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2022 is the 14th year since the birth of Bitcoin. I have always wanted to write an article about it, but there are already many articles about Bitcoin on the internet and the Wikipedia entry about it is also very detailed, so I have been delaying it. However, when Government of China banned bitcoin, I received an email from a trading website stating that due to Chinese policy, the platform would be withdrawing mainland Chinese users, so I finally started writing this article.
Rethinking Bitcoin
A Peer-to-Peer Electronic Cash System
In September 2008, the global financial crisis was completely out of control and many large financial institutions collapsed, causing a global economic recession. In November, a hacker claiming to be Satoshi Nakamoto published the Bitcoin white paper on the “Crypto Currency Email Group” website (metzdowd.com). The title was “Bitcoin: A Peer-to-Peer Electronic Cash System” and the paper described in detail how to use a peer-to-peer network to create an “electronic transaction system that does not rely on trust.” At that time, there were very few responses, until Hal Finney appeared, who confirmed Satoshi Nakamoto’s concept of Bitcoin and joined in.
In January 2009, the Bitcoin network was launched and the first open-source Bitcoin client software, Bitcoin Core (originally named Bitcoin QT), was released. Satoshi Nakamoto used the software to mine the first “block” of Bitcoin, known as the genesis block, and obtained the first batch of 50 Bitcoins. At that time, Bitcoin had serious vulnerabilities that allowed users to bypass the set limits on the amount of Bitcoins and create unlimited Bitcoins. This vulnerability was later fixed by the Bitcoin development team during an update of the entire network to a new version of the Bitcoin protocol, which was the first and only serious vulnerability of Bitcoin.
What is mining and blockchain?
Satoshi Nakamoto created Bitcoin by consuming the CPU power and time of mining machines, metaphorically injecting gold into the economy through the consumption of resources like a gold mine.
When Bitcoin transactions occur, the transaction records are stored, forming a block that is approximately 1 MB in size and can store around 4000 transactions. The blocks are linked together to form a chain, called the “blockchain.” After the accounting is complete, the system automatically generates a certain number of Bitcoins as a reward, and this entire process is called “mining.” The participants are called “miners,” and the computers or hosts used for mining are called “mining machines.”
According to the protocol in the Bitcoin whitepaper, each time a miner excavates a new block, they are rewarded with 12.5 Bitcoins. The block generation rate is limited to one every 10 minutes, and the newly issued Bitcoins in each block cannot exceed 6.25. In addition, the reward for every 210,000 blocks produced is halved, approximately every 4 years. The recorded halving times are the first halving in December 2012, the second halving on July 9, 2016, and the third halving on May 13, 2020.
maximum number of Bitcoin
In 2009, when Satoshi Nakamoto refined the Bitcoin protocol, he set the maximum number of Bitcoins at 21 million and it will never increase. This limit is written in the source code of Bitcoin and is enforced by Bitcoin network nodes. As mining increases, the difficulty of the algorithm will also increase, and according to current mining power, the last Bitcoin will be mined around 2140. This gives Bitcoin its most attractive aspect.
unit of bitcoin
The accounting unit of Bitcoin is usually Bitcoin, English BTC or XBT, such as 1 Bitcoin, 0.01 Bitcoin, and the currency unit is ₿ or ฿. With the appreciation of Bitcoin, four more measurement units are added, respectively It is divided into bits (10 ‾2), millibits (10 ‾3), microbits (10 ‾6), and Satoshi (10 ‾8). The smallest unit of Bitcoin is “1 Satoshi”, which is 0.00000001 Bitcoin, which is also the smallest accounting unit that can be recorded in a Bitcoin block.
public key and private key
Every Bitcoin wallet contains a corresponding pair of keys, each pair consisting of a public key (publicKey) and a private key (privateKey). The public key of a Bitcoin wallet is usually used to generate the hash of the public key, i.e. the address we often refer to, which is mainly used to receive Bitcoins and functions like a bank card number. The private key is similar to a bank card’s PIN.
The public key is generated by the private key through the Elliptic Curve Encryption Algorithm (ECC) or the Elliptic Curve Digital Signature Algorithm (ECDSA), and the hash (Bitcoin address) is generated through the public key. The entire process is one-way and cannot be reversed. In other words, the user can use the private key of the wallet to calculate the public key of the wallet, which means that if the public key is lost, it can be recovered through the algorithm, but if the private key is lost, the private key cannot be derived from the public key, meaning the Bitcoin wallet cannot be recovered.
To summarize, the Bitcoin wallet does not have an absolute owner. Whoever holds the private key of the wallet controls the ownership of the wallet.
Crypto Cold wallet and hot wallet
Because the private key, address, and other information of Bitcoin is too lengthy for the average person to remember, software is needed to record it, and this type of software is what we call a Bitcoin wallet.
Bitcoin wallets can be divided into hot storage and cold storage based on whether they are connected to the Internet, corresponding to the so-called hot wallet and cold wallet. Hot wallets are usually carriers such as phones and computers, which are convenient to use but also easily stolen by hackers. Cold wallets can be a print of a paper with a wallet private key printed on it, or a dedicated recording device, and because the carrier is not connected to the Internet, it is also called an “offline wallet.”
what is Bitcoin Cash
Bitcoin Cash (BCH) is not real cash but a hard fork of Bitcoin that was created on August 1, 2017, due to scalability issues in Bitcoin. The Bitcoin blockchain was split into two separate blockchains, one called the original chain and one called the new chain. The new chain (called Bitcoin Cash chain, BCC) created a new token called Bitcoin Cash. This process is similar to a stock split or a dividend payout. According to the upgrade protocol, users who held Bitcoin are entitled to receive an equivalent amount of Bitcoin Cash.
The Bitcoin Cash plan was proposed by Bitmain to resolve issues such as the block capacity limit and the increased waiting time and transaction fees caused by the rapid increase in Bitcoin transactions. The difference between Bitcoin and Bitcoin Cash is the block capacity for recording transaction information, which is 1MB for Bitcoin, while Bitcoin Cash removed the SegWit (Segregated Witness) and lifted the 1MB block size limit to a maximum of 8MB.
The increase in block size also means that the mining algorithm will become more difficult, so some holders believe that this is a move by companies to make Bitcoin more corporate-like and make it difficult for individuals to participate in mining. Others believe that this goes against the idea of Satoshi Nakamoto that Bitcoin was invented to decentralize money.
The development history of Bitcoin
Accused of money laundering
In the beginning, Bitcoin was only used in the geek and dark web circles with a very limited range of usage. Even heavy internet surfers might not have known about Bitcoin at that time, and it was more commonly seen as a virtual item of equal value rather than a currency. There were three turning points that led to the rise of Bitcoin’s fame: the first was that the dark web trading platform Silk Road supported Bitcoin transactions; the second was the WikiLeaks donation event; and the third was the global outbreak of the Bitcoin virus. In October of the year after Bitcoin was created, users of Bitcoin Talk spontaneously traded and generated the first publicly quoted exchange rate for Bitcoin. At that time, a transaction user used 10,000 Bitcoins to purchase two pizzas worth $25.
In January 2011, Ross Ulbricht founded the first generation of Silk Road, becoming the first dark web trading site supporting Bitcoin transactions. Due to the decentralized and anonymous nature of Bitcoin, it made regulatory investigations into Bitcoin network crimes more difficult to track, and Bitcoin also became the first key to open the dark web. Before 2011, dark web transactions used fiat currency and traditional methods like PayPal for transfer transactions, making it easier for law enforcement agencies to track the clues.
Until October 2013, the first generation of Silk Road was closed by the FBI, and its founder Ross Ulbricht was arrested and 144,000 Bitcoins were seized by local police, causing Bitcoin’s exchange rate to plummet for two consecutive days.
In June 2014, the US Department of Justice auctioned off 29,657 Bitcoins, which were ultimately won by Timothy Cook Draper, a founding partner of the DFJ investment fund, for investment in Vaurum Labs, a then-startup based on Bitcoin. The company later changed its name to Mirror. Because of this, Bitcoin was accused of money laundering by many governments during this period, which also gave Bitcoin an initial unfriendly impression to the netizens and laid an important prelude for the relevant departments of various countries to regulate Bitcoin transactions in the future.
first appearance on Surface Web
On the other hand, Bitcoin made its first formal appearance on the Surface Web in 2011, five months after the founding of the first generation Silk Road. At that time, WikiLeaks was facing financial difficulties. Since 2010, after the continuous exposure of US secret diplomatic cables by WikiLeaks, the US government began to block the donation ways to the WikiLeaks website. In response, the founder Julian Assange publicly stated to the media that WikiLeaks is currently facing a weekly loss of nearly 500,000 euros, and that WikiLeaks mainly relies on donations to survive.
The US government’s blocking of the donation ways to the WikiLeaks website led to the dissatisfaction of hacking organization Anonymous, who launched a hacker attack and network attack on the official websites of Mastercard, PayPal, Visa, etc. in the same year.
In February 2011, Anonymous intercepted an email from a local US network security company HBGary, which was planning to defame WikiLeaks. The original plan was to cooperate with the US government and Bank of America by leaking a fake confidential document to WikiLeaks, then finding someone to discredit it, and thereby attacking the credibility of WikiLeaks. However, surprisingly, the plan had not yet been executed and the communication email between the network security company and the US government was intercepted by Anonymous, and the incident was then exposed.
To solve the issue of donation methods for WikiLeaks, netizens called for WikiLeaks to accept Bitcoin donations, which could effectively protect the privacy of donors and ensure that the donation methods were not blocked by government influence. At that time, Bitcoin’s founder, Satoshi Nakamoto, posted on the BitcoinTalk forum stating that he called for WikiLeaks not to accept Bitcoin, as Bitcoin was still a small test community in its early stages and, if not handled properly, would only harm Bitcoin. Not only Satoshi, but other early members of the Bitcoin foundation, such as software code developer Jeff Garzik, also did not approve of using Bitcoin to support WikiLeaks at that time.
In June 2011, WikiLeaks announced on Twitter that it would begin to accept anonymous donations in the form of Bitcoin. It was also because of this event that Satoshi gradually faded from public view and became one of the Internet’s mysterious figures. At this time, Bitcoin had already gained a certain degree of recognition on the Internet, and various companies using technology such as encryption currency and blockchain were joining, the most famous of which was Ethereum founded by Vitalik Buterin. Bitcoin’s price also rose steadily from 2012 to 2016, breaking through $1,242 in November 2013, but then falling until it was broken in 2017 by the appearance of a computer virus.
Bitcoin ransomware
In April 2017, the hacking group Shadow Brokers disclosed the EternalBlue vulnerability exploitation program developed by the NSA. The program exploits a vulnerability in the file sharing protocol of the 445/TCP port and spreads. Although Microsoft had released a Windows patch to fix the vulnerability in March of the same year, most users’ computers were not updated with the patch, which enabled cyber criminals to successfully use EternalBlue to spread the ransomware WannaCry. The virus eventually spread to 150 countries, causing an economic loss of $8 billion.
After WannaCry infects a user’s computer, all files on the computer are encrypted and the user is demanded to pay 300 to 600 dollars in Bitcoin. The ransom has a deadline of 3 days, and if it is not paid, the ransom will double after the deadline. If payment is still not received after a week, the user’s files will be destroyed. Therefore, the virus is also known as the Bitcoin ransomware.
The outbreak of the virus made countless people aware of Bitcoin and what it is, and it also made it a hot search topic that year. At the time, the price of Bitcoin had risen from $2,000 in May to a high of $19,783.06 by the end of the year in just half a year. After that, with the influx of Chinese gold seekers, the price of Bitcoin gradually developed into a frenzy, reaching a historical high of $66,974.77, equivalent to over 400,000 RMB per Bitcoin based on the exchange rate at the time.
With the massive influx of Chinese gold seekers, the problems brought by Bitcoin are also gradually becoming more and more aware of the huge energy consumption involved in computer operations and transaction authentication in Bitcoin “mining.” Researchers at the University of Cambridge estimate that Bitcoin’s annual energy consumption is approximately 121.36 TWh, which is enough to power the University of Cambridge for about 700 years. More than 65% of Bitcoin miners come from China, followed by the United States and Russia, each accounting for about 7%.
banned all cryptocurrency in china
After the notoriety of Bitcoin on the Internet, the blockchain technology also sparked a boom on the Internet, giving birth to Ethereum, ICO, and others. Many governments have also started to use blockchain technology to launch their own digital currencies. In 2016, the government of Tunisia launched e-Dinar (later denied by the government), and in the following year, the government of Senegal launched eCFA. In 2020, China’s central bank successfully experimented with e-CNY by using blockchain technology and launched the pilot program in first and second tier cities in 2021.
At this time, news of private individuals tapping into the national grid for mining, causing serious power losses, was not uncommon in China, which went against China’s goal of achieving carbon peak and carbon neutralization. In September, China’s central bank, together with ten other departments including the Central Cyberspace Affairs Commission, the Supreme People’s Court, and the Supreme People’s Procuratorate, issued a notice to further prevent and address the risks of virtual currency speculation, stating that virtual currencies do not have the same legal status as legal currencies and cannot circulate as currency on the market. Virtual currency related activities are illegal financial activities.
As a result, Huobi Global, Binance, MEXC, Kucoin, Bitget and other platforms all announced that they would complete the evacuation of mainland Chinese users before December 31. With the evacuation announcements of major platforms, Bitcoin will also become less Chinese, ending the frenzy of most Chinese internet gold seekers in its twelfth year.
As early as 2017, the Chinese government issued relevant ban and ordered domestic exchanges to stop the custody service for trading between fiat currency and cryptocurrencies, which led companies like Binance and Huobi, originally headquartered in China, to migrate to countries like Singapore and Seychelles to maintain normal platform trading. However, these platforms still provide services such as over-the-counter trading and cryptocurrency trading to Chinese users.
In May 2020 or earlier, local governments introduced relevant provisions to restrict mining projects for virtual currencies. Soon after the implementation of the provisions, electricity shortages emerged nationwide, with the northeast region being the most serious (officially responded as coal and electricity prices being inverted). This event accelerated the official mentality of governance of virtual currencies. During this period, many companies with mining and virtual currencies as their main business went into panic and faced the same choice as three years ago, “quit” or “go abroad”.
For some players in the coin circle, the de-China-fication of Bitcoin means a reshuffle of Bitcoin, and in the long run, this will be a major boost. However, based on current data, Bitcoin has plummeted from its highest point of $66,974.77 in 2021 to $35,000 in January of this year, and only ended the correction after February, among the factors not lacking the massive loss of Chinese players.
On the other hand, Bitcoin has already been around for 12 years, and the legality in other countries in the international arena has already been established.
Countries where bitcoin is legal and illega
Countries have varying attitudes towards Bitcoin, with European and North American countries having a relatively more permissive attitude towards the cryptocurrency. Furthermore, many local companies and financial institutions have begun to venture into the areas of Bitcoin investment, trading, and even mining, gradually developing the cryptocurrency industry.
As of the date of publication, according to Wikipedia statistics, Bitcoin is legally traded with no or limited restrictions in most countries around the world, except for eight countries/regions, China, Argentina, Algeria, Morocco, Bolivia, Bangladesh, Nepal, and Kosovo, where the government has explicitly banned the cryptocurrency. In El Salvador and Cuba, Bitcoin is accepted as a legal currency.
thx for reading
reference material：
wikipedia：Legality of cryptocurrency by country or territory
wikipedia：History of bitcoin
李永乐：比特币和区块链啥原理？矿机挖矿咋回事？
CoinMarketCap: How Are the Silk Road, the Dark Web and Bitcoin Connected?
CNBC: Bitcoin launched 13 years ago this month — here are 8 milestones from the past year
