Basic Terms and Concepts

1. What is Bitcoin?

Famous investor Mai Gang has a precise description of Bitcoin:

Mai Gang:

  • Bitcoin is a (virtual) commodity that simulates through algorithms something never before seen in human history, approaching perfection in every aspect of monetary attributes.

  • Bitcoin's near-perfection as money is maintained through its immense computing power.

The full video can be viewed on Bilibili:

Cryptocurrency is a digital cash system used on the internet.

Unlike WeChat or Alipay, which require banks or companies to keep accounts, it is jointly maintained by thousands of participants who maintain a super ledger (blockchain), ensuring that your assets and transactions are secure, transparent, and tamper-proof.

2. What is an Exchange?

(1). Centralized Exchange

  • CEX (Centralized Exchange)

  • Well-known examples include Binance, Coinbase, Huobi, and Gate.

  • Centralized exchanges carry risks, such as being hacked, blocked, or restricted.

  • The integrity of centralized exchange operators is also an important factor. Exchanges that run away or cheat do exist.

(2). Decentralized Exchange

  • DEX (Decentralized Exchange)

  • An unattended, fully automated "asset exchange machine." In this system, trading rules are pre-set through code (smart contracts), and users interact directly with these contracts through their own wallets to achieve peer-to-peer asset exchange.

(3). Exchange Rankings

3. Proof of Work PoW

  • PoW: Proof of Work

  • Simply put, it requires mining.

  • The network poses a very difficult mathematical problem. Whoever uses their computing power (mining rig) to solve it first gets the right to maintain the ledger and new coin rewards.

Characteristics:

  • High decentralization: Anyone can buy mining rigs and participate.

  • Extremely high security: Tampering with the chain requires owning more than 51% of the computing power, which costs a massive amount.

  • Fairness: Purely based on computing power - the more you invest, the greater your probability of reward.

4. Proof of Stake PoS

  • PoS: Proof of Stake

  • Whoever has more "deposit" (staked tokens) and for longer has a higher probability of being selected to maintain the ledger. No longer competing on computing power, but on economic investment.

  • Users lock tokens into the network to become validators.

  • The algorithm randomly selects a validator to create the next block based on factors such as the number of staked tokens and time.

  • Honest bookkeeping earns rewards. Malicious behavior or going offline results in partial or total forfeiture (slashing) of staked tokens.

Characteristics:

  • Extremely energy efficient: Energy consumption is less than 0.05% of PoW.

  • The rich get richer: Large token holders have an advantage, which may lead to centralization.

  • High complexity: Requires careful design of penalty mechanisms and handling attacks.

  • Built-in economic security: Attackers need to stake a large number of tokens, and malicious behavior will result in forfeiture.

5. Proof of History PoH

  • PoH: Proof of History

  • PoH node: A photo studio that keeps taking snapshots, taking a "snap" photo every fixed time (e.g., 400ms), with each photo containing information from the previous photo.

  • Processing transactions: Guests walk into the photo studio and are captured in the next "snap," thereby receiving a unique timestamp.

  • Validators: Other staff who don't need to wait for guests but only need to organize and archive (validate) these already-taken, timestamped photos (transaction packets), making work efficiency extremely high.

Characteristics:

  • Ultra-high throughput: Solana can theoretically reach 65,000 TPS.

  • Centralization risk: The PoH sequence generator (leader) is a critical single point.

  • Stability in practice: Solana's mainnet has gone down multiple times due to PoH issues.

  • Solana (SOL): Its consensus mechanism is PoS + PoH. PoS is used to elect block producers, and PoH is used to order transactions, achieving high-speed processing.

6. What is a Block?

  • Blockchain = The entire ledger

  • Block = A single page in this ledger

  • Transaction = Individual pieces of information recorded on this page (e.g., Xiaoming transfers 5 coins to Xiaohong)

  • A block is a "data packet" that packages all transaction records over a period of time. Countless such blocks connected in chronological order form a "blockchain."

7. Blocks Per Second BPS

  • Block per Second

  • Bitcoin generates approximately 1 block every 10 minutes. Block size is about 4 MB, and each block can contain thousands of transactions.

  • Ethereum generates approximately 1 block every 12 seconds. Block size is dynamic.

  • Kaspa currently generates 10 blocks per second. Current block size is about 1-2 MB, and each block can contain hundreds of transactions.

8. Transactions Per Second TPS

  • Transaction per Second

  • Bitcoin takes ten minutes to generate one block, and this block stores thousands of transactions. On average, theoretically, about 7 transactions per second.

  • However, this transaction volume per second is just an average. Generally, each transaction takes ten minutes or even longer.

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