Mythical Bitcoin

The exchange rate of Bitcoin has increased 25,000 times in the past three years, so much so that the deputy governor of the central bank, although "not recognizing" its legitimacy, has vaguely expressed "interest" in it. Between the ups and downs, people can't help but ask: Is Bitcoin just another form of the greater fool game, or a revolutionary financial innovation tool?

Ten Questions About Bitcoin

This article was published by reporters Feng Qinghui, Xing Lizhen, Aijun and Wang Biao

If you were to ask what was the hottest thing in 2013, it would probably be Bitcoin.

As a financial experiment, Bitcoin’s price was only a few cents in the first two years after its birth. After 2011, Bitcoin’s popularity began to expand from a very small circle of cryptography geeks to a wider range of virtual currency enthusiasts. That year, Bitcoin rose from 50 cents to $13 per coin, an increase of 2,600%.

After entering 2013, Bitcoin entered a truly crazy moment, constantly making efforts to attack. After hitting a record high of $266 in April, Bitcoin quickly plummeted to a minimum of around $50, and then remained between $100 and $200 for the following months. After entering November, the value of Bitcoin soared again, entering the craziest stage of the greater fool game. Especially in mid-November, Bitcoin rose by $100 almost every day. On November 19, it was a crazy roller coaster drama. On that day, the price of Bitcoin soared from more than $300 to more than $1,000, and then fell sharply to around $700 the next day. On November 29, Bitcoin once reached a record high of $1,242, while the price of gold during the same period was $1,241.98 per ounce. The price of one Bitcoin actually exceeded the price of one ounce of gold! This is regarded by Bitcoin supporters as an important symbol that Bitcoin will replace gold and become the new generation of "gold standard" target.

However, on December 1, Bitcoin quickly plunged 32% to $840, and its smaller brother Litecoin also plummeted 51% from its high point. By the evening of December 2, the price of Bitcoin rebounded to around $1,000...

The origin of Bitcoin

Faced with the hot market, you may ask, what exactly is Bitcoin?

Bitcoin is actually a special solution (a string of numbers and letters) generated by a complex algorithm. A special solution refers to a set of infinite solutions that can be obtained from a set of equations. And each special solution can solve the equation and is unique. In layman's terms, Bitcoin is the serial number of the RMB. Once you calculate the unique serial number, you own this banknote.

But how can we ensure that this serial number (key) is not used repeatedly? This key problem that has led to the failure of all virtual currency experiments in the past was solved by a man named "Satoshi Nakamoto" in a genius and creative way! His method is based on a very complex cryptographic program setting, which allows Bitcoin to be transferred or paid only by the real owner, and can only be used once. After the payment is completed, the original owner loses the ownership of the share of Bitcoin. Just like when we recharge our mobile phones, repeatedly entering the same card number and password will be rejected by the system, thus ensuring the anonymity of currency ownership and circulation transactions.

So who is "Zhong Tiancong"? It is most appropriate to describe the father of Bitcoin "Nakamoto Satoshi" as "a dragon that can only be seen from the head but not the tail". The reason why "Nakamoto Satoshi" is put in quotation marks is that people are still not sure whether "Nakamoto Satoshi" is a Japanese, a man, or even a living person - some people think "he" is dead, and some people think "he" is a Japanese technology enterprise group, or an Internet giant such as Google and Microsoft, or even a bureau set up by the US National Security Agency...

The only three things we can be sure of are:

First, in November 2008, an ID named "Satoshi Nakamoto" who claimed to be from Japan published a research report in a very secretive information encryption technology discussion group, describing the creation principle of Bitcoin and outlining the basic framework of the Bitcoin system.

Second, in 2009, "Satoshi Nakamoto" established an open source project for the system, officially announcing the birth of Bitcoin. Since then, more and more geeks have joined the team of mining Bitcoin.

Third, at the end of 2010, after Bitcoin users began to ask WikiLeaks to accept Bitcoin donations, "Satoshi Nakamoto", who used to be concise and only talked about business, suddenly used a long paragraph to explain why he opposed Bitcoin being used in real business activities. "He" said: "This project needs to grow gradually so that the software can be continuously enhanced in the process. I call on WikiLeaks not to accept Bitcoin. It is still a small testing community in its infancy. At this stage, if it is not handled properly, it will only destroy Bitcoin." Then, "he" disappeared.

Although with the popularity of Bitcoin today, countless people want to find out the truth from the clues left by "Satoshi Nakamoto" on the Internet, but the information left by "him" is either obscure or self-contradictory. The website information shows that "he" lives in Japan, but "his" email address comes from a free service station in Germany, and "his" English words are typical British English... Just like the "Jia Junpeng, your mother is calling you home for dinner" that became an overnight sensation, many public relations planning companies have come forward to claim that they are the father of "Jia Junpeng". In the future, it will probably be an impossible task to dig out the true identity of "Satoshi Nakamoto".

Magical way to make money

The magical money-making effect quickly attracted everyone's attention and formed four major ways to make money with Bitcoin.

The most primitive way to make money is mining. The generation of Bitcoin is also known as "mining", which is actually using computers to solve a complex math problem. The Bitcoin network will automatically adjust the difficulty of the math problem so that the entire network can get a qualified answer every 10 minutes. Then the Bitcoin network will generate a certain amount of new Bitcoin as a bounty to reward those who get the answer. The total amount of Bitcoin will gradually increase at a predetermined rate, and the rate of increase will gradually slow down, and finally reach a limit of 21 million in 2140.

In the early days, mining was almost a free and profitable thing. Even running a mining program on a home computer could easily mine Bitcoin. But now Bitcoin has become a hot commodity that everyone is scrambling for. Mining has long bid farewell to the era of individual single-handed efforts. It requires a team, equipment, and capital. It is extremely difficult for individual users to mine Bitcoin!

Easier than mining, but also more risky, is to buy Bitcoin directly on trading platforms and wait for the price to rise before selling it for a profit. However, this approach is like licking blood on a knife edge. Once the Bitcoin bubble bursts, they will be the group that suffers the most.

Another relatively low-risk operation mode is to use the price differences between platforms for arbitrage transactions, but this also faces greater short-term market risks and exchange rate risks.

The most reliable way to make money is to sell mining machines. On Taobao, the emergence of Bitcoin mining artifacts such as the "Butterfly Machine" (a hardware device specially designed for mining launched by an American company called Butterfly Labs, which is expensive) has given many "miners" hope of improving their money-making efficiency. Its prices range from 2,000 to 3,000 yuan to tens of thousands of yuan, and all are pre-ordered, and the fastest delivery time is two months. Some mining machine sellers have a turnover of seven figures in one month!

Comparison of 4 Bitcoin-based wealth-making models

Funding requirements Difficulty coefficient Risk level Comprehensive comparison

Mining (Production) Gaoji High School★★

Platform buying and selling (speculation) Low low extremely high ★

Inter-platform arbitrage is relatively high ★★★

Selling mining machines high and low ★★★★★

Mythical Bitcoin

Since the beginning of this year, the crazy trend of Bitcoin is astonishing as a myth. As a very complex innovative product of Internet finance, we cannot immediately label Bitcoin as "worthless" or "pure speculation". After all, it provides great enlightenment and innovation possibilities for the future financial development of mankind. However, as "Satoshi Nakamoto" said, Bitcoin is not perfect yet and is still in the stage of continuous trial and error and growth. Entering the real economy too quickly will destroy Bitcoin!

Perhaps Satoshi Nakamoto had already foreseen the consequences of crazy speculation caused by the premature commercialization of Bitcoin, which may be the reason why he chose to disappear when he was unable to stop WikiLeaks from accepting Bitcoin donations. Just as when God first created humans from clay, humans were pure, controllable, and the future was full of various beautiful possibilities. However, when Adam and Eve could not resist the temptation of desire and ate the fruit of the tree of wisdom and betrayed God, the hearts of humans became full of evil thoughts and sins, human behavior became crazy and unpredictable, and the originally beautiful destiny of humans became uncertain. In the world of Bitcoin, Satoshi Nakamoto created Bitcoin, but because of the greed and desire of the world, Bitcoin, which was originally full of various beautiful possibilities, became a mere speculation tool.

The other side of an angel is the devil. When people's hearts are blinded by greed, the angel retreats sadly and the devil appears arrogantly!

Driven by the influence of interests, there is a lot of "pseudo-knowledge" about Bitcoin circulating in the market, which cannot stand up to the scrutiny of economic theory.

For example, when designing the source code, Satoshi Nakamoto limited the total number of bitcoins that could theoretically be mined to 21 million. Therefore, some people believe that this can fundamentally solve the inflation problem that is prevalent in sovereign credit currencies. However, in reality, Bitcoin has to face severe deflation problems.

For example, the production of Bitcoin does not rely on a specific central issuing agency. Therefore, some people believe that Bitcoin fundamentally solves the problem of exchange rate fluctuations in long-term international trade, but the fluctuations of Bitcoin itself are more unreliable than any other currency.

For example, can Bitcoin really be widely used? Will Bitcoin be replaced by other virtual currencies that are designed to be more secure and reliable? How to ensure the security of Bitcoin transactions? Who manages Bitcoin? After reading this series of articles, you will definitely have a much more comprehensive understanding of Bitcoin.