# A thorough analysis of blockchain, Bitcoin, and ICO

By [Sandy](https://paragraph.com/@sandy) · 2025-08-12

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In the US, if you use blockchain to build something, your stock price might increase by 10% or 20%. In China, it rose by nearly ten times in 2017. The same is true for ICOs. Some people call them Ponzi schemes, while others say they're financing opportunities.

So what are they?

Actually, I have some experience in these things. Since 2014, I have to contact at least dozens of financial institutions, banks, insurance companies, securities companies, and funds every year to explain to them the business opportunities brought by blockchain and Bitcoin.

In the past, I always thought that this was a niche topic, discussed among a group of extremely professional people. Even when explaining it to those very professional people, many people might not fully understand it.

But recently almost everyone is talking about it, even the aunties who dance in the square are talking about Bitcoin, blockchain, and ICO. Everyone is afraid of missing opportunities and being eliminated by the times.

**What we need to do is to help everyone understand from a scientific and business perspective what this thing is, why it can rise so much, why it can fall so much, why it can raise funds, why it is so crazy, what exactly is it?**

After having a clear understanding of the essence of this thing, let's take a look at how it will develop in the future.

So today I plan to share with you in four parts.

In the first part, I will talk about blockchain;

The second part talks about Bitcoin;

The third part talks about ICO;

In the fourth part, let’s summarize what business opportunities these three things bring us.

Now let’s get started with the first part.

Facts, opinions, beliefs

Before discussing blockchain, I must first clarify that some of what we're about to discuss will be **facts** , backed by data. Some of this is **simply opinion** , and everyone may have different views. And then there's something called **faith** —I simply believe it, even without discussing it with you. That's called faith.

Facts, opinions and beliefs, these three things are being confused in the entire Internet public opinion circle today. Sometimes you may need to clearly distinguish which ones people are discussing and conveying are personal opinions and which ones are basic logic.

I will explain later which are facts, which are personal opinions, which are other people's opinions, and which are different beliefs.

What is distributed ledger?

Let's start with a general, basic definition of blockchain. What exactly is blockchain? Many people define it as **an encrypted, distributed ledger technology** . It sounds mysterious, but don't worry, I'll explain.

The reason it's so difficult for many people to understand is that the concept encompasses three different, and all three are complex, disciplines. First , **encryption** is a mathematical problem. **Distribution** is a network concept, referring to the topology of a centralized distributed network. The third concept, **accounting** , is a financial concept.

So what exactly is encrypted distributed accounting? We will figure out one by one what problems it solves, how it solves them, and why it is so popular?

For example, in the past we kept our money in banks. I have deposited 5,000 yuan in a certain bank. Now I want to transfer 100 yuan to Shuanghong, the product manager of 5shang, because we are going to split the bill for dinner.

You know, when I open the tool on my phone and transfer 100 yuan to Shuanghong, there's actually no actual cash transaction. What's actually happening? If we're both at the same bank, then in that bank's central database, a deduction is made on my account and an addition is made on hers, so it's a data movement.

In terms of data structure, it is actually a data record. We call this method accounting, which means recording the money I transferred to her. This accounting is called **centralized accounting** .

Almost all banks use centralized accounting to maintain a huge database that keeps records of all our money.

Centralized accounting has many advantages. Data is unique and error-prone. If you trust it enough, transfers are incredibly efficient, and transactions can be completed instantly within the same database.

However, some people are completely unaware that **centralized accounting has two potential problems from a financial perspective.**

**First, are centralized institutions truly trustworthy?** Are banks truly trustworthy? If you say banks are untrustworthy, who else can be trusted? It's true that banks can have problems. For example, you might have seen news reports about the president of a certain branch of a certain bank exploiting a trading loophole to withdraw funds, thinking he could profit from stock trading and then put them back in. He ended up losing money, and so he ran away.

**What's the second security risk?** Banks have centralized databases, say in Shanghai. If a major problem occurs—the entire database is suddenly lost, like a hard drive crashes—what happens? You might say, "No problem, we have a backup database in Xinjiang." Imagine an atomic bomb falls on Xinjiang, and both locations are wiped out. While the probability of this happening is theoretically very small, it's not impossible.

So some people are thinking about how to solve the problems brought about by centralized accounting. Can we not record the data in the same database? Would it be safer and more effective if the data is recorded in a decentralized manner?

So someone invented something. This person is very smart and mysterious. When talking about blockchain and Bitcoin, we have to mention this person.

This person is **Satoshi Nakamoto** , a cryptography expert. In 2008, he sent an email to the world's top cryptography experts, saying that he had invented something called **a peer-to-peer electronic cash system** .

What I mean is that I will not transfer this account in this way, I will transfer it point to point.

For example, if I transfer one hundred yuan to Shuanghong today, and if there are one million computers in the entire network, when I transfer the money, I shout to the one million computers that I have transferred it to them, and then the account is recorded in everyone's small account book, and each account book is kept consistent.

Do you think this thing is safe at this time?

First of all, it has a certain degree of insecurity. What if these one million people changed their accounts?

But you know, it is very easy for one person to change the data. I clearly transferred it, but I insisted that I didn't. I changed the data on my own computer, which was one among the one million computers.

But if you want to convince everyone, or more than 51% of the one million computers in the entire network, it is almost impossible, and the probability is extremely small.

So we asked everyone to keep a record by shouting to everyone, which is called **distributed accounting** .

To summarize, centralized accounting stores all transactions in a unified database. Distributed accounting broadcasts every transaction to the entire network, allowing everyone to record it. Everyone's computer maintains an identical ledger. To modify a transaction, anyone would need to convince a majority of computers, a nearly impossible feat. This is called distributed accounting.

What is encrypted distributed accounting technology?

After understanding this logic, some people may think of a question. If you can think of this question, it means that you are still willing to think deeply.

Some people wonder, **why would a million computers help you keep accounts?** What's their motivation? Keeping accounts takes time and requires storage, so why should they help you keep accounts?

The blockchain system has invented a **reward mechanism** , which is extremely important. What is this reward mechanism?

For example, if I transfer money to Shuanghong, you can think of the blockchain as a box with a small note inside, recording my transfer to Shuanghong. The system automatically adds some reward tokens to the box, and whoever is willing to keep the record will receive the Bitcoin.

With this reward mechanism, everyone wants to keep accounts. I want Bitcoin, he wants Bitcoin, and a million computers want to keep accounts.

What to do? We also have a **competition mechanism** to see who can get the Bitcoin.

How do you compete? This competition mechanism is called **Proof of Work** .

It sounds a bit vague, so let’s try to explain it as simply as possible. What is proof of work?

Since you all want to keep track of this, let me give you a math problem. Think of it this way: there's a large string, and using a special algorithm called a hash algorithm, it can be shortened to a smaller 32-byte string.

It is very easy to translate a large string into a small string through a hash algorithm, but conversely, it is almost impossible to deduce the large string from the small string. This is the math problem.

So how do you do it? I want you to work it out, how do you do it?

There is almost only one way, which is to guess one by one. There are countless possibilities. Just guess and see when you can guess the big string.

Verification is extremely simple. It is easy to go from a large string to a small string, but it is difficult to go from a small string to a large string. We call it a brute force algorithm.

If everyone wants to keep accounts, it depends on who has the more powerful computer and who has more computers.

You may have heard of this. In the blockchain world, there's a crucial concept called **computing power** . People with greater computing power, those with more computers, and those with more powerful computers, have a greater chance of solving math problems. Whoever solves the problem successfully gets the Bitcoin.

After I got it, I told you what the big number was. Other computers were calculating it, and it used this to verify it. Sure enough, it was correct. All the computers gave up no matter how far they had calculated.

However, we still have an obligation. This obligation is that since you have calculated it and you take the money, each computer must still record it in its own account. At this time, each computer must maintain a distributed unified ledger.

This is called **encrypted distributed accounting technology** .

What is the use of distributed ledger?

I've been talking about this for a while, but it still sounds so far-fetched. This thing called distributed ledger, isn't it just about keeping accounts in different places? Why is it so popular? How exactly is it used?

**Let's take Alipay as an example.** Why was e-commerce so difficult to develop before Alipay? When you buy something, do you pay the seller first? But what if they don't ship the item after you pay? What if they're a scammer? So, you ship the item first and pay after I receive it. But then the seller is worried about what will happen if I don't pay after I give it to you. There's a lack of trust between buyers and sellers.

The reason why Alibaba's Taobao achieved success in the early days was because it established a third-party trust mechanism in the middle, and this trust mechanism was Alipay.

Since you two don't trust each other, the buyer will first pay me via Alipay. After I receive the money, I'll notify the seller and tell you that I've received the money, but I can't give it to you yet. Don't worry, the money is with me. You can ship the goods to the buyer first. Once the seller sees that the money has reached the third party, they'll ship the goods. After the buyer receives the goods, they click "Confirm." The third party in the middle will then tell the seller that the buyer has confirmed and will transfer the money to you.

You see, the transaction process is quite complicated and involves the trust of a third party.

**Let me give you another example to help you understand what third-party trust means.**

For example, when you buy a house, you pay the previous owner, who then transfers the title deed to you. If the house is very expensive, and you pay a 500,000 yuan deposit, what happens if the seller refuses to sell it to you? The buyer will ask the seller to deposit the title deed with the real estate agent, and then transfer the remaining down payment to the agent after the transfer.

Therefore, in order to gain trust, transaction costs are higher, not to mention banks, polling stations, notary offices, and many other third-party trust institutions.

So now you might have a better understanding of what blockchain can do. One crucial aspect of it is that it uses an algorithm to directly guarantee the transfer of funds between me and Shuanghong. This transaction between us doesn't require a third party, saving significant manpower and resources. **Through this algorithm, transaction costs and trust costs across society could be significantly reduced.**

This was everyone’s biggest expectation for blockchain at the beginning, which was to use it to solve the trust problem of third parties. It is called **a third-party-free trust mechanism** , a decentralized trust mechanism that does not require a third-party organization to directly generate it.

What exactly is blockchain?

What we have talked about so far are facts. Now let’s talk about a few points of view.

What is the essence of blockchain? What problems does it solve? This leads to three different interpretations of the essence of blockchain.

**There is a group of people who believe that the essence of blockchain is decentralization.**

What this means is that the future world is truly wonderful. What will the future world be like? It will be a world without centralization. There will be no more trusted institutions, no more middlemen for transactions, no more banks, no more insurance companies, no more centralized institutions at all. There will even be DAOs, decentralized organizations, where structures will no longer be necessary.

There is a large group of people who firmly believe that the ultimate value that blockchain brings to us is to eliminate all intermediaries.

**What is the second point?** Stop talking nonsense. The core value that blockchain brings to us is not this. You are exaggerating too much.

**The core value brought by blockchain is still bookkeeping. It is called distributed accounting technology** . It can only be used in the financial industry and anyone who needs to keep accounts can use it.

Therefore, the second group of people always adhere to the original definition of blockchain, which is called encrypted distributed accounting technology.

The third group of people said that you are all wrong. The real core value of blockchain is not this. The real cleverness of Satoshi Nakamoto is that he invented an **incentive system** .

Why are so many people using distributed computing to join this? It's because of the rewards. This reward mechanism is so clever that it's driving countless people to join. The reward mechanism is blockchain's greatest invention.

There are now three different explanations. One is that decentralization is the essence of blockchain, one believes that distributed accounting is the essence of blockchain, and a group of people believe that the incentive system is the essence of blockchain.

But no matter which one is the essence, we believe that these are three viewpoints. **Facts can be true or false, but opinions are neither right nor wrong** . We have not yet seen the end of blockchain, but I hope everyone knows that the dispute over these three viewpoints is not a dispute over facts, nor a dispute over the essence.

The most basic principles are what we just introduced. Now let me give you an example to help you understand.

Some time ago, there was a very popular application, which was called **a blockchain application** .

What is this application? For example, when you go online to watch a video, do you know where the video is? If the video is stored in a telecom machine room close to your home, it will be very fast. However, if the video is stored far away, such as when you are in Shanghai and the video is stored in Beijing, or when you are in Beijing and the video is stored in Shanghai, the speed will be very slow.

In the past, there was a technology that distributed content across China in data centers. This meant that every location had the same movie, and when you watched a movie, I would deliver it to you from the data center closest to your home. This technology is called CDN.

A company has invented a technology called Personal CDN. What does it mean? It installs a small box in your home. Using internet technology, it puts the movie on a hard drive in each of your homes. This hard drive can hold tens, hundreds, or even a terabyte of data. Anyone who wants to watch the video can access it from your home.

This thing is cheaper than actually putting the movies in the telecom machine room, and is actually more efficient.

So the question is, do you think this is called blockchain?

We call this thing **P2P** , which means decentralization, a storage method that distributes movies in various places.

We call it **decentralized P2P storage.**

How can this company make you willing to put movies on your home's mobile hard drive in the first place? It does this by rewarding you with points, which can be exchanged for money.

Later, when blockchain became popular, they stopped rewarding you with points and cash and instead gave you a currency called blockchain currency. You don't know what it will be used for in the future, but it's very valuable. So, the company uses blockchain as **an incentive system** .

**So what exactly is blockchain?**

**One view is called decentralization, one view is that it can only be used for accounting, and one view is a set of incentive systems.**

I hope that by now we have been able to explain the basic logic of blockchain clearly, and then we will give two cases to end this part of the discussion.

**How to use blockchain?**

give you a few examples, such as **voting in the US presidential election** . There was even an incident in last year's US election where Hillary suspected that the numbers at a certain polling station were counted wrong, so you re-elected. Why?

Because it's a manual operation, with many people voting and counting the votes, there's always the possibility of errors with so many states, so many ballots, and so many people involved. Therefore, the general election uses centralized accounting.

If one day when everyone votes, there are no polling stations and no one to serve them. Instead, when everyone votes, they tell the American people that they voted for him. All votes are automatically recorded by algorithms, and no mistakes will be made. This may save the participation of tens of thousands of people and a lot of money.

Once manpower is saved, this will theoretically bring economic benefits.

For example, when we signed a contract in the past, I was particularly worried that you would go back on your word, so our contract was made in four copies, one for you and one for me, and we kept one copy with the notary office and a third party. If anyone modified their own records, you couldn't change the notary office's, so your changes would be blind, so the notary office acted as a third-party trust agency.

Blockchain technology can be used for such notarization, which is the so-called **smart contract** .

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*Originally published on [Sandy](https://paragraph.com/@sandy/a-thorough-analysis-of-blockchain-bitcoin-and-ico)*