First of all: Why is a banknote that may cost only a few cents can buy a hundred-dollar product?
To answer that, we must first understand the evolution from physical currency to bookkeeping currency inhuman society. Secondly, we need to understand the information transmission mechanism in the Internet world where we are now. This is also the key to understanding Bitcoin.
From history perspective of the currency development, the currency itself initially was represented by physical items such as shells, feathers, animals, gold and silver, etc. They are treated as general equivalents because people believe in the characteristics of their rarity and their own value is equal to the value of the exchanged object.
Later, with the increasing frequency of human life or activities, the disadvantages of precious metals such as gold and silver that are too heavy to carry are exposed. We gradually stepped into the stage of commodity trading with banknotes. The banknotes we see today may cost only a few cents, but they can exchange items worth 100 yuan. This is because the country’s credit is used as an endorsement to make people believe that this worthless paper currency can be exchanged for 100 yuan and can provide 100 yuan of purchasing power.
With the development of the mobile Internet, we have been too lazy to even bring banknotes, especially in the case of mobile Internet. Now many people go out almost all without a purse, they take a mobile phone to scan the QR code for payments. It’s so convenient for most of the times we are just use the bookkeeping currency. For example, wages are simply a digital addition to a bank card account. Buying clothes is simply a subtraction of the bank card account number. There is no need to see the banknotes throughout the process. All the processes are in bookkeeping. Remembering the bank account, you can complete the salary, shopping, etc. However, who will be responsible for this easy task? In our country, banks, third-party payment agencies, and central banks are responsible for keeping accounts. The central bank has bookkeeping rights for the entire country’s large books. This is a centralized way of bookkeeping.
The process of saying this bookkeeping is to find the historical reasons for the development of Bitcoin. There is a cryptology expert named Nakamoto Satoshi. He discovered that during the global economic crisis in 2008, the U.S. government could issue additional currencies indefinitely, because in this system only it has bookkeeping rights. Satoshi Nakamoto feels that this is not very reliable, so he ponders whether he can have such a cash payment system: there is no need for a center to keep accounts, everyone has the power to keep books, currency cannot be replenished, and the entire book is completely transparent and fair. This is the reason and motivation for the development of Bitcoin.
Regarding Nakamoto Satoshi himself, it has always been a mystery. No one knows his true nationality, name, and gender. If you are interested, you can also study it. Maybe you are the one who cracks the secret.
With all this kind of thinking of Satoshi Satoshi, I believe you have already seen the problem.
The bookkeeping currency must have a biller, which is mostly a bank or third-party payment agency, etc. This is a centralized billing method. Centralization is guaranteed by the credit of a bank or a third-party payment agency. If the bank is attacked by a similar hacker, the data may be tampered with, and it is highly dependent on the bank’s credit. If the bank loses credibility, there is a risk of insecurity.
If you change from one center to multiple centers, it make it easier for everyone to participate in the bookkeeping and this might solve the problem. And yes, this is the origin of the concept of “decentralization”. It is also the origin of Bitcoin created by Nakamoto Satoshi.
Bitcoin realizes that it is safe to carry out the issuance, accounting, and incentive of Bitcoin in the absence of a centralized institution. This is a very great invention. It is entirely possible to redefine the world. The underlying technology of Bitcoin is precisely the blockchain.
In addition to the decentralization of blockchains, there is also a unique feature of it that is the transmission of values, which is different from the information transfer of the Internet. The Internet does not depend on an institution or a country. In this online world, you can easily transmit information. Whether you are in the United States, Africa, or even in space, as long as you have the Internet, you can achieve point-to-point information transmission. The way the Internet transmits information is to copy. If you have a photo and passed it to a friend, it is not passed on to a friend but sent him a copy. After the photo is delivered to your friend, you still have this photo in your hand and you have a copy of the photo in your friend’s cell phone.
The copy of information transmitted by the Internet can cause problems in the transmission of value carriers such as copyright, currency, and bills. Because you can’t pass on someone else’s copyrighted documents, you still have one. To take an extreme example, if you transfer money to others, you will no longer have the money.
The transmission of value and the transmission of information are not the same: the transmission of value requires that the transmission of information be carried out simultaneously with the transfer of value. The blockchain is such a case that without the centralized organization, the value of the global scope can be transmitted. Just as the Internet has brought human society into the information age, blockchains are likely to accelerate the exchange of human assets thousands of times, and human society will likely enter a new era of value exchange.
Returning to the evolution of the human currency that we just started talking about, although we are now in the bookkeeping era, our current bookkeeping currency is still heavily dependent on the account system. Just saying that you are paying wages is to make a digital subtraction on your business account and add a number to your account. But where are these companies’ money? Where did the last round come from? There is no way to trace every currency to its roots. Just because the Internet can only do the transmission of information, it can’t do the transmission of value. After the bank’s addition and subtraction of figures, its actual settlement may be after 24 hours, and even some are settled once a month. The transmission of value is detached from the transmission of information, is lagging, and depends on the operation of the entire center. However, in the bitcoin network, every bitcoin transfer is a transfer of value. And, in this network, you can know the source of each transfer, and go back to the original transfer. The process is very clear. This is one of the reasons why our country may use blockchain technology to develop its own digital currency.
The decentralization and value transfer features of Bitcoin will likely bring about tremendous changes in traditional society. There are several different opinions on this issue from all walks of life. In the first view, the Austrian school of economics considers it to be “an unowned currency” and is beyond the country’s credit currency. This formulation is now becoming less and less; the second view, some people think it is a kind of global electronic cash to solve cross-center payment issues; the third view is a mainstream view that Bitcoin may be a kind of global circulation in the future because of the characteristics of constant reserves, increasing mining difficulty, scarcity, easiness, and rapid transfer. The digital assets play a role in value storage and are equivalent to current gold.
All kinds of opinions and different views. In any case, Bitcoin has developed into the most successful blockchain application in the world, with a market value of up to several billion dollars. Various countries began to legislate for it, such as the United States, Japan, Germany, the Philippines and so on. Its existence represents a new way of value transmission.
Let’s summarize. Today we talked about three points of knowledge:
First of all, we talked about the natural evolution of the currency of the bookkeeping currency. Bitcoin is the product of the decentralized bookkeeping currency. Everyone can keep accounts;
Second, we talked about the basic operating principles of Bitcoin’s competitive bookkeeping, the mechanism for the free transmission of Internet information, and the characteristics of Bitcoin’s ability to deliver information and value simultaneously.
Third, we understand three viewpoints on the understanding of Bitcoin in society. The mainstream view is that Bitcoin may be a digital asset that circulates globally. Next, I want to leave you with a question to ponder. Is Bitcoin after the completion of the issuance in 2140? How should this system work when the time comes?