The Future of Cryptocurrency: Bitcoin and Beyond

Cryptocurrency has brought many challenges to the legislative department in the past period of time. More and more people in the entrepreneurial and academic circles have also joined this technological revolution.

Bitcoin was released in January 2009. At that time, only a few people who had been paying attention to cryptography knew about this new thing. Bitcoin originated from an individual or group who called himself "Satoshi Nakamoto". So far, the true identity of "Satoshi Nakamoto" has not been known to the public. Bitcoin is an electronic currency that uses encryption and decryption algorithms to maintain transfer records. It sounds like a fantasy at first. People can use Bitcoin anonymously. The transfer records in the Bitcoin network are stored and maintained in a decentralized way. No group or individual controls Bitcoin. Even the government, banks, and Satoshi Nakamoto cannot do this.

Today, there are about 14.6 million bitcoins in circulation. The total market value is about 3.4 billion US dollars. Some of the bitcoins in circulation may be used for black market transactions. Taking advantage of its anonymity, some people use bitcoins to buy drugs and other contraband. On the other hand, many characteristics of bitcoin have also attracted the attention of financial institutions such as JPMorgan Chase. They agree that technology such as bitcoin can achieve circulation and payment functions at a lower cost. Around bitcoin, nearly 700 electronic currencies have been created. On September 15 this year, the electronic currency community also ushered in the establishment of the first academic journal (Ledger).

The reason why Bitcoin has attracted so much attention is because of its revolutionary innovation. Using a technology called blockchain, Bitcoin keeps a record of every transaction. It is also relying on blockchain that all Bitcoin transactions are difficult to reverse or tamper with. Bitcoin transactions are recorded on many computers in the P2P network, and Bitcoin users do not need to trust the owners of these computers. Even in this case, the Bitcoin network is still safe and reliable.

Many people believe that blockchain can also be applied to other areas, including smart contracts, voting, and crowdfunding. In July this year, the Ethereum Foundation, a non-profit organization based in Baar, Switzerland, released a blockchain-based system called Ethereum. The IC3 research team at Cornell University in the United States also decided to start scientific exploration based on blockchain in July.尼古拉斯·库尔图瓦, a cryptography scholar at University College London, said that if Bitcoin can develop smoothly, it may become the most important invention of the 21st century.

There are still some areas where Bitcoin can be improved, such as security. There have been more than 40 cases of Bitcoin theft, some of which have resulted in losses of more than $1 million.

Cryptocurrency-related companies and scholars use game theory and advanced cryptography methods to re-examine Bitcoin.艾瑞·朱尔斯, co-director of the Initiative for CryptoCurrencies and Contracts (IC3), pointed out that "cryptocurrency is not like other systems. Once problems occur, the consequences are unbearable. Therefore, more relevant experts need to be attracted to solve these potential problems."

The academic circle's exploration of cryptocurrency can be traced back to 20 years ago. At that time, David Chaum, an expert in cryptography at the Netherlands National Institute of Mathematics and Computer Science, did a lot of related work. In order to better protect the buyer's personal information, he founded the earliest electronic currency DigiCash in 1990.

DigiCash went bankrupt in 1998. The main reason for the failure was that DigiCash's protocol was not decentralized. The operation of its system relied on a traditional bank, but it has never been able to find its place in the traditional financial industry. Ten years later, Satoshi Nakamoto re-implemented the idea of ​​DigiCash on Bitcoin. The difference is that the Bitcoin code is maintained by community participants, and the Bitcoin network is based on the P2P protocol. In other words, Bitcoin is a decentralized system. Anyone can participate in the Bitcoin network, just open the wallet and connect to the Internet. Many participants build this network and jointly maintain a constantly updated blockchain.

Satoshi Nakamoto's biggest challenge was how to prevent network transactions from being tampered with in such an open network and to ensure that no false Bitcoin transaction records would appear. The solution he proposed was to let everyone decide through competition who has the right to write transactions into the blockchain. This process is Bitcoin mining.

Once a Bitcoin transaction is submitted to the network, it will be broadcast to the entire Bitcoin network. People who participate in Bitcoin mining need to collect these transaction records and then perform a series of hash calculations. Whoever first finds a hash value that meets certain conditions has the right to package all current records into a block and add it to the blockchain. There are currently nearly 400,000 blocks on the Bitcoin blockchain.

Why can this process of competing for block generation rights ensure the security of the blockchain? Because no individual/group can easily obtain the right to generate blocks, which means that no one can rewrite previously generated data blocks.

While maintaining the blockchain, mining also slowly increases the supply of Bitcoin. Every time someone obtains the right to produce a block, they will receive a reward of 25 Bitcoins, worth thousands of dollars. The difficulty of Bitcoin mining is automatically adjusted, and the interval between each data block is an average of 10 minutes. At the same time, the number of Bitcoins rewarded for producing a block also decreases over time, and it will be halved every 4 years. In this way, the upper limit of Bitcoin supply is 21 million.

The Bitcoin network cannot determine how much a Bitcoin is worth. The price depends on the buyers and sellers in the Bitcoin trading market. This leads to huge fluctuations in Bitcoin prices. In January 2013, the trading price of a Bitcoin was $13, but it rose to $1,200 in December. On May 22, 2010, someone used 10,000 Bitcoins to buy two pizzas. According to the highest price of Bitcoin at that time, these two pizzas cost $12 million in Bitcoin.

Dilemma

It wasn't long before Bitcoin's problems began to surface. For example, due to Bitcoin's anonymity, many people use it to trade in contraband items. Silk Road is an online black market that uses Bitcoin as a means of payment. The FBI shut down the site in 2013, and the site owner was sentenced to life in prison in May this year. On the other hand, Bitcoin is also used to sponsor sites like WikiLeaks.阿尔文德·纳拉亚南, a computer scientist at Princeton University, believes that it is difficult for the Bitcoin community to establish a standard to identify what kind of Bitcoin applications are good or bad. "No one can regulate the Bitcoin network unless the use of related technologies is prohibited."

There are also some problems with Bitcoin mining. As the price of Bitcoin rises, the competition for mining computing power is getting more intense. Faster equipment is being developed for Bitcoin mining. At one time, someone could earn $200 worth of Bitcoin in a day of mining. Someone even built a large Bitcoin mining center in Iceland. The reason for choosing Iceland is that the climate there is cold, which is conducive to the heat dissipation of mining machines. According to an estimate in 2014, the electricity used for Bitcoin mining is equivalent to the electricity consumption of the entire Iceland.

cooperation

The increasingly fierce competition for Bitcoin computing power has led individual miners to join various mining pools. Last year, the largest mining pool GHash.IO once controlled more than 50% of the computing power of the entire network. Once someone controls more than half of the computing power of the entire network, he can control the right to produce blocks. In this way, he can defraud the network, cancel the Bitcoin transaction record, and let the paid Bitcoin return to the original address. This fraud method is called a "51% attack." On some smaller electronic currency networks (Terracoin, Coiledcoin), someone successfully launched a 51% attack. The attack at that time even caused people to give up continuing to maintain the Coiledcoin blockchain.

In order to reduce the risk of being attacked, some people have proposed new mining algorithms. For example, Litecoin's mining algorithm relies more on memory, which makes it more difficult to design a dedicated mining machine.伊莱尼·史, co-director of IC3 Labs, and his colleagues have theoretically determined that mining pool participants can steal mining rewards. They have also developed an algorithm prototype and plan to test it on Bitcoin or other electronic currency networks.

Another problem is the energy consumed by Bitcoin mining. To reduce waste, researchers Shi and Jules developed an electronic currency network called Permacoin. Its mining algorithm no longer calculates meaningless hashes, but processes medical data or genetic data. This does not reduce the energy consumption of mining, but at least allows the energy to be consumed on more useful calculations.

The security of electronic money is another big issue. Many Bitcoin thefts are not caused by the blockchain architecture, but by the digital signature technology used by Bitcoin. Bitcoin users have a public key and a private key. The public key can be sent to others to receive money. The private key must be kept strictly confidential, and it can be used to initiate Bitcoin transfers. Once someone's computer is hacked, once his private key is stolen, it means that his Bitcoin will be stolen.

Narayanan believes that users are so sensitive about security that Bitcoin is unlikely to become a widely used means of payment. To address this problem, Narayanan and his team developed a technology that can store private keys separately. For example, users can store private keys in segments on their computers and mobile phones. Even if your computer is hacked, the attacker still needs to hack your phone to steal the complete private key.

Courtois pointed out that another security risk of the Bitcoin network is that signing a Bitcoin transfer transaction requires both a private key and a random number. In some Bitcoin client implementations, such as on Android phones, the generation of random numbers is not very reliable. If someone can exploit a system vulnerability and guess what random number is used to sign a transaction, then he has a chance to guess what the private key is.大卫·思科瓦尔兹, chief cryptographer at Ripple, admitted, "It's embarrassing that this industry gives people the feeling that something big could happen at any time."

Ethereum

加文·伍德, believes that the application of blockchain is not limited to recording transfer records. For example, we are designing a smart contract system (Ethereum) that automatically initiates payment when the conditions specified in the contract are met. Blockchain can also be used for voting management and crowdfunding. Wood pointed out that Ethereum can play a big role when there is a lack of trust between the two parties in the transaction. In order to put this idea into practice, Wood and Ethereum founder维塔利克Buterin raised 30,000 bitcoins through crowdfunding in 2014 for the development of Ethereum.

The project team found academic experts to ensure that the Ethereum protocol is secure. Shi and Jules have been trying to find loopholes in the Ethereum protocol. Jules believes that technology is a double-edged sword, and we need to ensure that when harm occurs, the damage caused is controllable.

Wood pointed out that, like Bitcoin, Ethereum is not controlled by any one person. It is currently in a legal vacuum. Just like music recording and the Internet, these emerging things were once in a legal vacuum when they first appeared. There are still many gaps to be filled in terms of how to better regulate Bitcoin, Ethereum, and other blockchain projects from a legal perspective.

Jules believes that Bitcoin will move towards centralization. Just like the music industry in the past, everyone was keen on downloading music through P2P sharing networks at the beginning, and now everyone likes to buy music through centralized institutions such as Apple Music. Once banks realize the advantages of blockchain, they will develop their own applications and provide decentralized services.

Courtois disagrees with this view. He thinks Bitcoin is the Microsoft of the cryptocurrency industry. Once there is any technological innovation, Bitcoin can absorb it and maintain its leading position in the industry.

Regardless of the future of Bitcoin, Narayanan stressed that the electronic currency community has been established. The developers and researchers behind this community are the most important. Blockchain technology will definitely be mentioned repeatedly in computer courses in the next 20 years.