What is the relationship between digital currency and blockchain? How are they integrated?

Dec 21,2022
What is the relationship between digital currency and blockchain? How are they integrated?

As we all know, in recent years, the concept of blockchain has become increasingly popular, and blockchain technology has gradually been integrated into various fields. Of course, digital currency is also favored by many investors, and digital currency is a form of implementation based on blockchain technology. Therefore, some novice investors ask, what is the relationship between digital currency and blockchain? How are they integrated? So, let's take a look.

What is the relationship between digital currency and blockchain?

It can be said that digital currency and blockchain are organically combined and closely related. Blockchain is the underlying technology of digital currency and the most important technical means. The most successful practice of blockchain is a breakthrough in the currency industry. As one of the technologies of digital currency, the application technologies of digital currency also include mobile payment, reliable and controllable cloud computing, cryptographic algorithms, etc. The popularity of bitcoin makes people understand the technical framework of blockchain and its broad application prospects.

Blockchain is actually a new type of data bookkeeping, which has a powerful role and is equivalent to a cloud storage role, because every time a certain period of transactions is completed, all transactions in that period are detailed, and full copies are made on all nodes, which is a "block".

Therefore, there is no possibility of information being tampered with unless there is a way to invade most nodes. A blockchain is formed when blocks are connected end-to-end. Digital currency is a substitute for electronic currency. Data gold coin and cryptocurrency belong to digital currency.

Digital currency is an uncontrolled and digital loan currency, which is generally sold and managed by developers. The biggest advantage of digital currency recognized and used by members of a specific virtual community is that it can be programmed, and it is a computer program and code.

Because it can be programmed, it is an intelligent loan currency. Because of its intelligence, the clearing is determined and the settlement of transactions is realized at the same time. Everything from a programmable loan currency will become a programmable finance, and from a programmable finance to a programmable economy.

In general, digital currency is a way of encrypting currency. It is precisely because this kind of digital currency exists in a way that requires encryption. Therefore, digital currency needs the support of blockchain technology, which is also an advanced technology. Many well-known companies around the world are studying this technology, and the development prospect of this technology is unlimited.

How are blockchain and digital currency integrated?

(1) Consensus mechanism

The consensus mechanism is the premise to ensure the consistency and security of the digital currency system. How to use specific standards to achieve the efficient and secure consensus of each node in the decentralized decentralized network is the main goal of the existence and operation of the consensus mechanism.

Most of the current digital currency research systems are based on the PoW mechanism proposed by Nakamoto Cong in 2008 and the PoS mechanism proposed for "Quantum Mechanical" in 2011. Therefore, to achieve the optimization of the consensus mechanism, we must start from two mechanisms. The independent improvement based on one mechanism or the organic combination of the two mechanisms can achieve the improvement of computing control, system skills to withstand security risks and other aspects.

(2) Encouragement mechanism

The incentive mechanism is called the key to the operation of the digital currency system. The operation of the mechanism is mainly under the framework of clear standards, according to the reasonable arrangement of economic rights and interests, while mining, trading and verification, so as to achieve the sustainable development of the system. In the current research system, the incentive mechanism research focuses on two aspects: mining reward mechanism and transaction pricing mechanism.

At present, the mining reward mechanism has formed a relatively perfect system, mainly including three mechanisms: proportional distribution, PPS and PPLNS. However, each mechanism has its own technical deficiencies. Therefore, in the direction of analysis, more emphasis is placed on the compatibility of different incentive mechanisms to build a new distribution mechanism. In essence, the bidding mechanism for buying and selling is a price competition mechanism for transaction costs achieved through the collective participation of customers and miners. However, limited by technical research, there is no unified bidding mechanism for buying and selling that is generally accepted in combination with the actual situation.

(3) Face value mechanism

Statutory digital currency is the basic orientation of current digital currency development. Based on the central bank recitation to replace the application of cash, effectively reduce transaction costs and improve payment efficiency, it is the main goal of research and implementation of statutory digital currency. At present, most central banks have a relatively stable mentality in the research and practice of legal digital currency, and achieve healthy and orderly development under the condition that the face value is the same as the cash loan.

Therefore, the face value mechanism is usually applied to the digital currency issued by private entities, which lacks the credibility of our country. Under a certain evaluation and based on a specific mechanism environment, the face value of digital currency can be guaranteed to maintain a certain stability. At present, there are mainly three types of mechanisms in this area: offline mortgage mechanism, online mortgage mechanism and algorithmic stationary mechanism.

(4) Sale mechanism

Affected by the multiple efficiency of legal digital currency, the current real decentralized selling mechanism based on blockchain technology cannot adapt to the efficiency completion provisions, especially at the level of delivery volume control, management mode and issuing cost control, it is necessary to improve the issuing mechanism as a support. In the current legal digital currency issuance mechanism, it is necessary to solve the three basic related problems of currency level and issuance quantity, issuance method and issuance subject, circulation and withdrawal mechanism.

(5) Technical support

The combination of blockchain technology and digital currency must be based on an innovative technology system. Currently, the key technologies in this area are basic support technology and privacy protection technology. In the current technology system, both private digital currency and legal digital currency are basically based on blockchain technology. However, since legal digital currency itself is based on the recitation of national sovereignty, technical innovation should be further completed at the levels of authorization centralization, collection and supervision of financial big data, and construction of dual payment and clearing system.

At the same time, in the digital currency trading system with blockchain technology as the core, anonymity provisions will also have an impact on safe operation and legal supervision, so we should also select point-to-point mixing protocol, distributed mixing network, BTC expansion and other technology applications to complete the security protection of transaction information.

Speaking of this, I believe you have a certain understanding of the relationship between digital currency and blockchain and how they are integrated. In general, the editor here also reminds investors that although digital currency is also a very popular project at present, investment is accompanied by certain risks. You must have a comprehensive understanding before entering the site and not blindly follow the trend.