Series 1 analyzes the 8 major factors for the success of Bitcoin, and the unspoken gaming of Satoshi Nakamoto is the source and guarantee of the continuous rise of Bitcoin prices.
Big miners are not stupid; why would they invest in mining? The reason is that they trust the entire logic of the Bitcoin system. The fulcrum of trust is openness and transparency. Openness and transparency is a common word, which makes the so-called experts ashamed to use them to summarize the great invention of Satoshi Nakamoto. How lofty it seems to make simple things seem to let you don’t understand them.
In fact, openness and transparency are one of the core innovations that Satoshi Nakamoto learned from previous experience.
Since the 1980s, cryptocurrencies have been centralized ledgers and centralized verification, and this process has continued until Nick Szabo’s BitGold and Hal Finney’s RPOW. The biggest problem here is the need to solve the credibility of centralized verification and the cost of running centralized nodes. In 1998, 22-year-old Wei Dai published B money and proposed publicizing the ledger. The ledger is public, so everyone can see it, but who has the final say on whether it is correct? It depends on verification. Bitcoin still uses a centralized ledger, but it uses distributed verification and bookkeeping, and the method of giving bookkeepers benefits through gaming is really clever. But the account is still recorded on the same ledger. It is also the point of view in B money that everyone keeps the same ledger. Another advantage of Bitcoin’s design is that a central node has no operating cost.
Why is Bitcoin a centralized ledger? It is inconsistent with the market view. The Bitcoin ledger distributed and stored in different nodes is the same after an hour of confirmation. How does not being a centralized ledger ensure mathematical completeness? The central bank and commercial banks make up the financial system. The ledgers of the central bank and commercial banks are different. They are distributed ledger systems, not centralized ledger systems. How does the market know how much RMB is in circulation? Too complicated. The RMB system is neither centralized nor mathematically complete. In other words, the amount of renminbi issued by the central bank must not match the amount of renminbi in circulation, while the amount of bitcoin issued and in circulation is the same.
The central bank ledger is centralized, and the commercial bank is a centralized one. Bitcoin is no different from them, but the functions and means of realization differ. As a centralized ledger, there are two basic requirements, the general ledger must be balanced, and the transfer must be verified. Banks all follow this principle, but their characteristic is that they are not open, rely on credit, and believe that they will not cheat and cannot cheat. Because its ledger is supervised, this is a vast administrative cost but not necessarily fully effective. Bitcoin has chosen open ledgers, public supervision, and randomized verification, which is also how to obtain credit. Utilizing ledger disclosure and random third-party verification to reduce the regulatory cost of the system to almost zero provides a revolutionary idea for future regulation.
Let’s take a look at the Bitcoin ledger. It is a collection of unspent tokens, which is the balance ledger. All issued bitcoins have algorithms, which are easy to calculate, and if they are matched with the balance of the ledger, it will be known whether the ledger is even or not. In fact, there is no need for reconciliation at all. No matter how it is used, the data is recorded in a ledger, equivalent to the internal transactions of a bank ledger, and the total number remains unchanged. If such a ledger isn’t centralized, what is? The Bitcoin system verifies Bitcoin transfers. The design is correct but not good. Bitcoin is an anonymous address; how do you know the transfer is correct? The transfer within the bank is real-name; if the name is wrong, the bank will return it. How to return the wrong Bitcoin? There are two cases of wrong Bitcoin transfer. If the data format is wrong, the system will not accept it. At this time, the user is lucky; if the format is correct and the address is wrong, the user will be miserable and lose money. Therefore, you need to make a small amount first, receive it, then make a large amount. Since Bitcoin is a centralized ledger, it is equivalent to an internal bank transfer, so it is easy for the other party to confirm the address, and it is enough to design an additional confirmation pool. In this regard, Satoshi Nakamoto did not expect, and subsequent technicians did not surpass, Satoshi Nakamoto’s financial knowledge.
For the balance ledger of Bitcoin, there is no reconciliation between the two parties, and the entire project design is only suitable for a single currency, which cannot meet the various needs of the bank. Ethereum did not hesitate to improve the balance ledger of Bitcoin into an account model, but Vitalik still does not understand the role of reconciliation. Account reconciliation is a security measure and a type of secondary verification. Generally speaking, commercial banks have progressed to comprehensive secondary verification, and the gap between the reliability and security of cryptocurrencies and Web2 products has further widened. It is hard to say that this will get the support of the majority of users.
Openness ledgers and distributed bookkeeping are both means to achieve trust. In contrast, Satoshi Nakamoto values openness more, while the market values so-called decentralization and simplifies it into blockchain ledgers. When it comes to cryptocurrency, it must be called blockchain, which simplifies the vibrant ideas of Satoshi Nakamoto into the blockchain. Blockchain does not represent the connotation of decentralization. Decentralization and blockchain are not the words used in the Bitcoin white paper. Regarding words, cryptocurrency is better, and Satoshi Nakamoto has affirmed this word.
Both decentralization and centralization are means, and they are used in the Bitcoin system to establish the credit of the Bitcoin system. After Bitcoin has a segregated witness area, Bitcoin is activated as a root of credit. What is the root of trust? It is the basis of credit, and if it is credible, the credits based on it are also credible. Due to the uniqueness of the hash value, the hash value calculated by any ledger can be stored in the Bitcoin system. Before Bitcoin, no third party could provide objective credit, so it is correct for Satoshi Nakamoto to use publicity, blockchain ledgers, and multi-party bookkeeping to generate credit. As a system for distributing currency to the public, the Bitcoin system requires multi-party bookkeeping, which means energy conversion and constitutes price support for Bitcoin. Accounting as an ordinary application project is not a currency issuance, but its function is a cashier. If the Bitcoin system is used as the root of credit, using multi-party accounting would be a huge waste. Suppose it weren’t for the fact that cryptocurrency projects can issue coins, and there is a phenomenon of the market paying the bill. In that case, such an absurd multi-party bookkeeping phenomenon should not exist. In one-way accounting, the hash value of the journal is uploaded to the chain, and the credit of the Bitcoin system is used as the root of credit, which will be a way out for future cryptocurrencies.
The third part of the following series introduces the advantages of the peer-to-peer cash system compared to the current financial system from the principle of self-control.