Safekeeping Bitcoin: Wallet
The so-called wallet is a software that keeps your private key. The wallet is not part of the Bitcoin blockchain, it is just software that interacts with the blockchain.
In fact, there are no bitcoins in the wallet. It just asked the Bitcoin network: “How many Bitcoins are in this address of mine?”
Again, a private key can create countless addresses and control the bitcoins under these addresses. For this private key, all these addresses are unique and cannot be confused or mistaken. When the wallet has the private key, it can find out these addresses. The wallet that keeps the same private key can run on multiple devices at the same time, and each device will display the same balance.
If the private key is lost, the bitcoin it controls will never be spent. These bitcoins (the ownership record) still exist on the blockchain, but they can’t be spent anymore (can’t be transferred to others), so they are essentially “lost”.
The word “wallet” may confuse newcomers because it has two meanings: one meaning is the software that keeps your private key, and the other is all addresses derived from a private key.
Software (called wallet) –> Hold private key –> Private key can derive many addresses (also called wallet)
An example of a newly created wallet:
A bitcoin transaction can be understood as a small piece of data, stating that a certain amount of btc is to be transferred from a certain originating address to another address, plus the signature of the private key corresponding to the originating address. It’s kind of like a bank check (with quantity, sender, receiver, signature).
The transaction is generated by the sender’s wallet software and signed by the private key kept in the wallet, and then the data will be sent to a Bitcoin node. It’s like a person signs a check, not directly to the payee, but to deposit it in the payee’s account.
The node that receives the transaction data will check the validity of the transaction (whether it meets the Bitcoin spending rules), including: checking that the signature is indeed checked out by the relevant private key. It is similar to a bank manager who wants to check that there is so much money in the account that issued the check, and the signature on the check is true.
Only when the transaction is valid, the node will keep the data of the transaction and forward it to the node that has a communication connection with itself. Note that the private key is only used for signing in this process, and it is not the private key that is transmitted between nodes, but the signature.
Each node accepts new transactions and adds valid transactions to a waiting list called “mempool”. Each node has its own waiting list.
The transactions lie in the mempool, waiting for Bitcoin miners to take them out and pack them into the next block (what is mining is explained in the next section). After a miner digs a valid block, it is sent to a node, and the node checks the validity of the block, and then propagates it to other nodes (other nodes will also decide whether to continue propagating depending on whether it is valid or not). The block and the transactions contained in it therefore become part of the blockchain.
If a transaction is sent from the address monitored by the wallet software, it will check the transaction that was recently added to the Bitcoin blockchain. The data from the blockchain is used to update the balance displayed in the wallet.
The figure below is an example. Alice is paying Bob 1.0 btc (for the sake of simplification, let’s not mention the transaction fee for the miner). On the left side of the figure, Alice’s wallet has an address (the third address) with 1.0 btc, then she pays this amount to Bob’s third address, the one with a balance of 5.15 btc. Bob tells Alice what his third address is (that is, sends a payment request), and Alice’s wallet generates a transaction describing the originating address, receiving address, and transfer amount.
Then she publicized the transaction to the Bitcoin network (that is, sent the data to a node, the node broadcasted, a miner put the data in the block, and then the block was mined and sent back Give the node, gradually complete the spread of the entire network). Both wallets update their balances based on the data of the blockchain (they request data from the nodes via the Internet).
On the right side of the figure is the display state of the wallet of two people after the transaction is completed (on the chain). The balance of Alice’s third address becomes 0, and the balance of Bob’s receiving address becomes 6.15. Then Bob gets a payment.
To understand how Bitcoin works, you don’t actually need to understand the internal process of Bitcoin mining. You don’t have to dream of mining Bitcoin as an individual, and you won’t make much money. Only large companies that can get cheap electricity (lower than residential electricity prices) can make a profit from mining. The picture below is a photo of a small mining “mine”:
To understand how Bitcoin works, you only need to know that there is mining – just like you don’t need to know how to mine gold if you want to store gold.
Mining is like a turn-based game. Each block is a round, and all miners are competing to dig the next block. The main thing is to use computer violence to exhaust a special number. In fact, there is no such thing as “calculation” (just constant trial and error), although most people say so. This process consumes power (because of the need to run the computer).
When a miner finds such a number for the block that he has packed, the TA can obtain the additional bitcoin issued by the block. In addition to the Bitcoin transfer transaction initiated by other people in the block, the miner will also initiate a new transaction, which means “I have 6.25 newly mined Bitcoins in my address”. All other transactions in the block only involve the transfer of Bitcoin, not the additional issuance of Bitcoin.
This reward also enables Bitcoin to be issued regularly at the rate of block production . Because the miner discovers such a special number, it proves that he has done some work so that when the block is sent to the node, the node will accept that the bitcoin created by the block is valid. No matter who finds the block first, TA can get rewards. And the second person found was nothing. After a block is dug out, all miners start looking for the next block.
Those who want to deceive the entire network are doomed to fail, because they do not have the correct numbers and will be seen through. Such a number is difficult to try, but it is very fast and easy for nodes to check their validity.
The computing power invested in trial and error is not a waste of energy ! This is a defense mechanism. Miners spend energy to get bitcoin rewards. Any attacker who wants to deceive the Bitcoin network must spend more energy than the mining power of the entire world combined, and if they fail, they will lose money . The more energy miners spend, the higher the cost of attacking Bitcoin.
All the mining power in the world jointly protects the integrity of the entire Bitcoin system. The computing power protects the blockchain, so that no one can shake the rules of Bitcoin, nor can it be stolen.
In addition to this overall security, there is also security at the individual level. When you use a private key to control Bitcoin, your “right to control” is determined by your own custody measures. If someone else gets your private key, they can steal your money without violating the rules of Bitcoin.
Why can Bitcoin become currency?
Bitcoin can become currency because it has all the characteristics of a good currency. It can be divided, is easy to transport, can be stored for a long time, is easy to identify, can be transferred (a medium of exchange), can measure value (a unit of account), and is easy to verify. The most important thing is that it does not rely on the good quality of human beings (or authoritative coordinators), and will not depreciate because of additional issuance.
One objection is that money needs “intrinsic value”-but in reality, nothing has “intrinsic value”. A more refined form of expression of this opinion is: “It needs to be able to provide humans with value beyond money.” This is also wrong. Because money does not need to have other value. It is a language, the language of value:
Compare currency with English: the “storage” of the purpose of English and the semantics of communication . English has no “intrinsic value”. English words themselves are just abstract symbols, even noise. People speak English not because of the intrinsic value of the language, but because the people they communicate with speak English. The network of people who speak the same language started from an early age and gradually expanded.
For the example of a free market currency (not a currency enforced by the government), people use this language about value because other people also accept it. Just as English does not need intrinsic value, currency does not need to have intrinsic value if it is to become a language.
Any other value of currency is only useful in the initial stage of language communication. Once it is accepted, the utility of these other aspects is irrelevant-it doesn’t even matter if it disappears completely. This is how gold becomes the language of money. It’s good to have other uses, but it doesn’t matter if you don’t. It has better currency attributes and scarcity, which makes it gradually become the dominant currency, but it has nothing to do with its other uses.
Now, for the first time in human history, we have found something better than gold. People just take time to learn this language.
The candidate of currency not only needs to have the right attributes, it also needs social acceptance. In the free market, it needs the best characteristics to get started. And once its acceptance is ahead, it no longer needs to be the best. As long as it is good enough to be used as a currency, if other competitors are only a little better , it will not be able to replace it at all.
Let’s take language as an example. If a new language similar to English appears now, but the pronunciation is better, we can speak a little better, but English will not be replaced. English will still maintain its dominant position because it is already mainstream. This is the characteristic of the network.
And that Bitcoin can replace gold, not because it is a little better than gold , but because it is better than gold in all aspects . It may replace the free market dominance of gold because it solves the biggest weakness of gold.
Weaknesses of gold :
- It is not easy to divide, and it is not convenient to make small payments
- It’s not easy to carry (try taking a few kilos of gold across the ocean)
- Not electronic
- Final settlement is very slow and expensive (to be delivered to the physical entity)
- High storage costs
- Has been confiscated by the government (Order 6102)
In order to overcome these limitations, paper money with gold as a deposit was invented. Therefore, it is easier for people to carry and exchange value, and can be divided into smaller units. Later, electronic paper money was developed, but some new limitations were introduced as a result: a trusted third party . Bitcoin overcomes the shortcomings of gold, but does not require you to trust a third party . This is the most amazing place.
Since President Nixon completely abolished the dollar’s gold reserve requirement in 1971, the dollar has become currency, not currency. It is a paper currency that is easy to print, not a hard currency. Not a sound currency.
We have seen many government-issued “currencies” without any endorsement-we can conclude that gold has failed. If the world returns to the gold standard again (almost impossible), then the same thing may happen again. We need a better solution, and there is one now. The government is unlikely to actively accept Bitcoin (but it is still possible). However, as an Austrian economist said (this passage is well known in Bitcoin circles):
“I think that unless the currency is completely separated from the government’s control, we will never have a good currency again. However, we can’t resort to violence to get the currency out of the government’s control, so what we can do is Design some cunning methods to introduce something that the government can’t stop.” — Hayek, 1984
Even if it is better than gold in all aspects, Bitcoin is not yet a currency, and it will be accepted by most people. It takes time. It does not need to be a currency that everyone has a number of Bitcoin, but let everyone want to have a number. This is the last obstacle.
What is the importance of Bitcoin?
The importance of Bitcoin is that we now have no free market currency. Our currency is created and controlled by the government and the central bank. This kind of control allows them to forcibly deprive us of our time (savings)-by inflation. This is a humanitarian disaster. In order to let myself know more about this injustice, I mustered up the courage to read Robert Breedlove’s handed down work, “The Master and Slave of Money”.
There are many other reasons why Bitcoin is important, but this is the most important. Some people (including myself) foresee that a world where free market currencies replace central banks is a peaceful and prosperous world. Such a world is our dream.
Free market currency vs. barter
In a free market, there will eventually be only one currency. Multiple currencies only increase friction and develop in the direction of barter. Currency solves the problem of bartering. If free market currency can circulate, barter will eventually disappear. Note that today, most countries have government-issued currency, and the law forces people to use it for transactions, as the subject of contracts, and to pay taxes. This is not a free market currency, which is why there are so many currencies in the world and why foreign exchange exchanges are indispensable for international trade.
When hoarding one’s own wealth, individuals have an incentive to choose the currency that is accepted by the most people — not the currency that is less acceptable. This pressure will eventually cause one currency to stand out and defeat other sub-optimal means of storage. But it also takes time.
I hope this article can help you understand what Bitcoin is and why it is not a worthless, “no endorsement” thing that the government can easily trample to death. This is just an unbiased first impression, but when you touch it, you will realize that it is amazing. In a follow-up article, I will list people’s prejudices (that’s a lot) and my personal responses to these opinions. I will also write about the concerns that people have raised after learning about Bitcoin – but they all have a good response.
The original intention of writing this article is “Don’t be too constrained to technology.” If you are ready to learn more technical details, I strongly recommend you to read this wonderful talk by Andreas Antonopoulos. Incomparable.
For a deeper understanding of Bitcoin, you can read the study syllabus I created, or read the educational articles on my blog.
Author: Arman The Parman
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/an-overview-of-bitcoin-without-technology-below/
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