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Cryptocurrencies: From Pioneer to Trend

In the current market, when many people think of cryptocurrencies, Bitcoin and Ethereum are the first things that come to mind. How did cryptocurrency go from pioneer to trend? The first thing is to understand the purpose for which they were designed and the latest development.

Theoretical Basis

To study cryptocurrencies, the concept of “cypherpunk” is always unavoidable. The “cypherpunks” are an ever-expanding group of liberal scientists, engineers, computer scientists, and philosophers. After countless discussions and research, three major themes emerged:

  • The need for privacy protection (which was also the original goal);
  • The need for a specific currency within a privacy-protected space;
  • Relevant arrangements are needed to allow anonymous strangers to execute transactions between each other without trusting a third party.

The above efforts can be boiled down to two points: trust minimization and avoiding third parties that need to be trusted, which is the theoretical basis of cryptocurrencies.

The Two Pioneers of Cryptocurrencies

DigiCash

DigiCash was the earliest attempt at electronic money. It was born in 1989 and was designed around transaction privacy. Its founder Dabid Chaum was one of the pioneers of the cypherpunk movement. At its peak, he was elected to join the bank, but it all came to an abrupt end in 1998. This is so because it relies on a peg to a compliant government currency to hold the value of a unit of digital currency, similar to Libra today.

In addition, the required privacy protection technology needs to run on a centrally controlled server, so managing this server becomes a trusted third party.

BitGold

BitGold was invented by Nick Szabo in 1988. BitGold is the first model of an independent cryptocurrency that combines two concepts: the use of a peer-to-peer network to maintain a distributed ledger, and proof-of-work based on computationally difficult problems, both of which are used in current digital currencies. the concept of.

In addition, another innovation of BitGold is to use the result of the previous proof of work as a puzzle to participate in the production of the next wave of BitGold, which will make the overall operation form a chain, which can be considered as the current “blockchain” “The pioneer of this concept.

However, the problem is that it still needs a third party responsible for management, otherwise internal transactions and split transfers will be difficult to achieve.

Modern Digital Currency: Bitcoin

The above two pioneers actually have different weaknesses, either relying on a centralized server, or trusting a third party, or it is difficult to defend against computing power attacks, and Satoshi Nakamoto launched a new “Bitcoin” in 2009. At the time of concept, there is a new solution to the above problems: decentralization. The general principle is as follows:

  • All nodes in the peer-to-peer network forward new transactions to all other nodes;
  • All nodes use the received transaction information, plus the information of the previous block and a timestamp as the puzzle of the next proof of work, and the relevant solution has a difficulty threshold. The result of the threshold will be broadcast to other nodes.
  • The node that receives the result (that is, the proof of work) will verify whether the received result is valid based on a specific algorithm and the previously formed chain. If the proof is valid, all nodes will increase the balance of the account that solves the problem first , and the specific value is specified when Bitcoin is designed.

Obviously, under the above processing scheme, neither a centralized server nor an external third party is required, and the security is greatly enhanced. While still subject to hash attacks, Bitcoin was designed to raise the consensus security threshold from 33% to 50%. That is, if someone wants to successfully falsify the result, it must have more than 50% of the computing power of the entire system, which can be considered almost impossible at the moment.

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