Understanding the Relationship between Bitcoin and Blockchain

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Blockchain can be divided into public (owned) chain, private (owned) chain and alliance chain according to its openness. The so-called openness refers to whether everyone can freely join the blockchain and obtain information on the chain, and whether the information on the chain is open and transparent.

Public chain, private chain, alliance chain

① Public chain. It is the most open type of blockchain in practical application. There is no rigid requirement for the right to participate in the public chain, and any individual or organization can join and quit freely. All data records on the public chain are open and transparent, and anyone can participate in the consensus process. The public chain is considered as a completely decentralized blockchain that is not controlled by institutions. The most typical representative of the public chain is the Bitcoin system, which is open to everyone, and everyone can become a node, verifier and user in the Bitcoin system. The information in the Bitcoin system is completely open and transparent.

2 private chain. Also known as internal chain, its openness is very low, and the permission to write and modify data is only in the hands of a few people/organizations, which belongs to a single center network of private institutions. At present, many large company groups are developing their own private chains, which can be used for enterprise management, financial audit, bank settlement and so on.

③ Alliance chain. By a number of organizations that trust each other, they have a good cooperative relationship. The openness of alliance chain is between public chain and private chain, and the permission to write and modify is still in the hands of multiple trust organizations, which is regarded as a partially decentralized blockchain. This alliance can be a kind of alliance between countries, enterprises and banks. The participants in the alliance chain have a high degree of mutual trust, fast verification efficiency, greatly reduced transaction costs compared with the public chain, and at the same time, some privacy of data can be well protected. The information and resources on the alliance chain can only be shared by the members of the alliance, such as the R3 blockchain alliance.

What is Bitcoin?

Bitcoin is a decentralized cryptocurrency in the form of Peer to Peer (P2P), and peer-to-peer transmission means a decentralized payment system. The concept of Bitcoin was first put forward by a man named Satoshi Nakamoto on October 31st, 2008. On January 3rd, 2009, Satoshi Nakamoto dug up the first batch of Bitcoin in the world with a personal computer, thus officially announcing the birth of Bitcoin.

What is special about Bitcoin is that it is a peer-to-peer, decentralized, universal and non-exclusive cryptocurrency based on blockchain as a payment technology. Bitcoin does not rely on any organization or individual to issue, but is generated by a large number of calculations through the workload proof mechanism, which is also commonly known as "mining".

The use of bitcoin requires a distributed database composed of many nodes in the whole peer-to-peer network to confirm, verify and record all transactions. The total number of bitcoins is limited, only 21 million. At present, more than 18.69 million bitcoins have been dug up. It is estimated that all bitcoins will be dug up by 2140.

The relationship between blockchain and bitcoin

When the financial crisis broke out in 2008, Satoshi Nakamoto, the founder of Bitcoin, wanted to design a set of electronic money that was not controlled by centralized institutions. When he conceived the underlying infrastructure, he made a very important decision: abandon the traditional centralized database model and design a set of strong decentralized underlying mechanism on the basis of learning from predecessors. Everyone can participate in this mechanism, and the authority is equal. Without the intervention of centralized teams or institutions, once the data is recorded, it cannot be changed at all. With the passage of time, people found that the advantages of Bitcoin became more and more obvious, even if the founder disappeared, it could run stably, so everyone took out this underlying mechanism and studied it, and named it "Blockchain".

(1) Bitcoin is the first application of blockchain technology.

After bitcoin was created, it was quickly popular, and people began to pay attention to its underlying technology after the price soared. After in-depth research, people found that this technology can be applied to many fields, and later this technology was named blockchain technology.

At present, according to the development process of blockchain, it is defined as blockchain 1.0, 2.0 and 3.0 times.

The blockchain 1.0 era only refers to the underlying technical architecture that supports the operation of the Bitcoin system, which is a narrow blockchain. At this stage, the goal of Bitcoin is to replace the traditional financial system and explore the feasibility of becoming a global payment currency. The expansion of blockchain that emerged at this time is mostly around the improvement plan for Bitcoin.

Around 2014, Vitalik Buterin abstracted the features of "decentralization, openness and transparency, consensus mechanism, token model" in Bitcoin technology architecture with smart contracts, and upgraded it to blockchain 2.0, and the concept of blockchain in a broad sense was born. Blockchain 2.0 is programmable finance and is a blockchain application in the fields of economy, market and finance.

By blockchain 3.0, the development of technology can meet more complex business logic and expand the application scenarios from finance to all walks of life. "Blockchain+"basically covers all aspects of life, including film and television copyright, food safety, medical health, logistics, election and voting, and public welfare.

On the whole, the whole iterative process of blockchain has lasted for more than 10 years from 1.0 to 2.0 and then to 3.0 today. If blockchain 1.0 is the bud of blockchain technology, then 2.0 is blockchain and finance, that is, blockchain is considered to be the most likely to break through in the first scene, and blockchain 3.0 is a full-scale outbreak to promote greater industrial reform.

(2) Bitcoin is endowed with more powerful functions than payment.

After more than ten years of development, Bitcoin has formed a strong consensus on a global scale and has become a value asset anchored by thousands of assets in the encrypted world. Because of its scarcity and deflationary distribution mechanism, more and more people regard Bitcoin as "digital gold". Due to the low correlation between Bitcoin and other assets, after the outbreak of COVID-19 epidemic, Bitcoin was accepted by more and more mainstream institutions for the purpose of inflation expectation and finding high-yield assets, and became their investment target to diversify investment risks and realize asset diversification. Up to now, at least 130 countries around the world have issued laws or policies on bitcoin, and terms, definitions, risk warnings, tax payment, etc. are all included in the scope of supervision. In addition to the spot market, the derivatives market around Bitcoin, such as options and ETFs, is also booming and the market is becoming more and more mature.