators, and its market price rises and falls, resulting in a large investment risk. That’s why it’s considered a hoax. However, in the financial field, the investment risk is large, the market price is abnormally high and low investment everywhere, so it is unreasonable to identify Bitcoin as a financial fraud.
Note: The above content is only an introduction to what bitcoin is, not investment advice. Currency circle strange elephant, please be careful investment.
After all, do you know what bitcoin is? That’s the end of blockchain 100 lectures, and we’ll continue next time.
The content of this article is from “On the Legal Attributes of Bitcoin — Starting from the Case of HashFast Administrator v. Marc Lowe”, first published in The Law Journal, No. 4, 2018, pp. 150-161
Original author: Zhao Lei
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