In-depth analysis of Bitcoin's underlying blockchain technology

In today's era of rapid development of the digital economy, Bitcoin, as an emerging digital currency, is gradually changing people's perception of traditional finance. Bitcoin is not only a way of transaction, but also an outstanding representative of the underlying blockchain technology. This article will explore the underlying blockchain technology of Bitcoin in depth, including its composition, operating principles, and potential impact on the future financial system.

The core of blockchain technology is decentralization. Traditional financial systems usually rely on central institutions for transaction confirmation and fund management, while Bitcoin implements a decentralized trust mechanism through blockchain. Every transaction is recorded in a public distributed ledger, which is maintained by thousands of nodes around the world. This design greatly improves the transparency of transactions, and anyone can view the transaction records in the ledger, which effectively prevents fraud.

In order to better understand Bitcoin's underlying blockchain technology, we must start with the basic structure of the blockchain. The blockchain consists of multiple "blocks", each of which contains a set of transaction information. Whenever a new transaction occurs, these transactions are packaged into a block and broadcast to all nodes through the network. Once the majority of nodes confirm the validity of the block, it will be added to the existing blockchain and become part of the permanent record. This design not only ensures the security and integrity of the data, but also makes any attempt to tamper with the transaction record extremely difficult.

One of the most important concepts in the Bitcoin blockchain is the "proof of work" mechanism. Miners verify transactions by solving complex mathematical puzzles and are rewarded with Bitcoins. This process not only provides security for the network, but also provides a mechanism for the issuance of Bitcoins. In this way, the total number of Bitcoins is limited to 21 million, a feature that makes Bitcoin scarce and thus supports its value.

In the Bitcoin blockchain, the anonymity of transactions is also a striking feature. Although all transaction records are public, the identities of the parties to the transaction are not directly exposed. Users conduct transactions through generated addresses, which provides users with a certain degree of privacy protection. However, this anonymity has also caused some controversy because it may be used by criminals for illegal activities such as money laundering.

In addition to the above basic components, the smart contract function of blockchain technology is also gradually gaining attention. Smart contracts are self-executing contracts where the terms of the agreement are written directly into the code. Once the triggering conditions are met, the contract will be automatically executed. Although Bitcoin itself does not support complex smart contracts, other blockchain platforms such as Ethereum have made breakthroughs in this regard. The introduction of smart contracts has expanded the application possibilities of blockchain technology, especially in the fields of finance and supply chain management.

Bitcoin's underlying blockchain technology is also highly secure. Due to its decentralized nature, the failure or attack of a single node will not affect the operation of the entire network. In addition, the blockchain uses a powerful encryption algorithm to ensure the security of transaction data during transmission and storage. This security makes Bitcoin a relatively safe asset, attracting more and more investors.

However, despite the many advantages of Bitcoin's underlying blockchain technology, it still faces some challenges. First, as the number of users and transactions increases, the scalability problem of blockchain has gradually emerged. The Bitcoin network can only process a limited number of transactions per second, resulting in longer transaction confirmation times and soaring transaction fees during peak periods. To address this problem, developers are exploring various solutions, such as second-layer protocols such as the Lightning Network, to increase transaction speed and reduce costs.

Secondly, environmental issues have also become a major obstacle in the development of Bitcoin blockchain technology. The Bitcoin mining process consumes a lot of electricity, which has triggered widespread discussion on its environmental impact. Many countries and regions have begun to regulate Bitcoin mining and even restrict its development. Therefore, how to reduce the energy consumption of Bitcoin while maintaining its security and decentralization characteristics will be an important issue to be solved in the future.

With the continuous development of Bitcoin and blockchain technology, more and more companies and institutions have begun to pay attention to and try to apply this technology. In the financial field, many banks and financial institutions have begun to explore the application of blockchain in payment, clearing and settlement. Through blockchain technology, they can achieve faster and lower-cost cross-border payments. In addition, blockchain can also be used in asset management, identity authentication, supply chain tracking and other fields, bringing higher efficiency and transparency.

In the future, the underlying blockchain technology of Bitcoin will continue to evolve. With the continuous advancement of technology, the application scenarios of blockchain will become more abundant, and potential business models will continue to emerge. As people's understanding of digital currency and blockchain technology deepens, more innovations and changes will occur. We have reason to believe that blockchain technology will become an important part of the future financial system and promote the digital transformation of the global economy.

In general, Bitcoin's underlying blockchain technology is not only a new way of trading, but also a force that subverts the traditional financial system. It is changing people's perception of value exchange through a decentralized trust mechanism, strong security and transparency. Despite many challenges, with the continuous advancement of technology and the continuous expansion of application scenarios, Bitcoin and its underlying blockchain technology will surely usher in a brighter future. In this era full of opportunities and challenges, understanding and mastering blockchain technology will be an indispensable ability for every financial practitioner and investor.

The four most famous international exchanges:

Binance INTL	OKX INTL	Gate.io INTL	Huobi INTL
China Line　APP DL	China Line　APP DL	China Line　APP DL	China Line　APP DL

Note: The above exchange logo is the official website registration link, and the text is the APP download link.

What is the underlying blockchain technology of Bitcoin? In recent years, various technologies have emerged, and related technologies such as big data, cloud computing, and artificial intelligence are extremely popular. The popularity of Bitcoin has also attracted people's attention, which has also increased people's interest in Bitcoin's underlying technology - blockchain technology. 2015 is known as the first year of blockchain technology. Now, more than two years have passed since the popularity of Bitcoin, and people's enthusiasm for blockchain technology has not subsided. So, what is the underlying blockchain technology of Bitcoin?
1. Blockchain Technology
1. What is blockchain?
Blockchain is a new application model of computer technologies such as distributed data storage, peer-to-peer transmission, consensus mechanism, encryption algorithm, etc. The so-called consensus mechanism is a mathematical algorithm that enables different nodes to establish trust and obtain rights and interests in the blockchain system. Blockchain is an important concept of Bitcoin. It is essentially a decentralized database and also the underlying technology of Bitcoin. Blockchain is a string of data blocks generated by cryptographic methods. Each data block contains information about a Bitcoin network transaction, which is used to verify the validity of its information (anti-counterfeiting) and generate the next block.
2. Basic principles of blockchain
If the blockchain is regarded as a state machine, each transaction is an attempt to change the state, and each block generated by consensus is a confirmation by the participants of the result of the state change caused by all the transaction contents in the block.
Transaction: An operation that results in a change in the state of the ledger, such as adding a record
Block: records transactions and status results that occurred over a period of time, and is a consensus on the current state of the ledger.
Chain: It is composed of blocks connected in series in the order of occurrence, and is a log record of the entire state change.
3. Problems that blockchain needs to solve
How to share data in a decentralized manner? How to ensure that accounts are not used fraudulently? How to ensure that account balances are sufficient? How to ensure that transaction records are not tampered with? Who is responsible for bookkeeping? How to ensure the credibility of bookkeepers? How to ensure the enthusiasm of bookkeepers?
4. Blockchain characteristics
Decentralization
Due to the use of distributed computing and storage, there is no centralized hardware or management agency, the rights and obligations of any node are equal, and the data blocks in the system are jointly maintained by the nodes with maintenance functions in the entire system.
Thanks to the decentralized nature of blockchain, Bitcoin also has decentralized characteristics.
Openness
The system is open. Except for the private information of the transaction parties which is encrypted, the blockchain data is open to everyone. Anyone can query the blockchain data and develop related applications through the public interface, so the entire system information is highly transparent.
Autonomy
Blockchain uses consensus-based norms and protocols (such as a set of open and transparent algorithms) to enable all nodes in the entire system to exchange data freely and securely in a trustless environment, thereby changing trust in "people" to trust in machines, and any human intervention will have no effect.
Information cannot be tampered with
Once information is verified and added to the blockchain, it will be stored permanently. Unless more than 51% of the nodes in the system can be controlled at the same time, modifications to the database on a single node will be invalid. Therefore, the data stability and reliability of the blockchain are extremely high.
Anonymity
Since the exchanges between nodes follow a fixed algorithm, the data interaction is trustless (the program rules in the blockchain will determine whether the activities are valid on their own). Therefore, the counterparty does not need to disclose their identity to gain the other party's trust, which is very helpful for the accumulation of credit.
2. P2P network and communication technology (distributed computing network)
1. Automatic discovery
Through the seed file, obtain the initial node (address and port), connect to the initial node, obtain the peers known by the initial node, broadcast your own address and port to each peer, receive the address information broadcast by each peer, and build a full picture or fragment of the network.
2\. Technical field
Distributed storage, distributed computing, and distributed collaboration
Multicast
Streaming
Search Engines
3. Communication Protocol
napster, Gnutella, eDonkey, Bittorrent (file distribution protocol)
XMPP, Jabber (instant messaging protocol)
Paxos, Gossip (distributed system state synchronization protocol)
JXTA
4. Use HASH algorithm and asymmetric encryption and signature technology
Each node and each person has a unique pair of public and private keys
The public key is also the address and account number of each node and individual.
The private key is the only way to prove "I am me"
HASH algorithm organizes data
5. Algorithms
RSA, Elgamal, D-H, ECC
SHA256, RIMPED160
6. Elliptic curve algorithm is usually used to generate key pairs
Bitcoin key length: 256 bits
Public key hash value = RIMPED160(SHA256(public key))
Bitcoin address = 1 + Base58 (0 + public key hash value + checksum)
Checksum = first four bytes (SHA256 (SHA256 (0 + public key hash value)))
7\. Encryption
The sender encrypts the data using the receiver's public key
The receiver decrypts the data using its own private key
This aspect is usually used to exchange symmetric encryption keys
8. Signature
The sender uses the HASH algorithm to calculate the HASH value of the data
The sender uses its own private key to encrypt the HASH value and obtain the signature
The receiver uses the HASH algorithm to calculate the HASH value of the data
The receiver uses the sender's public key to decrypt the signature and obtain the sent HASH value.
Compare the consistency of two HASH values
9. References
ElGamal algorithm is a common encryption algorithm based on the public key cryptography system and elliptic curve cryptography system proposed in 1984. It can be used for both data encryption and digital signatures. Its security depends on the difficulty of calculating discrete logarithms over finite fields. During the encryption process, the length of the generated ciphertext is twice that of the plaintext, and a random number K is generated in the ciphertext after each encryption. Several properties of the discrete logarithm problem are mainly used in cryptography: solving discrete logarithms (may be) difficult, and its inverse operation exponential operation can be applied to square-
That is, in a suitable group G, the exponential function is a one-way function.
Elliptic curve cryptography is the system that provides the highest encryption strength per bit among the currently known public key systems. The best algorithm for solving the discrete logarithm problem on elliptic curves is Pollard
The time complexity of the rho method is , which is completely exponential. Where n is the number of bits in the binary representation of m in equation (2). When n=234, it is about 2117, requiring 1.61023 MIPS
Years. The well-known RSA uses the difficulty of factoring large integers. The time complexity of the best algorithm for factoring in general cases is currently sub-exponential. When n=2048, it takes 2x1020MIPS years. That is to say, when the RSA key uses 2048 bits, the security strength obtained by using the ECC key of 234 bits is much higher. The key lengths between them differ by 9 times, and the gap will be even greater when the ECC key is larger. The advantage of shorter ECC keys is very obvious. As the encryption strength increases, the key length does not change much.
DH Diffie-
Hellman algorithm (D-H algorithm), key agreement protocol, is an idea proposed by Diffie and Hellman, the founders of the public key cryptography system. Simply put, it allows two users to exchange information on public media to generate "consistent" and shareable keys. In other words, Party A generates a pair of keys (public key and private key), and Party B generates Party B's key pair (public key and private key) according to Party A's public key. This is used as a baseline and as the basis for data transmission confidentiality. At the same time, both parties use the same symmetric encryption algorithm to construct a local key (SecretKey) to encrypt data. In this way, after the local key (SecretKey) algorithm is exchanged, Party A and Party B disclose their public keys, use the other party's public key and the private key just generated to encrypt data, and can use the other party's public key and their own private key to decrypt data. It is not just Party A and Party B, but can be expanded to multi-party shared data communication, thus completing the secure communication of network interactive data! This algorithm originated from the Chinese congruence theorem
--Chinese remainder theorem.
3. Blockchain Database
1. Typical characteristics
Decentralized, distributed, blockchain-based storage database
Block (Header + Body)
chain
Random Numbers
Timestamp
Contains all transactions after the parent block was created and before the current block was created;
HASH of blocks that meet a certain condition;
a) SHA256(SHA256(version + prev_hash + merkle_root + ntime + nbits + x ))
b) The Target value is determined by a dynamic difficulty coefficient. The smaller the Target, the higher the difficulty.
2\. References
The Merkle tree is a binary tree consisting of a set of leaf nodes, a set of intermediate nodes, and a root node. The bottom leaf nodes contain basic data, each intermediate node is the hash of its two child nodes, and the root node is also the hash of its two child nodes, representing the top of the Merkle tree. The purpose of the Merkle tree is to allow block data to be transmitted in a scattered manner: a node can download a block header from one source and the rest of the tree from another source, and still be able to confirm that all the data is correct.
The Merkle tree protocol is critical to the long-term sustainability of Bitcoin. In April 2014, a full node in the Bitcoin network—a node that stores and processes all the data for all blocks—
It takes up 15GB of memory space, and it is growing at a rate of more than 1GB per month. The Simplified Payment Confirmation (SPV) protocol allows another type of node to exist, which is called a "light node". It downloads the block header, uses the block header to confirm the proof of work, and then only downloads the Merkle tree "branch" related to its transaction. This allows light nodes to safely determine the status of any Bitcoin transaction and the current balance of an account by downloading only a small part of the entire blockchain.
4. Competition for bookkeeping rights and reward system (mining)
1. Overview
In order to prevent the predictable accounting nodes from being controlled or attacked, resulting in erroneous accounting behavior, blockchain technology adopts the practice of competitive accounting rights:
Any node can participate in bookkeeping, so the bookkeeping nodes are unpredictable and not easily controlled.
The competition process is to see who can calculate the HASH value that meets the conditions first.
Each calculation must start from the last valid block, which consumes a lot of computer CPU and increases the cost of forging accounting data.
The result of the calculation must be recognized by most nodes (consensus algorithm) before it can become a new block. In the actual algorithm, if the block is on the longest blockchain, it is a formally recognized block, which means that most nodes recognize the calculation result and are willing to continue calculation under this result.
This process is called mining, or proof of work (POW). The nodes involved in mining are called miners, and the group of miners working together is called a mining pool.
a) Starting from the previous block, calculate the HASH value that meets the conditions;
b) Broadcast the calculation results to other nodes;
c) When other nodes verify that the calculation result is correct, they recognize the result and recalculate based on the result;
d) When the consensus recognition requirement is met within a unit of time, the block becomes a formally recognized block.
This process is called the system to encourage the enthusiasm of mining, and reward the successful accounting nodes.
a) Give each block miner a direct "cash" reward. For example, the Bitcoin network gives 25 Bitcoins and the Ethereum network gives 5 Ethers;
b) Ethereum: The transaction fees for transactions included in this block are divided between the initiating node and the accounting node (75% for initiation and 25% for accounting).
2\. References
The SHA256 algorithm used by Bitcoin has 2^256 outputs. If we input 2^256+1 times, a collision will inevitably occur; even from a probability perspective, there is a 99% chance of a collision if we input 2^130 times. However, we can calculate that if a computer performs hash operations at a speed of 10,000 times per second, it will take 10^27 years to complete 2^128 hashes! At this time, we need to consider a situation: what will happen if two miners each get a correct answer at the same time and each generates a block to broadcast? At this time, there are two blocks at the same position on the blockchain, and the so-called "fork" appears. Forks are absolutely not allowed, so when miners find that the blockchain is forked, they will choose the longest one to continue calculating, and the shorter blockchain will be discarded. The length here is not the length in a simple sense, but the chain with the largest total value of proof of work.