To understand the technical principle of bitcoin, we need to understand two important cryptography technologies: hash code: converting a long string into a fixed length string, and its conversion is irreversible, that is, it is unlikely to guess the original string from hash code. The main use of bitcoin protocol is SHA256.

Public key system: corresponding to a public key and private key, it retains the private key in the application and exposes the public key. When Party A transmits information to Party B, it can encrypt information with the private key of Party A, and Party B can decrypt it by public key of Party A, so as to ensure that the third party can not send information as a fake; meanwhile, when Party A transmits information to Party B, it will be sent to Party B after encryption with the public key of Party B, and then Party B will decrypt it with its own private key, so as to ensure that the third party can not eavesdrop the communication between the two. The most common public key system is RSA, but in bitcoin protocol, llitic curve digital signature algorithm is used. What is the difference between cash and bank account? Bitcoin is the electronic currency, in BTC. This article is also used to refer to the whole bitcoin system. As with opening accounts with banks, the corresponding concept in bitcoin is address. Everyone can have one or more bitcoin addresses that are used to pay and collect money. Each address is a string that starts with 1, such as I have two bitcoin accounts, 1911hkdlbnsfft5crsihgk3mdzmiyspxf and 1jsuzrzmk7f6iymfvkvqjdbzxbopyfzk. A bitcoin account is uniquely determined by a pair of public and private keys. To save the account, only the private key file needs to be saved. Unlike bank accounts, banks will keep all transactions and maintain the book balance of each account, while bitcoin's transactions are jointly maintained by the whole P2P network through pre agreed agreements. How much is in my account address? Although the current account balance can be seen by bitcoin software, there is no place to maintain the book balance of each address, unlike the bank. It can only calculate the account balance in real time through all historical transactions. How can I pay the bill? When I pay from address a to address B of the other party, the amount of payment is e. at this time, both parties will announce the transaction information to each network node, tell address a to pay to address B, and the payment amount is e. In order to prevent the third party from forgery of the transaction information, the transaction information will be encrypted with the private key of address A. at this time, the network node receiving the transaction information can use the public key of address a to verify that the transaction information is indeed sent by A. Of course, trading software will help us do these things, we just need to input relevant parameters in the software. What will be done after receiving transaction information from network nodes? This is the most important part of the whole bitcoin system, which needs to be elaborated in detail. For simplicity, only the bitcoin protocol that has been implemented is used here. In the current version, each network node will save all transaction information synchronously. All transaction information that happened in history can be divided into two types, one is "verified" transaction information, that is, the transaction information that has been verified, which is stored in a series of "blocks". The information of each "block" is the ID of the previous "block" (the ID of each block is the hash code of the hash code of the block) and the new transaction information (see an actual block). Another category refers to the transaction information that has not been verified, and the transaction information just paid above belongs to this kind. When a network node receives new unconfirmed transaction information (more than one transaction information may be), because it has saved all transaction information in history, it can calculate the book balance of each address in the current period, so as to calculate whether the transaction information is valid, that is, whether there is enough balance in the account of payment. After removing invalid transaction information, it first takes out the last "block" ID, then combines the unconfirmed transaction information with the ID, and adds a verification code to form a new "block". It needs a lot of computation to build a new block above, because it needs to calculate the verification code, so that the above combination becomes a block, that is, the first bit of hash code of the block is 1. The first 13 bits are currently required to be 1 (roughly so, uncertain how to do so), which means that if a block is generated by enumeration, the average number of enumerations is 16^13. Generating a block with CPU resources is called "gold mining", because the production of the block will receive certain rewards, and the reward information has been included in the block. When a network node generates a new block, it will broadcast it to other network nodes. However, this network block is not necessarily accepted by the network, because it is possible that other network nodes have produced blocks earlier. Only the block that generated the earliest or the block with the most subsequent blocks is effective, and the rest blocks will no longer be the initial block of the next block. How does the other party confirm the payment is successful? When the payment information is distributed to the network node, the network node starts to calculate whether the transaction is valid (i.e. whether the account balance is enough to pay) and tries to generate the blocks containing the transaction information. When 6 blocks (1 direct blocks and 5 subsequent blocks) contain the transaction information, the transaction information is considered as "verified", so the transaction is officially confirmed and the other party can confirm the payment success. One possible problem is that I pay all the balance in address a to address B and address C. If only the single ratio transaction is valid. At this point, my cheating way is to generate six blocks including B only before I tell the truth, and generate 6 blocks containing C only to send them to C. Because I need a very long CPU time to generate a block, I have a very low probability of cheating success compared with the whole network. What is the motivation of network node to produce block? From the above description, in order to make the transaction information effective, one and five subsequent blocks generated by the network node need to contain the transaction information, and such block generation is very CPU consuming. So how can other network nodes help to produce blocks as soon as possible? The answer is simple, and the agreement provides for BTC for the address where the block is produced, as well as the handling fee promised by both parties. Currently, the reward for producing a block is 50btc, which will be halved every four years in the future, for example, the reward is 25btc between 2013 and 2016. Is the deal anonymous? Yes, not. All bitcoin transactions are visible, and we can find all the transactions in each account, such as mine. But unlike the banking system, everyone's accounts are anonymous and each can open a lot of accounts. In general, anonymity is not as good as it is claimed. But bitcoin has another advantage in doing black market transactions, which cannot be frozen. Even if police track a bitcoin address, there is no way to track computers used by exchanges based on their network addresses. How to ensure that bitcoin does not depreciate? Generally speaking, in the case of transaction activities, the value of money is more than the issue of currency. Unlike traditional money markets, central banks can determine the amount of money issued, and there is no central issuing institution in bitcoin. Only by producing blocks can a certain amount of BTC currency be obtained. So the increase in bitcoin currency depends on: 1. The speed of block production: the bitcoin agreement stipulates that the difficulty of producing blocks is fixed at an average of 2016 every two weeks, and about 10 minutes to produce one. Moore's law of doubling CPU speed every 18 months does not speed up the production of blocks. 2. Number of rewards for production block: at present, 50btc is awarded for each block produced, halved every four years, 25btc is awarded in 2013 and 12.5btc in 2017. Combined with the above two factors, the issuing speed of bitcoin currency is not controlled by any single node in the network node. The protocol makes the currency stock known in advance, and the maximum stock is only 21million BTC.

(2021-3-22)