Zhu Jiaming: Bitcoin creates a new type of wealth experiment for mankind

Editor’s Note:

On March 13, 2021, Ma Jie, a reporter from Business Weekly (Chinese Edition), interviewed Professor Zhu Jiaming, Chairman of the Academic and Technical Committee of the Digital Asset Research Institute and a famous economist, on digital currency and blockchain. In this interview, Professor Zhu Jiaming analyzed the nature and future development trends of digital currency.

Bitcoin creates a new type of wealth experiment for mankind

1. Bitcoin has experienced ups and downs for more than ten years. How do you view the past development of cryptocurrency?

Since the 1980s and 1990s, the information revolution and globalization have profoundly changed the world. The interaction between the two has caused a huge global fission. Social inequality continues to manifest itself not only in the widening gap between the rich and the poor, but also in the increasing fairness of resource allocation in the fields of education, medical care, and information. Faced with such a situation, most countries mainly rely on social reforms, increasing social welfare, and expanding the construction of public products. However, these practices are "top-down". After entering the 21st century, due to the development of digital currency and the underlying technical foundation, especially the stimulation of the 2008 financial crisis, people have tried to create a new form of wealth "bottom-up" based on scientific and technological progress. Bitcoin is a new form of wealth. Over the past 10 years, people have gradually recognized and accepted that Bitcoin has wealth value, which has in turn promoted people to develop more encrypted digital currencies, and gradually formed an interactive situation between digital currencies and digital assets. In this process, social groups have been formed because of participating in the development and ownership of digital currencies. In such a grand historical scenario, we need to recognize the fact that Bitcoin has pioneered a new type of wealth experiment for mankind and provided a technology-based solution to ease the gap between the rich and the poor and the spread of human inequality.

2. What does it mean that many large institutions are entering the digital currency market? Has Bitcoin become a game for the rich?

The entry of large institutions is not a new situation. It has existed for a long time. It has only attracted more and more attention in the past six months or so. The entry of many large institutions into digital currencies and the purchase of digital currencies such as Bitcoin means that traditional financial capital and industrial capital have begun to comprehensively adjust their positions on digital currencies, from observation and keeping a distance to finally recognizing the existence of their value, and trying to achieve a "hybrid advantage" through the combination of traditional financial means and digital currencies, affecting the discourse power of digital currency pricing, and ultimately affecting the functions of digital currencies that originally had social transformation significance. Because of the large-scale influx of traditional capital into the digital currency trading market, it is inevitable that the price of digital currencies will rise, resulting in higher and higher holding costs, and exacerbating the possibility of excluding the middle and lower classes of society from owning digital currencies. This is to a certain extent contrary to the original intention of the invention of Bitcoin.

However, this does not mean that traditional capital can truly transform Bitcoin according to its own will. This is because no external force can subvert the blockchain foundation and operating mode, mechanism and rules of Bitcoin, and no foreign capital can change the ecosystem that Bitcoin has formed. It is particularly important to point out that the influx of traditional capital has led to a phased balance between the rise in Bitcoin prices and capital costs. While the rich are pushing up the price of Bitcoin, they also have to pay for the high price of Bitcoin. When Bitcoin reaches its limit, they cannot buy it themselves. This is also the most important mechanism in the design of Bitcoin. It should also be noted that the rise in Bitcoin prices will stimulate the division of Bitcoin, causing the public to become smaller units of Bitcoin, which is also to prevent the occurrence of Bitcoin oligopoly. Therefore, it is difficult to deduce that Bitcoin has become a game for the rich.

The future direction of Bitcoin is very clear: due to the continuous progress of capital, the inflow is greater than the outflow, and the price of Bitcoin will continue to rise, but it will not be pushed up infinitely at one time or in a short period of time. As the price of Bitcoin rises, the unit of Bitcoin transactions will be smaller, and the scale of Bitcoin owners will increase, and it will not be monopolized by a few people. At the same time, there is almost no possibility of Bitcoin being nationalized, and it will continue to be a form of wealth parallel to the national sovereign legal currency.

3. Are cryptocurrencies such as Bitcoin more of a currency or a new type of asset today?

Is Bitcoin an asset or a currency? This is first of all a semantic issue. There has been a philosophical sophistry about "a white horse is not a horse" in Chinese history. If you say that Bitcoin is not a currency, you will fall into the language and concept trap of "a white horse is not a horse". I think Bitcoin is a currency because it does have some characteristics and functions of currency; Bitcoin is not a currency because it does not have the holographic characteristics and functions of being a "currency". This is just like a white horse is a horse, and a white horse is not a horse.

Currency needs to have value. The essence of value is trust. The functions of currency are all derived from trust. Without trust, there is no value. The depreciation of currency is due to the decrease in the trust in currency. In other words, the ultimate explanation of currency is trust. Bitcoin has created a trust structure and mechanism based on blockchain and cryptography, so Bitcoin has achieved its evolution over the past decade. Now, the voices that continue to call Bitcoin a Ponzi scheme are getting smaller and smaller. More and more people are paying attention to and accepting the technical logic of Bitcoin, and even participating in Bitcoin transactions, forming a complementary relationship between its value and credit.

4. Will Hayek’s “denationalization of money” replace the existing monetary system?

Hayek’s idea of ​​“denationalization of currency” has been vulgarized and simplified. Because the fact of the development of digital currency has already shown that there are two possibilities and trends of digital currency: denationalization and nationalization. Bitcoin and Ethereum represent decentralization and denationalization; while the digital currency promoted by the central bank and some stablecoins based on the value of legal currency are centralized and nationalized digital currencies.

As far as national sovereign digital currency or central bank digital currency is concerned, it not only does not weaken the nationalization ability of currency, but strengthens the nationalization ability of currency.

Therefore, in the foreseeable future, digital currencies will present a dualistic pattern, with decentralized, non-sovereign digital currencies and centralized, sovereign digital currencies coexisting at the same time, forming a parallel relationship. The rise of central bank digital currencies will not lead to the disappearance of decentralized, non-sovereign digital currencies. Decentralized digital currencies and centralized digital currencies each have their own advantages. Central bank digital currencies are backed by national sovereignty, but are subject to the restrictions of sovereign states, while the advantage of non-sovereign digital currencies is that they will not be restricted by sovereign borders and have a global flow scenario. Nearly 300 countries in the world cannot have laws that prohibit decentralized digital currencies at the same time. However, one thing is certain, even decentralized digital currencies will face increasingly stringent supervision from countries around the world.

5. Blockchain, cloud computing, and big data have all triggered investment crazes. What do you think are the differences between blockchain, cloud computing, and big data?

The three are very different. The essence of blockchain is the infrastructure of the digital economy. In terms of the order of the three, big data, cloud computing, and blockchain came first. However, it is now very clear that big data, cloud computing, and storage will eventually need to be combined with blockchain and incorporated into the blockchain system. To put it simply, blockchain is the highway, big data is the car running on the highway, and cloud computing is the driving technology. The three are a whole, and blockchain will be the premise and the foundation. Of course, the development of big data and cloud computing technology will stimulate blockchain technology, just as the change in the quantity and quality of cars has led to the upgrading of the highway system.

6. What is the future development prospect of blockchain digital assets?

To be precise, the formation and confirmation of digital assets in the future will all need to go through blockchain. In other words, blockchain-based platforms can create diversified digital assets. For example, DeFi, which has developed rapidly in the past year, is a digital asset innovation based on the Ethereum platform. Because of the rise of DeFi, a generalized financial experiment has been formed, and the connotation of digital financial assets has been unprecedentedly expanded. The experiment of wealth forms has proved that the lending and borrowing of digital currencies can be realized through blockchain technology, decentralization and algorithms.

In the next three to five years, with the transformation of traditional industries by blockchain and the strengthening of the digitalization process of traditional industries, traditional industries will also evolve more and more digital assets. Therefore, future digital assets can come from the stock of traditional industries or from the increment of new industries. With the combination of industrial Internet and blockchain, the current status of blockchain as a functional and single technical technology can be changed, the process of blockchain as a universal technology can be accelerated, and blockchain can be promoted to become the basic structure, framework and paradigm for supporting digital asset wealth in the future.

7. What problems and challenges will the industry encounter in the process of digitalization through blockchain?

Industrial digitalization is to establish a digital (virtualized) industrial system parallel to the physical industrial system, so that the physical real economy can be manifested through the data system. To establish a digital industrial system, blockchain transformation is needed. However, blockchain transformation faces many challenges: first, the blockchain team needs to learn the industries and sectors to be transformed and learn them thoroughly; second, blockchain transformation means the collection and organization of big data, which means the re-cognition of relevant information, which will expose the deep structural problems of traditional industries; third, blockchain transformation will lead to the flattening of corporate system management systems, making managers with traditional hierarchical management advantages lose their advantages and challenge the original management model; fourth, blockchain's smart contracts lead to the clarification of related interests; finally, the traceability technology promoted by blockchain will also challenge the traditional concept of intellectual property rights, accelerate the process of knowledge sharing, and shake the original business model.

Therefore, blockchain is of great significance to the future development of the industry. However, blockchain technology still has great limitations at present, but these technical limitations are being overcome. The impact of blockchain on people's economic production activities and daily life will continue to accelerate. In the near future, people will find that blockchain is everywhere and cannot be avoided, just like today's QR codes are everywhere and cannot be avoided.