On March 30, 2019, the Blockchain and Supervision Theme Salon, held by the Blockchain Research Center of the Institute of Financial Science and Technology of Tsinghua University, was the third phase of the "unable triangle of stable currency": public audit, sovereign independence and stable purchasing power. Successfully held at Wudaokou Finance College. In this issue of the salon, we invited Cai Shanzhi as a share guest. Cai Shanzhi graduated from the Department of Sociology of Tsinghua University. He was a visiting scholar at the School of Computer Science at Carnegie Mellon University and is currently the investment manager of the Barbara Fund. Cai Shanzhi delivered a keynote speech on "The Impossible Triangle of Stabilizing Coins" and discussed with the participants and scholars in the industry. The following are some of the views of guests.
The emergence of stable currency is both an economic phenomenon and a political phenomenon.
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The problem of stabilizing the currency cannot be regarded as a purely economic issue. Now the plate is too small, so everyone didn't realize that when the plate is big, everyone will find that the stable currency has a very strong political meaning, and it is actually a very big challenge for the sovereign state. If you start to focus on the development of the blockchain industry in 2009, you will find that countries have been trying to kill stable coins. But in fact, this market is actually killing more and more, from 20 billion to 60 billion US dollars (the market value of Bitcoin). Although the price is falling, the market value has been going up. And there is also a data, the number of new addresses in Bitcoin has been rising. So this is a very fun and very complicated phenomenon, not only an economic phenomenon, but also a political phenomenon.
The Breakthrough of Blockchain and the Significance of Stabilizing Coins
Humans have evolved from monkeys. They first pick fruit from the woods and don't know how to accumulate and consume. The great reason for the development of modern civilization and the emergence of double-entry bookkeeping is that humans know how to book. When he understood the bookkeeping, he began to understand how to adjust his material exchange with the outside world.
The current blockchain is a greater breakthrough in civilization than billing, and of course this is my guess. If the blockchain develops in the future, it may be a big turning point in human civilization. The blockchain allows everyone to use a book. This problem has been realized in computer and cryptography. There is no problem. The key is to say how we can map the numbers recorded on this distributed ledger to the corresponding currency. I said that the 5 yuan written on the book is 5 yuan. Why do you want to believe this set of rules? The design of the stable currency is actually solving this problem.
The value of the stable currency comes from the consensus of all participants. The data recorded on the distributed ledger is anchored with some kind of valuables (US dollars, oil, gold, gold coins, etc.). The digital world is anchored one-to-one with the atomic world, which is the core of stable currency design. This is a trust built on trust. It is not a matter of national sovereignty. This is a very important difference from legal currency.
The political economics of stabilizing coins actually pose challenges to the central bank. Today, because our national sovereignty is fully trusted, we will feel that the legal currency is built in the case of everyone, but it is not. Very simple, the regime changed, and a set of currency was re-issued. The previous currency would be gone. In the end, the trust in the legal currency in this market would be gone.
When the government credit collapses in the third world (Venezuela, Turkey), the currency will depreciate sharply in an instant. In fact, the basis of legal currency is national credit, and the basis of stable currency is consensus.
The impossible triangle of stable currency: public audit, sovereign independence and stable purchasing power
Stabilized coins can be divided into three categories, which appear in order, so they can be regarded as three generations. The first generation: traditional asset-backed; second generation: debt-backed; third-generation: future growth support.
After understanding the stability mechanism of the three types of stable currencies, it is not difficult to find that the public audit and sovereign independence are two relatively difficult to balance characteristics by comparing USDT with banknotes. If the anchor asset behind it is legal tender, the disclosure of the audit process will inevitably affect the sovereign independence of the asset. Therefore, if the underlying assets are open and transparent digital assets, it is possible to satisfy the above two conditions to some extent, such as Dai. However, financial freedom has been achieved, public audits have obtained market information, the market is very active, and liquidity is very good. Only free behavior in the market can be used to regulate prices, so it is difficult to achieve price stability. The algorithm for central bank stabilized currency, such as Basis, is that when you put the market to regulate the price, the lag of the algorithm of the stable currency makes it difficult to simultaneously resist the volatility of the market while maintaining liquidity.
Bitcoin or the most likely stable currency to become a digital currency
Looking back at the history of human currency, there was a time when gold and silver were parallel, because Latin America discovered silver mines, so gold and silver were simultaneously used as currency. As more and more people believe in gold, silver's credit began to decline, and silver quickly began to withdraw from the historical trend. Since England achieved the gold standard in 1873, gold has always been the center of confidence, and silver has no chance. The same is true for stable coins. At present, the most likely to become a stable currency is actually the gold of digital currency – bitcoin.
How does Bitcoin become a stable currency? Very simple, everyone believes that it is stable enough, it is a stable currency. Everyone is willing to trade at the price of n dollars and 1 bitcoin today. More people will be willing to trade at the price of n dollars and 1 currency tomorrow. The price of 1 bitcoin is n dollars.
Author: Financial Technology Research Center, Tsinghua University Block Chaining