Core logical issues that need to be paid attention to in blockchain

Blockchain is a decentralized, deintermediated, point-to-point transaction processing system that is verified by the entire network, recorded by the entire network, and irreversible , a distributed account system that is difficult to tamper, traceable, open and transparent, these are the two main contents of the current definition of blockchain. But if you follow the standards of decentralization, deintermediation, and peer-to-peer transactions, and use blockchain as many people say, it is basically not the case. Because there are almost no truly decentralized blockchain applications. Many people say that the blockchain will be a machine of trust and the Internet of value. The blockchain will recreate production relations, economic organizations, and operating models. It will subvert the legal currency system, subvert the double-entry accounting method, and even create a place where everyone can issue money. A new society in which everyone has his own currency, everyone’s own finance, and everyone’s self-organization. Is that so?

Today I want to share with you how we view the blockchain in such a hot atmosphere, how to grasp its core logic and avoid major subversive mistakes.

This is mainly based on the Bitcoin blockchain.

The first is whether encrypted digital currencies such as Bitcoin can become real currencies, and whether this type of digital currency can subvert the legal currency system.

We know that currency has existed in human society for thousands of years and has continued to evolve, from the initial physical currency to regulated metal currency, to paper money under the metal standard, and then to credit without the metal standard. currency. What are its logic and rules as it continues to evolve to today? This is what we need to accurately grasp.

In the evolution of currency, especially after the introduction of paper money, people gradually discovered that currency has more and more functions and its influence is growing, but its most important and core function is value. scale.

To function as a value scale, the most basic requirement is that the currency value must be relatively stable. To achieve a relatively stable currency value, theoretically, a country's currency total must correspond to the scale of monetizable wealth that can be protected by law within the country's sovereignty. In other words, the total amount of money and the scale of wealth must correspond.

How to correspond? It is impossible to completely correspond to each one, so the concept of an intermediary target is introduced. There is a concept of a general consumer price index for the whole society, the so-called CPI concept. When a country's CPI changes, that is, the fluctuation of the inflation rate, is within our target range and within a controllable level, we consider the price or currency value to be relatively stable.

Here we are talking about relative stability, because the larger a country is, the less likely it is that prices will be absolutely stable, and at the same time, fluctuations must be controlled within a certain range and not get out of control. When your inflation rate is controlled within a certain rising range, it means that the currency is devaluing to a certain extent. What are the benefits of currency devaluation? It can inhibit deposits, encourage investment and consumption, thereby playing the role of monetary policy and promoting economic development. It is precisely because the monetary aggregate can be artificially controlled and there is room for control that monetary policy came out. Monetary policy, like fiscal policy, has become one of the two major policies for national macro-control. But there is a premise: currency depreciation or inflation cannot get out of control. Once it gets out of control, the people at the bottom cannot survive, violent social turmoil will occur, and governments or dynasties will change. There are many such examples in history.

Today, we are also faced with many temptations in monetary policy, tempting people to overissue currency. It is precisely for this reason that some people have begun to say that your currency system is wrong. If humans can control it, there will be corruption and unfairness. Can we use technical means to form a currency system that some people cannot interfere with? This also gave birth to encrypted digital currencies such as Bitcoin.

But we must know that the law of currency development is that currency must gradually separate from wealth and become a counterpart to wealth. In this way, we can use the total amount of currency to completely correspond to wealth, and at the same time, there will be Certain room for control. Therefore, something like gold, which has strong physical properties and is greatly restricted by its reserves and mining and processing, needs to be separated from currency and become the counterpart of currency. Of course, it may have a great store of value function. In this way, currency has developed to this day and has become what people call credit currency or currency guaranteed by national credit. I personally feel that this term is not necessarily accurate, because the debts of many countries' governments are getting larger and larger and will never be repaid, so it is a bit far-fetched to call it a credit currency. Strictly speaking, today's currency is legal currency or sovereign currency. It means that the total currency amount of a country must correspond to the scale of wealth that can be protected by law within the country's sovereignty. It is precisely because of this that everyone will find that today we can no longer use physical currency and use gold as currency. At the same time, let’s go back to the private issuance of currency, and the denationalization of currency is also not allowed. Today, many cryptocurrency enthusiasts cite a holy scripture, saying that Mr. Hayok said that currency should be denationalized. But Hayok's idea has not been implemented to this day, because it violates the trajectory and logic of currency development.

Let’s take a look at Bitcoin.

Bitcoin uses very complex technology and rigorous mathematical operations, but its monetary system is highly imitated by gold, so we can see that its total amount is fixed, and it is reduced by half every four years, because gold reserves are fixed. , the easier it is to dig out first, and the later it is, the harder it is to dig out. Therefore, the new output is theoretically lower and lower, and one day it will be dug out. The same is true for Bitcoin, with a total of 21 million. The content contained in every ten minutes is set by the system. It will be automatically halved every four years, and it will basically end by 2140.

You may have seen that there are some problems with the current credit currency, but if you think about going back in time and designing a new currency system based on gold, it itself violates the logic and rules of currency development. From this perspective It cannot become a real currency. These things can only be a kind of online virtual assets, or tokens or business district coins used in a business district. It does not necessarily have no value at all. Does it mean that gold has no value without currency? It's still valuable, as long as you have real application scenarios.

Everyone will see things like Bitcoin. As long as it is in the Bitcoin circle that everyone recognizes, it also has a certain basis for circulation and use. Just like the current legal currency in China is RMB, it does not mean that there are no company meal tickets or shopping coupons in shopping malls.

Once it is determined that the currency belongs to the business district, it must be strictly controlled for use in the business district and cannot be used outside the business district. Otherwise, it will challenge the application of legal currency. If it affects legal currency, it will definitely subject to state supervision. As long as you get bigger and pose a threat to the legal currency system, it will definitely regulate you. Today you will see that this trend has already emerged, and countries are gradually beginning to strengthen the supervision of cryptocurrency. This is an issue we need to pay attention to.

Everyone knows that although Bitcoin imitates gold, its design is much stricter than gold, because it tells you how many coins it produces every ten minutes, and it cannot be adjusted manually. However, strictly limiting the output every ten minutes will cause a serious separation between the supply of money and economic development and changes in wealth, and then the value of the currency will be difficult to control at all. If Bitcoin is really like the one thousand US dollars in early 2017 to nearly 20,000 US dollars in November, some people say that in the future it may be 100,000 US dollars or 200,000 US dollars. If a Bitcoin is used as a currency, think about the fluctuations in the entire currency value. How big. Because if your stock price rises quickly, your stock price may drop significantly as well. More importantly, Bitcoin did not attract everyone's attention at the beginning. Many students played in the dormitory. Because it was not valuable, the Bitcoin keys dug out in the early stage were lost and became death coins, and this could not be activated. About 17 million Bitcoins were mined today, of which 37.8 million were death coins. The original 21 million were very limited. If another 37.8 million coins were removed, the supply of this coin would be even greater. It’s limited. What's more, if it really has room for growth, many people will soon use it not as payment for coins, but as storage and collectibles, and the supply will be even more limited. So from these perspectives, people who are really engaged in currency will find that it is actually difficult for it to play the role of currency. It is more like a counterpart to currency, and it can be used as a store of value like gold.

Second, let’s take a look at whether blockchain like Bitcoin can subvert the world and what role it can play.

Bitcoin places great emphasis on decentralization, deintermediation, and peer-to-peer. But how to achieve decentralization? There must be a need for computers in the society to join forces to operate together and maintain rules together. Because if the host that the system runs on is a host from a certain company, it is very easy for you to change the rules of the system. How can you say it is decentralized? Therefore, Bitcoin must require all computers in society to participate in its operation. If everyone wants to participate, the first premise is that the system must be open source, and the automatic download can run immediately. It does not require a lot of testing to run online. Otherwise, it will not be able to cope with the social and global franchise system.

The second rule must be built into the system. The so-called encoding is the rule. Everyone is maintaining this rule while running this system. In the future, without the consent of more than half of the participating nodes, even the person who maintained the code at the beginning will not have the right to change the rules of the system. But it is not easy to achieve this. It requires knowledge and motivation. The final result is that the more we pursue decentralization and intermediation, the more we pursue decentralization and the formation of a completely closed network system. What do you see today that can run on Bitcoin? There is only one thing, Bitcoin. And where did Bitcoin come from? It is a chain-generated asset that is mined and has nothing to do with the real world. Because of this, it can achieve any change from the initial coin production to the coin. Each account is monitored by the entire network, which is difficult to tamper with and can be traced. Precisely because each account can maintain its authenticity, we can do it without knowing who the person behind the account is. As long as we ensure that the account is genuine, we can do transactions.

As a result, someone deduced on this basis that using the blockchain, you can do transactions without knowing who the other party is. Is this really the case?

Bitcoin’s decentralized and peer-to-peer transactions have strict prerequisites. It must be in a closed network system from the beginning. The assets traded can only be chain assets, and it is impossible to send real wealth to it.

How can this solve real problems when real wealth cannot be put into operation? Therefore, Bitcoin still needs to be converted into legal tender today to realize its value. If it cannot be converted into fiat currency, its value will be significantly reduced. More Bitcoin interpretation: www.yangfenzi.com/tag/bitebi

The problem is that the Bitcoin blockchain itself has no exchange function, only mining, currency production and internal point-to-point transfers. There is no exchange function. To exchange, you must get out of the Bitcoin circle and enter a plug-in trading system. So you will see that there are many digital currency exchanges today. Problems with the exchanges do not mean that there is a problem with the Bitcoin system. The Bitcoin system is still safe today, provided that it is a completely closed system that is not affected by outside influences.

There is another one: Bitcoin’s rule of how many coins are produced every ten minutes forgets that money and finance are connected. Finance requires loans to earn interest or investment dividends. Let’s take a look at the rules for Bitcoin’s interest-earning currency production. Are there any foreign currency production rates for loan interest-earning and investment dividends? No, it must be exchanged for legal currency. Only through legal currency can the needs for loans and investments be realized. If the Bitcoin blockchain is strictly used, the financial functions will be greatly affected, which is what we need to see.

Because of this, our Bitcoin blockchain brings a problem, which is that everyone imagines it very well. It is a brand new thing, but it is a completely closed system and cannot actually solve our reality. question.

Therefore, the designers of Ethereum said that this would not work, and that it would become an online game. Practical problems must be solved in this thing, so Ethereum added a smart contract on which some private work can be done. However, the addition of smart contracts has broken the traditional isolation. Today, the security of Ethereum is weaker than that of Bitcoin.

At the same time, Bitcoin and Ethereum insist on network-wide verification and network-wide recording. After a large amount, the storage space of the entire network takes up a very large space, the efficiency is very poor, and the resources consumed are increasing. Today, some people are exploring whether further improvements can be made. For example, does it have to be verified and recorded across the entire network? Aren’t the existing banks just in two places and three centers, and haven’t there been any major problems? Can we select a certain number of core nodes here, such as 21 nodes or 31 nodes? EOS or something similar, the so-called blockchain 3.0, basically uses smaller nodes, and no longer records and stores the entire network at the same time.

This raises another question: Who will choose these core nodes? If one of your parties designates the core node, wouldn’t that mean there is no decentralization? So everyone is discussing whether we can compile a system that is decentralized when selecting nodes. There are still ongoing discussions, and it is even further said that mining requires huge energy consumption. Is mining necessary? Similar to these aspects, blockchain is still being explored today.

So, at this point we can draw a conclusion that blockchain is still in its early stages of research and development. We may think that it has great room for development, but don’t say that it can subvert technology easily. This, subverting that, we can see that the real applications are very limited at present, and a lot of exploration is still needed.

It is from this perspective that I have been calling on everyone since last year to treat digital currencies and blockchain rationally. Judging from the current development stage and application scenarios, blockchain research and development will have two major branches: One branch will continue to focus on the development of the underlying technology, which is the research and development of the public chain, and continuously improve it. But you must know that the research and development of underlying technology and public chains requires a lot of long-term research and development, which is very difficult. We hope that someone will continue to follow this path to develop and make breakthroughs in a down-to-earth manner.

The other branch is application. This application should not think about a blockchain like Bitcoin, but focus on mining and coinage. I have been calling on everyone to find applications outside the paradigm of Bitcoin mining and coinage. What application are you looking for? Then stop pursuing decentralization and deintermediation. What you pursue is distributed processing of information, continuous encryption, traceability, non-tampering, etc. Prioritize these aspects to solve practical problems. From this aspect, we can see that there are many application scenarios, because this society is accelerating towards an information society.

First of all, we can look for other things that are not so closely related to our property or claims and debts. You will see that people like BAT are now making online games, whether they are raising cats or pets. They are online applications and do not involve real property or laws and regulations. The second is to do public welfare undertakings, such as donations. Money and goods go out in one direction and do not need to come back. There is no buying and selling relationship or loan relationship, but people care about whether this thing goes according to my wishes, so it can be traced and tracked. .

Going a step further, many of our administrative institutions now have a large number of documents, contracts, images and other things in government affairs. Can we help them push them to the chain and run them online to ensure that these things are authentic? Yes, legal, irreversible, and can be checked at any time. This is all possible. Going one step further may be the future development towards the integration of so-called computer networking, information networking and value networking, that is, the integration of the physical Internet of Things. The so-called real solution to our practical problems may still take a while.

This is the communication I want to make with you.

Blockchain is an integration of multiple technologies. Bitcoin is the first application, and it is also a very complete closed system so far. It is very safe, but it cannot solve practical problems. More and more people are discovering that the current Bitcoin blockchain or similar blockchains have an incompatible triangular relationship of "decentralization, high efficiency and security". Therefore, we must seek truth from facts and focus on solving real-life problems. , pay attention to the use of applications, and jump out of the paradigm of the Bitcoin blockchain. This is a basic point of view that I will share with you today for your reference.