Cryptocurrency
Basic introduction of cryptocurrency
1 What is cryptocurrency?
Cryptocurrency is a form of payment that can be exchanged online for goods and services. Many companies have issued their own currencies, often called tokens, and these can be traded specifically for the good or service that the company provides. Think of them as you would arcade tokens or casino chips. You’ll need to exchange real currency for the cryptocurrency to access the good or service.
Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized technology spread across many computers that manages and records transactions. Part of the appeal of this technology is its security.
2 Why popular?
Cryptocurrencies appeal to their supporters for a variety of reasons. Here are some of the most popular:
- Supporters see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, presumably before they become more valuable（升值）
- Some supporters like the fact that cryptocurrency removes central banks from managing the money supply, since over time these banks tend to reduce the value of money via inflation（私密）
- Other supporters like the technology behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more secure than traditional payment systems（技术控）
3 How it works？
3.1 Decentralize:
In traditional electronic trading， there will always be a trusted third party either country\Bank or big company like Alibaba. In cryptocurrency there is no such "Center".
3.2 Block Chain:
Since, there is no centralized third party we need another way to verify and record transaction. The main idea behind cryptocurrency is to let everyone keep the whole e-ledger--the block chain.
In every 5 minutes someone will pack all the transactions(block) then he will broadcast to everyone and link the new block to the block chain.Every block will be encrypted by hash function.For bitcoin, it uses POW algorithm wich is based on SHA256.
In short:
3.3 Why this works?
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It satisfy the basic requirements to be used as "currency".
currency = transaction history
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Althoug there is no provement of non-solvable property of SHA256 but we can assume it is not possible to solve it. So it is hard(expensive, 51% attack) to forgery.
Fraud is computationally infeasible
4 What is mining?
4.1 Block reward
Block Award:
Once a new block is added to the block chain, the people who finish such job will get rewarded for 25 bit coins**(halve after every 210000 blocks,and for now each block is rewarded for 12.5 btc)**
4.2 Who can get reward?
To get the reward one must get the opportunity to add a new block. This is where cryptography works.
SHA256 algorithms will translate plaintext into 256 binary code, the cryptocurrency protocol will announce, for example: first 30 bits should be 0 for next block. Miners will try different keys until one lucky miner find the key that satisfies the requirement.
SHA256(。。。+transaction+Time Stamp+。。。+key) = 0000...0001010111
4.3 Proof of work
The miners may get conflict signals recording conflict transactions. Miners should always trsust one with more computational work.
Some times conflict may come from the broadcast speed.For example one may get 2 blocks at the same time, then he sholud keep both blocks and one of them will gradually get longer and longer than another one, then based on proof of work protocol he should take the longer one.
Some time fraud may come from fraud. It is obvious that to make others trust your record you have to make sure your chain grows faster than the true chain, which means you have to posses at least 51% computation power which is not possible.
5 Problems
5.1 Speculation and fraud
Cryptocurrencies have been compared to Ponzi schemes, pyramid schemes and economic bubbles, such as housing market bubbles. Howard Marks of Oaktree Capital Management stated in 2017 that digital currencies were "nothing but an unfounded fad (or perhaps even a pyramid scheme), based on a willingness to ascribe value to something that has little or none beyond what people will pay for it", and compared them to the tulip mania (1637), South Sea Bubble (1720), and dot-com bubble (1999). The New Yorker has explained the debate based on interviews with blockchain founders in an article about the “argument over whether Bitcoin, Ethereum, and the blockchain are transforming the world”.
(泡沫与庞氏骗局)
5.2 legal concern
Cryptocurrency networks display a lack of regulation that has been criticized as enabling criminals who seek to evade taxes and launder money. Money laundering issues are also present in regular bank transfers, however with bank-to-bank wire transfers for instance, the account holder must at least provide a proven identity.
（洗钱，非法汇款等）
5.3 Environment concern
挖矿带来的电力的浪费，环境污染，硬件消耗。