Blockchain, Bitcoin (Part 1 of 3)
Blockchain is a trendy topic, it’s so for many reasons. My blog represents my research summing up in a short (and hopefully simple to understand) treatise of this important topic. Enjoy reading its interesting history, scientific basis, why it’s important and useful, and likely changes it may bring to the world.
But my write up does not contain anything original, and nothing here you may not be able to find online.
In China, WHAT IS BLOCKCHAIN? Blockchain technology has recently been touted as one of the greatest inventions since the internet. At a group study session for members of the Politburo, Xi said blockchain would play “an important role in the next round of technological innovation and industrial transformation,” according to a report by state media Xinhua on October 25, 2019. In fact, the technology was included in China’s State Council’s technology blueprint in 2016 and some local governments have applied it to administrative work.
In simplest terms, a blockchain (Not Block chain) is a chain of blocks that contain information, or an organized way of structuring and storing data online. What makes it so useful is the specific quality or characteristics of such chains of data – based on its technology, it is essentially a way to make consensus in a distributed system. It’s not just about money. It’s a very sophisticated and revolutionary way of building trust. Money is simply one of the applications. Blockchain technology has the potential to disrupt not only the finance industry but also healthcare, education, voting, and real estate among countless others. The idea of decentralized power, which blockchain technology is rooted in, has a lot of important implications many of which have yet to be imagined. It provides a Decentralized Trust machine. It is Vandalised proof, every new transaction adds it’s unique footprint to the chain, no one can change all it’s unknown history, one just add his own bit. It’s a PERFECT account and ledger.
WHO INVENTED IT? AND BITCOIN Satomi Nakatomi 中本聰 (nobody knows whether he is a person or a group) in 2003 first proposed this and went on invented BITCOIN (a cryptocurrency) based on the technology in 2009, but Bitcoin is not blockchain (not equal to it). SN didn’t use the term Blockchain- there was initially a term “proof-of-work” chain. Another more well-known cryptocurrency (there are over 1000!) Etereum further advance with a program stored in each step. A more recent was launched by Facebook called Libra.
THE BEGINNING / INTERESTING HISTORY
Blockchain is a general solution to the Byzantine Generals’ Problem (a virtual problem raised by several computer scientists in 1982) led by Leslie Lamport (who won the Turing Award). A BGP in the simplest term is how to make sure an attack to a besieged rebel city by several separated armies is successful. The givens for the attack are:
- minority obeys the majority
- will be successful if all armies participate in the attack, otherwise, all retreat
- once decided, attack (or retreat) will be full force (all follow orders)
- there may be traitors in the process of transmission of the message of whether attack or retreat- e.g. Army General A wants to attack, but a traitor messager from General A may tell Army General B (and the rest) that A wants to retreat!
This may sound like a simple problem, but it is not, details of which are probably best left to the mathematicians. You can search and find many theoretical discussions of this topic online, some in youtube videos, e.g. this youtube video by a good teacher Mr Li Yongle who is quite capable in making complex notions simple. For this discussion, let’s just accept that solutions exists if there is an acceptable Fault Tolerance- called Byzantine Fault Tolerance (BFT). Early solutions in 80’s suggested that so long the no. of traitors is less than one third, then the BFT can still be reached, provided that the message is synchronous (no ‘delay’). Now, this second criterion of no (practical) delay creates another difficult problem since such delay could be infinite- e.g. messager disappears!). Back in the 80’s, there is the problem of network latency/delay, and lack of modern days computer power means it cannot handle many simultaneous requests to be practical. In 1999 – researchers Miguel Castro and Barbara Liskov proposed further solutions with (PBFT) Practical Byzantine Fault Tolerance. Such solutions provide basis for efficient computations allowing computer systems to perform thousands of requests per second, a big step forward from the old systems.
But it is Satomi Nakatomi 中本聰 who solved this Problem by proposing this “proof-of-work” chain (Blockchain) in 2003. It is based on dstributed systems with mechanisms to overcome this problem and are said to have Byzantine Fault Tolerance or BFT.
BITCOIN
SN’s subsequent invention- Bitcoin has BFT built into its protocol. Its proof of work consensus mechanism is designed to produce new blocks every 10 minutes, using the total available computing power in the Bitcoin network and rewarding the first node to mine the next valid block. PoW is relatively simple. To finish a page of the blockchain ledger, a block so to speak, nodes (users) must figure out complex mathematical equations before they can validate transactions. This process is called mining, and those who take part in it are known as miners. These mathematical problems are hard to compute but easy to verify. Once miners solve them, they are rewarded with the corresponding digital currency, referred to as a block reward. If the miners are mining on the Bitcoin blockchain, they’re rewarded in Bitcoin) All the other Bitcoin nodes in the network can easily and individually check that a new block of transactions proposed by one of the nodes has been correctly mined. In this way, they can then reach agreement on whether to add the new block to the existing blockchain. And so, unlike the Byzantine generals who — rumour has it, are still stationed around the rebel city to this day — users of public blockchain systems can safely and securely run their operations. The blockchain is a general solution to the Byzantine Generals’ Problem. Each army can be thought of as a node in the system. Messages can be thought of as transactions and the enemy city can be thought of as any man in the middle who seeks to alter the blockchain. In reality, each Block can store about 4000 transactions – latest statistics on the average byte lengths per transaction are available online.
Mining?
Nakatomi ‘s BTC has to solve 3 issues – Which is (created by whom) should be the real/selected Block for any package of transactions? Award (work payment)? And anti-forgery.
Firstly let’s answer the first 2 issues – use complicated maths which requires huge computing power and impossible to reverse engineer to create the Hash- it is super difficult, and to re-engineer (find the original string) would be much much more difficult (Impossible). And each alteration would produce a different Hash.
- the selected one is by whoever claims the block first (again by computing power) by controlling the hash雜湊值 (=SHA256(SHA256)) which is a binary string of 256 ‘1’ and ‘0’ with the requirement of 66 ‘0’ must be in the front (this is to achieve the promise of 10 min (reaching 8×10 to power 19). The Hash is a string (previous block header + this block (of new transactions) + current time + a random no.) , eventually reaching a hash of 256 ‘1 and 0’.
- awards those who package the block and add to the chain. First 4 yrs, each block award is 50BTC per 10 min, next 4 yr, 25BTC, next 4 yr further half (12.5BtC),…… Hence 50x6x24x365x(1+0.5=0.5^2+0.5^3….), this will limit the total BTC value to around 21 Million. Hence the term MINING with huge computing power, and electricity (amounts to 0.3% of the world’s annual consumption – like for Ireland, Jordan, …
It may be interesting to note that over half of all bitcoin and other cryptocurrency mining takes place inside China while millions of citizens own and invest in cryptocurrencies.
Bitcoin Stats & some interesting Facts
Bitcoin has been around since 2009
– Bitcoin’s blockchain electricity consumption generates carbon emissions comparable to the levels produced by Kansas City or countries like Jordan or Sri Lanka
Bitcoin miners generate annual emissions of carbon dioxide of between 22 and 22.9 megatons, according to a Technical University of Munich study published in the journal Joule. The study suggests that carbon dioxide emissions would be twice as high if other cryptocurrencies were taken into account.
– The highest-ever price for a single Bitcoin: $20,089. ($0.001 10/2009, 10/2013, ~120, early 1/2020 ~710) (99Bitcoins, CryptoCurrency Facts)
BTC prices reached an all-time high on December 18, 2017. The world’s best-known cryptocurrency gained value for the first time in October 2009, when 5,050 BTC were sold for a little more than $5. The current Bitcoin price is about $9,200.
If you’re doing your own Bitcoin research, you may have come across the term sats crypto. Sats is short for Satoshis, the smallest unit of BTC. One Satoshi equals to 0.00000001 BTC, or one hundred millionth of a Bitcoin. Remember, Bitcoin current value readings are transient. The currency’s value can change in a matter of hours.
– near end 2019, the global Bitcoin hash rate was 120 Million TH/s (or 120M Trillion calc/sec)(Blockchain.com, Bitcoin.org, Techopedia)
A hash rate is defined as the number of hash operations in a given time period. It’s a useful measure for the processing power of blockchain networks.
(Bitcoin.com)
The Bitcoin blockchain expands to hold all blocks and transactions. The average transaction size in June 2019 was 943 bytes.
– The current size of Bitcoin blockchain is 210 gigabytes.(CoinSutra, Blockchain.com, IT Pro)
According to Bitcoin.com blockchain predictions, the last BTC will be mined in the year 2140. Almost 18 million Bitcoins have been mined so far.
What is cryptocurrency mining? We’re glad you asked.
Every time new BTC blockchain or other crypto transactions are made, they must be added to the blockchain. A miner is rewarded with a small amount of cryptocurrency for carrying out two tasks: validating transactions and guessing a unique 64-digit hexadecimal code (hash). For this purpose, powerful graphic cards manufactured by Nvidia or AMD are used. This time-consuming method may cost you more on your electric bill than you earn in cryptocurrency. However, there are easier ways to get your share of digital currencies. Crypto enthusiasts use digital currency exchanges to buy crypto coins for fiat money or to trade them for another altcoin. Since cryptocurrency values are highly volatile, using forecast and prognosis tools (such as Wallet Investor predictions, for example) is a good approach.
Examples of the world’s most trusted cryptocurrency exchanges include Binance, Bitmex, CEX, KuCoin, Bittrex, Kraken, and CoinMama.
– The maximum number of Bitcoins that can be mined is 21 million. What happened when all 21M BTC are mined?
Currently, about 18 million bitcoin have been mined, leaving under 3 million more to be introduced into circulation. To better understand what will happen with these remaining bitcoin as well as when and how the network will have mined its last tokens, we’ll need to explore some of the details of the mining process itself.
(Investopedia, Statista)
A mining pool is created when cryptocurrency miners combine their computer resources over a network. Each member of the mining pool receives a reward – a share of the mined cryptocurrency – according to their contribution in finding another block.
The Asia-Pacific region also has the largest percent of Litecoin mining pools (52%). You can find the latest news and useful information about the Litecoin market on Reddit.
29% of BTC mining pools are located in North America. When it comes to mining statistics for other cryptocurrencies, 21% of Ethereum, 37% of ZCash, 34% of Monero and 28% of LTC mining pools are also located in this part of the world. Most Ethereum mining pools are located in Europe (49%).
Once bitcoin miners have unlocked all the 21 Million bitcoins, the planet’s supply will essentially be tapped out, unless bitcoin’s protocol is changed to allow for a larger supply. Supporters of bitcoin say that, like gold, the fixed supply of the currency means that banks are kept in check and not allowed to arbitrarily issue fiduciary media. Miners will still be incentivized to validate the bitcoin blockchain because they will collect transaction fees from users.
– More Bitcoin mining stats: In 2018, 44% of BTC mining pools were located in the Asia-Pacific region.
A global distribution of the largest cryptocurrency mining pools. (Statista)
– The first Bitcoin transaction occurred in 2010, when two pizzas were bought for 10.000 BTC.(Yahoo News)
On May 17, 2010, Laszlo Hanyecz bought two Papa John’s pizzas for 10,000 BTC. If we take into account how much bitcoin is worth today, it would mean that Laszlo (aka Bitcoin Pizza Guy) paid about $90,000,000 for the meal. Plus tip, presumably.
The day of the transaction is known as Bitcoin Pizza Day among blockchain and crypto enthusiasts.
Alt Coin Stats & Facts Alt Coin or Altcoin – A common term for cryptocurrencies other than Bitcoin. (WhatIs.com)
– The current Ethereum (ETH) market cap is $28,522,194,599.(CoinMarketCap, Blockgeeks)
ETH is the second largest cryptocurrency by market capitalization. In terms of crypto, market capitalization (crypto market cap) is defined as the circulating supply of tokens or coins multiplied by the current price. Ethereum’s creator is Vitalik Buterin, a Canadian programmer of Russian origin who entered the cryptocurrency world by writing blogs about Bitcoin. What makes the Ethereum blockchain different from Bitcoin’s is that it allows developers to create decentralized applications (DApps) and smart contracts. Smart contracts are computer programs that facilitate the exchange of money, property, shares, content, or anything of value between two parties without the need for authority (a lawyer, for example).
– During 2018, crypto-mining malware activity rose by more than 4,000%. (Investopedia, McAfee)
Cryptojacking is a use of computer’s processing power to mine cryptocurrencies without the consent or knowledge of the owner. It typically happens when a user unknowingly installs software that secretly mines crypto.
– BitShares is an asset exchange platform (similar to the New York Stock Exchange) that works on the blockchain.(BitCoinWiki, Reddit)
BitShares and its native cryptocurrency were designed by American programmer Dan Larimar.
What makes the exchange different from the New York, Shenzhen, and London stock exchanges is that it is focused on cryptocurrencies, without the need for a central authority to handle all the funds. The Bitshares Reddit community has about 7,200 members; this subreddit is a useful resource for all existing and future users of the platform.
– The Vechain platform is an example of the integration of blockchain and Internet of Things technology.(BitcoinWiki)
Vechain allows manufacturers to assign RFID (radio-frequency identification) identifiers to products which then record information onto the blockchain. Its native digital currency, VET, currently occupies 28th place on CoinMarketCap’s cryptocurrency ranking list. It’s supported by a huge Vechain Reddit community.
– Ripple (XRP) is the third-largest cryptocurrency by market capitalization, after Bitcoin and Ethereum.(CoinMarketCap, New York Times)
Ripple has created a $300 million fund to motivate companies to start using its platform for money transfers across international borders. The company currently owns $30 billion worth of XRP. The fund is intended for getting those coins into the hands of new users.
Fun fact: The company organized a private concert by the rapper Snoop Dogg for XRP enthusiasts.
Cryptocurrency Demographics
– 91.5% of all investments in cryptocurrencies are made by men.(Bridging & Commercial, eToro)
This percentage was obtained from a survey conducted by the online crypto investment platform eToro. The survey also suggests that when women do invest, they generally choose the most profitable cryptocurrencies.
– Most Bitcoin users are between 25 and 34 years old.(Cryptocurrency Hub)
Other characteristics: 61% don’t consider themselves to be religious. Almost 30% have a yearly household income between $50,000 and $100,000 per year, 56% are either married or in a relationship, 43% have full-time employment, and 37% consider themselves libertarian or anarchy-capitalist.
If you are interested in the latest stories, conversations, and opinions in the Blockchain community, there is a good blog hosted by IBM called Blockchain Pulse
In Part 2, I would explore and answer some common questions about Blockchain and cryptocurrencies, e.g. how Bitcoin, etc derive its value, why Blockchain is so important, etc. See you there.
Disclaimers
I own a minuscule investment in ETH
Credits and Sources
What does Xi Jinping’s blockchain advocacy mean for China, and the world?
https://fortunly.com/statistics/blockchain-statistics/#gre
| Article title: | 比特币和区块链啥原理？矿机挖矿咋回事？李永乐老师讲比特币(1) |
| Website title: | YouTube |
| URL: | https://youtu.be/g_fSistU3MQ |
You writing a thesis? Got lost after the first page!