Introduction: Whether bitcoin can become a global currency has been a controversial issue. The purpose of this paper is to draw an analogy with gold and discuss the possibility of bitcoin becoming a currency. The different perspectives of different angles are not whether they are correct or not, but more about providing a variety of perspectives.
Imagine a big black box in New York's Times Square, and the box is locked with a keyhole in front.
- Opinion: Bitcoin is shaping a new economic class
- Tao Rongzhen: The cycle is coming, Bitcoin is to the right, and the small currency is to the left.
- Unlike the 2017 bull market, this time you may not see another $10,000 BTC.
- Finally you are here! BTC broke through a week after the strong break and set a new high in the year
- Fed Chairman Powell: Bitcoin is more like gold, it is not impossible to replace the dollar
- Opinion | Bitcoin's turning point signal may appear in December
Above the box is a list of numbers with arrows that list the current holders of the box and who have owned it so far.
No one knows where the box came from, and the material in the box made no one can scratch or open it.
Every few days, magical words appear to spell out the name of the new holder of the box. Someone found a passage on the back of the box that read "The person who owns the key to the box is the owner of the box."
More and more boxes like this appear in the world. Obviously, there will be a total of 2,100 boxes, and will appear in the world according to the set cycle. No matter who discovers a new box, he will get the key to that box.
Image from the network
Those who are not lucky enough to find a box want to get a box, either because they like the feeling of holding a box or because of the potential for the box to appreciate. Therefore, they began to provide funds to those who have the key.
Gradually, the black box exchanges began to appear, and the price of the keys began to grow rapidly. More speculators join, and then comes the price rise and fall.
The New Yorker published an article called "Pay no mind," which stated that bitcoin was nothing but speculation.
However, a technology blogger also put forward the idea, "If we find out how it works and who invented it, then bitcoin is the future of everything."
Then maybe you will ask, what will be in this box? The answer is nothing. Except for the list of holders and the time record of when they bought and sold, there is nothing else, which seems very strange.
So why is it worthwhile? It is valuable because people have begun to speculate on their value.
The headline of the Los Angeles Times wrote, "The keys to these black boxes can be used to buy assets."
The first article in Yahoo News mentioned that "someone used the ownership of his key 1/10 to buy a used car," but no one is very concerned about it.
Now maybe you will ask, is this money? Is this legal? Is this safe? Can I trust it? Will this replace the dollar?
We know that this magical box is actually a metaphor for bitcoin (or any other digital asset).
Only now, maybe you can understand this metaphor, I feel that the concept of this metaphor has been far apart.
Now I will use this metaphor to try to explain how Bitcoin works.
Bitcoin is publicly visible, and those holding the key can lock (ie, privately) their own bitcoin. Everyone can see the box has a new holder, and when and how to sell the details, but no one will know the identity of the owner. At all times, the right owner is "the person who holds the key to open the box."
Bitcoin gets all the features by using blockchain technology, but we don't need a particularly deep understanding of the technology for the time being.
Bitcoin is not a currency
Or, this is not the kind of currency that the modern monetary system needs.
First, let's revisit the currency. We are all using currency, but do we really understand it?
With the advent of the first bank, money began to be a manifestation of value, and it was always endorsed by more tangible, more recognized values, such as gold.
Now, no matter how iterative the currency is, it can only be endorsed by the issuing institution. (also known as government agencies)
Let's take a look at what functions the currency has in the past and the present, and then examine how digital assets provide the “fairness” of the currency.
● Alternatives to value
Living in social life, we need to conduct a variety of transactions, and transactions can also be seen as a way to enhance overall efficiency.
If the society needs human resources, I will run the best manpower company and then focus on providing relevant experts for places where there is a need (such as building a house, car manufacturing and maintenance, haircut).
This is true not only for individuals, but also for businesses and countries. Money promotes this specialization, thus increasing overall efficiency.
In order to be a carrier of value, money needs to:
a) Maintain a fairly consistent value (think of nightmares like inflation and deflation)
b) can't be easily damaged (Imagine you put the paper money in the apple, they will rot)
Because of these characteristics, money is used as a carrier of value.
● The essential attributes of money
Imagine all the gold in the world, which took millions of hours to be dug up. Most of the gold mining is now over, and many are stored in the Federal Reserve's underground vault.
Now, if you hold money, you can buy something else by transferring the ownership of the currency to others. However, the gold is still locked in the same underground vault, and only one book records the change in ownership.
The core point here is that in order to enhance the transaction, the entity's currency does not need to be exchanged.
Narayana Kocherlakota's report to the Federal Reserve pointed out that anything that can be bought in currency can be achieved through good book records.
Imagine a society in which all artificial values are equal. There, time can be exchanged like money. If I spend 5 hours helping a doctor build a website, they will owe me 5 hours and need to be treated for me. If there is a huge Google file to record this data, until I get a return, then my workload will not be wasted. If I don't need a doctor's time, I can exchange it with people who need doctors' treatment time, such as hairdressers, salespersons, sommeliers, Uber drivers, and housekeeping cleaners.
But the real situation is much more complicated, because not all services are equivalent, and the recorded data can be very confusing very quickly. Anyone can modify the Google file, so many errors will occur.
Next we will find that in these respects, Bitcoin can do its best because it guarantees records that cannot be tampered with.
● Money is the lubricant of the economy
The government and the central bank are always trying to influence the economy by increasing and decreasing the supply of money. But only if you are responsible for the money supply, will you find that the supply and demand economy works best.
Under the gold standard, the money supply of government agencies is very difficult. Of course, they can hold gold and then issue the equivalent currency based on the amount of gold at the time of demand.
However, a large number of new gold reserves have emerged in China, Russia and Mongolia. These gold flows into the market and will undoubtedly have an impact on the value of gold. To some extent, the rarity of gold is reduced, and the value is reduced. Ultimately, the monetary value of gold endorsement will also decrease.
A stable value currency allows anyone to freely do what they are good at, while also using the money they receive to buy whatever they want. Then, in order to achieve this goal, we need a stable money supply to borrow, invest, and exist in the bank to make more loans.
As a result, money is like the lubricants needed in economic machines, and it can promote economic smooth and stable development. If there is too much oil, the workers will get it everywhere and can't get the job done; if there is too little oil, the machine will get stuck and it won't work.
The role of the central bank and the corresponding government agencies is to monitor the economic machinery and determine how much lubricant is needed. They are mainly adjusted by increasing or decreasing the “rent” of the loan.
This rent or interest rate determines whether you and millions of other people are buying a car or depositing in a bank, which has a ripple effect on the economy.
In other words, if the economy is stagnant or out of control, the central bank will determine the right interest rate to stimulate the economy.
One of the reasons why the United States and most of the countries now no longer use the gold standard is to gain more control over economic policy.
Gold is very rare, so no federal savings bank in any country can print gold to stimulate the economy.
Gold needs to be mined. The value of any reserve gold depends on the amount of gold that flows from the gold mine to the market. In fact, the gold mines discovered in Russia can change the purchasing power of the United States for gold, at least to be the source of the impact.
When discussing the valuation of Bitcoin, I will mention the gold standard. Let's remember these concepts first, and then take a look at how Bitcoin works.
How does Bitcoin work?
Our hypothetical black box changed the owner by magic. With peer-to-peer networking and encryption algorithms, Bitcoin can achieve the same effect, because who believes in magic, right? The underlying mechanism of Bitcoin is called the blockchain, and there are many other application cases for the blockchain.
In fact, it is very simple. The blockchain, like the literal meaning, is a lot of publicly visible "electronic chains composed of blocks." Each block stores a single transaction message. Therefore, if there are new transactions, there will be new blocks. This chain shows how transaction history data can't be tamper-linked, that is, no one can change the data. The reason here is that there is no real copy, and I will elaborate on the details.
Now, we need to understand that Bitcoin ensures trust by:
a) Assign tasks that record any transaction data to ensure that there is no fraudulent activity so that the data can be modified without consensus. In other words, reimagine the locked black box, which has the owner's record, but this time it becomes very small so that everyone can have a copy. When a new owner signs up, more than half of all small black boxes should have been changed.
b) Double-flowering can be prevented in the same way, which is a major problem in the field of digital assets. Moreover, there is a side effect that some transactions take a long time to authenticate.
Can Bitcoin be called currency?
Now that we have a basic understanding of how the economy and currency and Bitcoin work, let's try to answer the original question.
Is Bitcoin legal? For example, the makers of Liberty Dollar or e-gold or other similar products have been sued by the FBI for creating a “currency system that competes with the central government”, so why is Bitcoin exceptional?
On the surface, Bitcoin is checking all the boxes for another currency system. However, whether it is a commodity, a currency or a security is not very clear.
Moreover, all transactions and records are conducted through a peer-to-peer network, so there are no individuals or companies that can sue, and the identity of Bitcoin founder Nakamoto Satoshi is not known.
Therefore, it seems that in some countries, the transactions of Bitcoin and other currencies are legal.
Since the transfer is anonymous, it seems that Bitcoin has attracted many wrong players.
Cash is anonymous, but transferring large amounts of cash is still very cumbersome. However, even if your bitcoin number is increased by 10 digits, it will not increase the weight of your memory card, which brings a new level of anonymity.
Government agencies that undertake security tasks often turn to tracking and limiting financial resources to mitigate and contain unnecessary activities. Even a huge amount of electronic money can be easily traced. But Bitcoin is not easy to track, so the government department may not like the idea.
Encrypted assets are very secure based on the mathematical hashing algorithm behind them.
Broadly discussed, the method that can attack Bitcoin is called 51% attack. In this case, someone can grasp the 51% of the computing power in the network and attack the network. Currently, this is almost impossible because the Bitcoin network has more than 5 million active users.
Perhaps, there is an easier way to get rid of all your cryptographic assets, and that is to throw away your USB mobile hard drive. I have said that the proof of the identity of the Bitcoin holder is a "private key."
The private key is like the key to open the black box, but it must be stored somewhere. However, someone can steal the private key without letting you discover it.
Many people put the private key on the computer, or put it on the mobile hard disk and the car key, and others store the private key on the cloud server.
Now that you see the problem, there is no bank involvement, although it can guarantee decentralization, but it can't help you recover the loss, because no credit institution can give you the opportunity to get a refund for fraud. If you lose your hard drive or your computer is compromised, you will lose everything overnight.
As I said before, cash or legal currency is not a carrier of value. Imagine the next two currencies: the yen and the Argentine peso.
The peso continues to inflate for a period of time, that is, this year's peso value is higher than tomorrow. Suppose today the price of a chair and a bag of potatoes is 500 pesos. I sold the chair for 500 pesos. However, the next day I went to the supermarket and found that the price of the potato was 750 pesos, because the price of the peso fell. It is easy to see that people are no longer willing to accept peso payments.
The yen has been deflated for a certain period of time, that is, the purchasing power of the yen next year is higher than this year. This will create a problem that does not seem obvious – everyone will appreciate with the yen and so on. This will affect the amount of liquid assets, that is, lubricants that allow the economy to operate smoothly, and eventually the economy will stagnate. What happened in Japan?
The world-famous Bitcoin Pizza Festival, which means that Laszlo Hanyecz paid 10,000 bitcoins to buy two pizzas, which are now worth $51 million and worth $200 million at the highest point. Therefore, the price of Bitcoin is completely unstable, and anyone will be worried when they hold Bitcoin.
Since we are talking about the US dollar, it is not a very malignant inflation. Even the yen is not a particularly serious deflation. This is a very random fluctuation of market control, and no one can control it.
If my car is worth 4 bitcoins, it is about $20,000 at the current price, but I am actually reluctant to make the deal. If I take Bitcoin, and wait until the price drops from the highest point in 2017 to the present, it is equivalent to selling only 5,000 pieces of my car. Maybe bitcoin prices will rise. From the end of 2016 to the beginning of 2017, if you have been holding these five bitcoins, their value may reach $200,000 by the end of this year. So how much is my car worth? Which bank will lend 5 bitcoins to others, and can exchange 500 bitcoins in the future?
● Fiscal policy
If regulators, if they primarily see it as a tool for illegal activities, will take action to suppress it, then it will be difficult to become a global currency.
–Ben Bernanke, the Federal Reserve
This may be the most important reason for preventing global governments from adopting cryptographic assets on a large scale.
As I said before, the central bank and the government will stabilize economic development by modifying economic policies, such as interest rates. This is controlled by controlling the “hot money” entering the market. The ultimate goal is to ensure that the amount of money entering is roughly in line with economic growth.
However, with Bitcoin, this is not possible. Bitcoin solves some of the problems of the gold standard, but it creates other problems.
First, the supply of bitcoin is limited; second, the new bitcoin can be dug up without any government regulation. The newly dug bitcoin will directly affect the existing currency price, which is a nightmare for fiscal policy management.
So, when can you encrypt assets to replace currency?
1. No longer have the concept of a country
As long as the global economy is operating in a local economic competition model, digital assets like Bitcoin are difficult to apply on a large scale.
In the case of the EU case, we will see that the possibility of success in this case does not seem to be very large. Regulators that constantly monitor economic health appear to be unavoidable (or rather, a necessary source of inefficiency in the market). They need economic control measures (such as interest rates and exchange rates) provided by traditional currencies.
Encrypted assets take away the ability of each independent economy to self-regulate, making it difficult to achieve.
2. Another economic crisis
Many people don't understand how Bitcoin works, why it is safe and trustworthy, so there is no way to hold it. You might say that people also use things they don't fully understand, such as airplanes.
This is because everyone only has to do things that others are doing, and they will have a sense of trust. In other words, if enough people use Bitcoin, more people will use it.
In addition to the global government, the way to promote the global application of Bitcoin may be the next catastrophic economic crisis. This can lead to a large outflow of cryptographic assets that exceeds a critical amount.
However, the economic problems that crypto assets can prevent, as well as the new problems that will arise, are not known.
Will the bitcoin bubble burst?
I don't object to Bitcoin trading, but as long as you can operate it correctly, just like hot potatoes need to change the sucker, if you keep it on a plate, it will eventually burn.
Think twice about two things:
1. Encrypted asset threats undermine national legal tender. What happens if a sovereign country like the United States decides that bitcoin transactions are illegal? The bubble burst.
2. The verification of each transaction requires a lot of calculation power. Now many miners are involved in mining because they are profitable. If there is no money to earn in the future, will anyone participate in mining?
Author: Paudyal Dr. computer Prajwal, artificial intelligence and block chain lovers
———— end ————
Intellectual property statement
All texts that indicate that the author is “Zhen Chain” and “Darling Think Tank” are copyrighted by the company. No organization, organization or individual may reprint, link or repost without the written authorization of the company. , interception and other ways to copy and publish.
All the content contained in this report is produced by the unique data and analytical resources of “Zhen Chain” and “Darling Think Tank”, which is intended to provide technical reference for practitioners in the blockchain industry.
The various reports produced by the company are for reference only and do not constitute investment advice. If the visitor suffers losses due to investment or trading in the report issued by the company, the company does not assume any liability for compensation. For other acts performed by visitors based on reports issued by the company, the company does not assume any form of responsibility unless there is a clear written commitment of the company.