Dry goods | Shanghai Jiaotong University Professor Hu Jie dismantled Libra Libra: This is a new thing in the sun

On the evening of July 4th, the first phase of the Lujiazui Research and Development Series Theme Salon “Technology and Finance” was held at the Pudong Campus of Shanghai Advanced Finance Institute. The guest invited by Sharon in this issue was Hu Jie, a professor of practice at Shanghai Institute of Advanced Finance, Shanghai Jiaotong University . Professor Hu Jie graduated from the Kellogg School of Business at Northwestern University with a Ph.D. in Finance. Prior to this, he obtained a master's degree in physics from the University of Chicago and a bachelor's degree in physics from the University of Science and Technology of China. He worked for the US Federal Bank and served as the Thunder Financial Division. CEO. In this issue of the theme salon, Professor Hu Jie will focus on "technology and finance", lead us to interpret new things in the sun, and unveil the mystery of Libra.

The following is the sharing of Professor Hu Jie:

Libra's core logic

Libra coins are cryptocurrencies published by Facebook. As an implementation of money, there is nothing special about this from the logic of finance. People who have studied finance know at a glance that there is nothing new under the sun. But in the new era, using new technologies to achieve it, the effects it may have are completely different.

Whether this project can succeed in the future, in fact, the most important thing is not its technical challenge, nor its monetary logic, but whether it will be recognized in the regulatory bodies of various economies around the world. This is its core part. .

Let's take a look at what Libra is trying to do. It is clearly written in the white paper. The first is to issue a global currency; the second is based on such a currency to build a financial infrastructure.

This is not new. But this time Facebook launched such a project really attracts attention, the reason is not the innovation of currency logic, but two points.

The first characteristic is that the book that supports this currency is a brand-new ledger, that is, the algorithmic ledger. There is no such thing in the industry. Professor Hu Jie called the type of book based on algorithmic support as an algorithmic type. The book, this is the core technical feature. Modern currency issuance depends on the books, and we no longer have to print paper or metal casting. In fact, it is to write numbers, write numbers must have something to rely on, that is, the books, how to generate and manage books, this becomes a very important point. The algorithmic ledger is the core value of the Bitcoin demonstration.

The second feature, this time Facebook launched Libra has 2.7 billion potential users. If everyone is willing to contribute customer resources to a certain extent, its impact is unprecedented. Imagine that the world's 7 billion people, 2.7 billion are already covered by the potential coverage of this project. I would like to ask, what kind of currency can get such a large resource support at the level of promotion?

For this reason, we really have to look at Libra Libra. Everyone thinks about the promotion process of WeChat wallet should have some experience, a software for social chat, turned into a payment tool, it happened between two or three years. In fact, the big reason is the user's coverage. Therefore, how to emphasize 2.7 billion users is not an exaggeration.

What is the standard for good money? Does Libra coin match?

There is a standard for good money. In theory, inflation is zero, the value of the currency is stable, neither inflation nor deflation. The core function of money is the exchange medium. When the value of money rises, the holder is unwilling to spend it. In actual operation, moderate inflation is the most appropriate, and will stimulate you not to save the money for too long, and quickly take it out.

Therefore, Bitcoin is not a good currency, because its distribution mechanism determines that it does not care about the trading needs of the world. It is self-satisfied and thinks the world is naive.

What is the value of Bitcoin? Two points. An important one, one that is not important.

There is an unimportant value that has become a limited edition of digital artifacts. This is the first time in human history to use a computational book to simulate the release, which can be seen as an experiment of currency issuance, so it is commemorative. Although its program can also do one by itself, but because it is the first, unique, it will be a limited edition of digital artifacts.

But what is its most important contribution? Is contributing to the algorithmic ledger. Because the issuance of all our currencies is nothing more than the appearance of a number on an account. The so-called currency transfer is nothing more than a change between the two books. So a book becomes very important, and the books in finance are the most important of all our infrastructure. All our financial activities are nothing more than doing things around the books. Turning your numbers down makes my numbers bigger. This is the dream everyone has to do. It is this thing to do financial thinking.

Libra coins are similar to Yu'ebao, which is the base currency for anchoring and does not support derived currency. It does not technically support derived currency. For example, if a friend has Libra in his hands, he can lend money, but he only has 100Libra in his hand. He lends you 500Libra. When you take 500Libra to pay for it, others will not support it when you go to Libra.

If a base currency supports derivative currency, it must be the same support for the derived currency on the books of the issuing base currency. This is a technical requirement. Therefore, we will see that Libra Coin is the same distribution principle as Alipay's balance in terms of finance and monetary studies. What is the difference? Unlike Alipay, Libra is supported by an algorithmic ledger, while Alipay balance is not supported by an algorithmic ledger. What is the new algorithmic book that Professor Hu Jie repeatedly mentioned? So let's see how the old books are applied.

Similarities and differences between old ledgers and algorithmic ledgers

Most of the old books are applicable to traditional currencies, such as US dollars, Renminbi, Hong Kong dollars, Alipay balances, etc. We refer to their books as goodwill books (Note: algorithmic books and goodwill books are all personally taught by Professor Hu Jie. The noun given).

What is a goodwill book? The core meaning is that it can be manually intervened. To put it bluntly, people can change it. For example, you have an 8-digit deposit, but if the bank gives you a zero-digit deposit to a zero, and the central bank is colluding. What is your solution? No way. Why is finance so powerful? Because it invented a small number, it can allocate all the resources in the world. Everyone in our hands should use it as a medium when it is exchanged. It seems to be a particularly insignificant little character, and the result becomes something of particular importance. This is the most critical point of traditional books, no matter how complicated it seems, it is actually controlled. The books are so important, and their characteristics have to be examined, so since the traditional books are controlled by people, people are very important. The importance or credibility of a person is called goodwill.

However, we now find that there is a new type of ledger. This account book is an algorithmic ledger. The characteristics of the algorithmic ledger are that the entire accounting process is computerized automatic accounting, and the manual cannot intervene. Of course, it is statistically incapable of intervention. This is its biggest feature. For example, there are 100 nodes to keep accounts together, so we can get rid of people and only listen to computers. Bitcoin has thousands of nodes around the world. It is very difficult to change it at this time. This is a wonderful thing.

This is the difference in the authenticity of the books.

We will then talk about the substructure of the books. The goodwill type of book is a collection of books, for example, the central bank has one, the bank has one, and the third party has one… there is one. In fact, the book is a collection concept, and the book must meet the strict relationship between the books. Every time you adjust all the books, you must follow it. It is a collection of sub-books.

The algorithmic ledger usually has only one account, and it is not a collection in the world. It will bring about a great simplification of management operations. Why is the cost of cross-border payment so high now? Because you have a book, I have a book, we have to reconcile, this reconciliation is troublesome, and various management costs and time costs go up. So why is it that a big problem now is to solve the problem of cross-border payment, that is, a book, not right. This time, I will go straight through.

Third, from the maintenance of the books, the goodwill account book is a traditional pyramid structure with a close logical relationship, so its management must also be a pyramid structure. The central bank must have the final say. The base currency is coming from the central bank. If it is not right, it will be given to you. Management must be centralized. The algorithmic ledger system is maintained by equal accounting, so it is decentralized. Anyone who wants to quit and go back and forth does not matter, so management becomes a decentralized state.

Fourth, the account opening threshold. The traditional goodwill book is a one-person ledger, and each sub-book is physically managed, so you must ask its manager for assistance when you open an account. If the whole world is a big account, everyone is equally managed. Download a software and give yourself a name. Set a few parameters, the household will be opened, and the account opening is independent. At least the technical operation is completely autonomous.

This is the characteristics of the algorithmic book and the goodwill book comparison: the book is normalized, the authenticity is algorithmized, the accounting node is decentralized, and the account opening is autonomous.

Globalized Libra Coin

After comparing the differences in the books, we are now back to Libra. I just said that in the principle of monetary science, Libra is actually very similar to Alipay, but because its books are different, it will show some characteristics of potential applications. In addition, the conditions of the times and the scene of incubation are different, so one is for global users and the other is for Chinese users. This creates a series of big differences.

In contrast, we look at several characteristics. The first one is the globalization of Libra coins, which is both massive and global. What is the number of US users in the second phase? 7%, so it is natural that its customer base is global.

The second Libra coin must be freely convertible, issued to allow exchanges to be exchanged, just like any freely convertible currency, which is very consistent with the mission of globalization.

The third monetary governance is decentralized. Because 100 equal nodes record a book, this structure is logically conducive to the goal of globalization.

The last point is the internationalization of assets anchored by the day. Anchoring a currency, this logically speaking from monetary science works, just as the Hong Kong dollar anchors the dollar. You anchored the dollar as the vest of the dollar, anchoring the vest of the renminbi as the renminbi. If we want to push Alipay into an international currency in this way, it is equivalent to pushing the RMB internationalization, which is completely another story from the perspective of finance. Libra coins are chosen to be supported by a basket of currencies, at least initially giving everyone hope that this is not a monopoly. If it is just to solve some of the costs of paying everyone, there is no such thing as a globalization goal, and anchoring a single currency is not an option.

From technology to regulation, is Libra's mission missionable?

To be an international currency, so that global transactions can be settled with it, is a question that everyone has been thinking about. After Facebook launched Libra, why are we willing to spend some energy to explore it? Because we feel that it is likely to succeed.

The biggest factor is that Facebook's user base is too big. There is no application or a group of applications in the world that are relatively centralized in the hands of a company or a group of companies. It can have such a large number of users around the world, which is unimaginable. This gives us a lot of speculation and expectations.

We will talk about today's theme, how does the Libra coin land? What we just talked about is the technical level, not talking about the regulatory level.

Supervision, why should we manage? Is there an era that doesn't matter? Yes. In the early economic activities of mankind, when using shells and gold as currency, the private currency government could not dominate. I will give you a gold. You give me a gimmick. This thing knows that you know that I know that there is no world with government supervision. So it is not that money is regulated by the government from the very beginning. But to put it simply, human beings have developed into modern economies. In fact, there are some problems that the government has to manage, or it must be managed.

Why do you say that? There are four reasons that are common worldwide. KYC (Know Your Customer), AML (Anti Money Laundering) and CFT (Combating the Financing of Terrorisom), these three are all serious financial systems, this will not be carried out, you can judge with common sense.

But to emphasize the fourth article, everyone will understand it, but it may be ignored. This one is the tax. There is a saying that only two things are inevitable. One is death and the other is taxation. You have to let the government abandon taxes and solve the problem of death first.

As a result, Libra coins are a new currency under the sun. These things can not be less, just as much.

If we can't obtain regulatory approval and cooperation, we can't meet the regulatory requirements in terms of rules and technology. We can't land this thing. This is the core problem facing Libra.

Can that be solved? Can only say that cautiously optimistic attitude.

To be honest, if some countries do not participate, it is possible to achieve partial success. In the past, the US dollar was not so convenient as a traditional currency. Whether it is transferring money or carrying cash, it is still very convenient, but it still occupies a considerable share of the economies of many countries and regions around the world. In fact, a certain degree of dollarization can be done. If you wear such armor, such a modern armor has a convenient experience, Libra coins enter more regions, more economies, take up more The transaction is completely imaginable.

Finally, it is possible to separate the area where Libra Coin is used and the Libra Coin is not used. So, what kind of pattern will it be in the future? It is worth our careful consideration.

When we are faced with such a new thing, starting from the general way of thinking, we first understand the mechanism and principle behind it and find that most of the things have been done. Innovation is very difficult, and ideas are often there. Libra’s currency issuance principle is not new at all. With this background and framework, we understand the Libra coin, and then look at the new features of Libra, which is the application of the algorithmic ledger. Based on this feature, combined with its potential market advantages, we look at the possible impacts. At the same time, we also see that if we want to face the issue of supervision, although it has advantages, but there are problems, we no longer dare to say that it will succeed or fail. Cautiously optimistic, this matter, even if it does not work, also represents the trend.

Just as at the beginning of July, Zhou Xiaochuan, president of the China Finance Association and former president of the People's Bank of China, was the guest of the “SAIF·CAFR Masters Lecture Hall” of the 10th Anniversary of the Shanghai Institute of Advanced Finance, Shanghai Jiao Tong University, and the latest developments in the field of financial technology and Speeches on topics such as the impact of financial regulation. Someone asked him how to look at Libra, he said it was a matter of time.

This is very interesting, what happens in front of the sun is a new thing in the sun.

Source: Shanghai Institute of Advanced Finance SAIF