The Evolution of Bitcoin

This article is compiled from Jiang Zhuoer's speech at the GBDC Global Developers Conference in Hong Kong on December 15, 2018, including PPT + transcript. The following is the main text.

Hello everyone, I’m very happy to talk to you about the evolution of Bitcoin today.

But before talking about the evolution of Bitcoin, I would like to talk about China’s roadmap and China’s reform and opening up.   China's reform and opening up has achieved tremendous success, so successful that everyone on this planet has to admire it.

Before the reform and opening up, China was a second-rate weak country in 1978, with a GDP only slightly higher than Brazil and only 8.7% of the US GDP.

But after 40 years of reform and opening up, China's GDP has changed dramatically, reaching 68% of the U.S. And it should be noted that the U.S. GDP has also grown significantly relative to other countries. If the U.S. had not grown so much and maintained the proportion in 1978, China's GDP would have been almost the same as the U.S.

Why has China undergone such a huge change? What is so powerful about the reform and opening-up policy? To answer this question, we have to mention Deng Xiaoping, the chief architect of China's reform and opening-up.

Reform and opening up was promoted by Deng Xiaoping. Without Deng Xiaoping, there might be no reform and opening up in China, and there would be no China today. Deng Xiaoping made great contributions to China.

We will not talk about the specific roadmap of reform and opening up, but rather the design principles of the roadmap of reform and opening up. Deng Xiaoping summarized three theories.

At that time, China was in a huge controversy over its policy direction. Should it be capitalist or socialist? This is very similar to the situation of Bitcoin . Deng said that we should not discuss the policy direction, but look at the actual results. Whoever can develop the economy is right, and whoever can catch the mouse is the good cat.

When facing a new field or a river that you have never crossed, you have to cross the river by feeling the stones, step by step, and explore gradually.

The development of the digital currency community is very similar to the development of a country. Both are huge communities. In the field of digital currency, we can also draw on the principles of China's reform and opening up.

Applying these three theories to digital currency:

1. According to cat theory: The highest goal of digital currency should be to gain users .

The most fundamental thing for a digital currency community is whether it can attract users. Whether it is digital gold or world currency, it ultimately needs the support of the number of users. Even if you want to make digital gold, but there are not enough users to support it, it is not digital gold, but stamp collection. With fewer and fewer users, do stamps still have the ability to store value?

2. According to the theory of touch : digital currency should be rapidly iterated and evolved to meet the needs of users. Take one step at a time.

3. Do not argue : Digital currency is a decentralized system. It is impossible for everyone to reach a consensus on modifications. For the new iteration of functions, if there are no obvious problems, you can give it a try.

For example, one of the controversial issues in this BCH upgrade is the CTOR sorting. How are transactions in a block sorted? Why can't it be modified? CTOR sorts transactions alphabetically because it is conducive to sharding when large blocks are in use. When sharding (or parallel processing) is performed in the future, transactions starting with a can be sent to CPU1 for verification, and transactions starting with b can be sent to CPU2 for verification. This makes sense and can be tried. If there are other better sorting methods in the future, they can be modified. We should not oppose the modification of CTOR just because it may not be the best.

Some people think that Bitcoin should and can dominate the world. This idea is beautiful and tempting, but it is actually impossible. For example, some people need anonymity, some need to be able to issue ICOs, and some need to be able to gamble on the chain.

Different coins are good at different things. It is impossible to expect Bitcoin to be good at everything and dominate all markets.

After users and the market put forward their demands, the currency that can meet market demand will gain more users.

According to Melkafe's Law, a coin with more users will have a higher total market value.

▲ Number of active addresses of Bitcoin and Ethereum

The most typical example is Ethereum. Ethereum created smart contracts that can directly operate ETH, meeting users' needs in 1C0, online gambling, games, etc., and thus has gained a very large number of users.

In the last bull market, Ethereum’s active addresses and number of users were once close to Bitcoin.

▲Total market value of Bitcoin and Ethereum

At the same time, it can be seen that the total market value of Ethereum once reached 40% of Bitcoin.

When it comes to user demand and the number of users, in the future, smart contracts, second-layer networks, and stablecoins will have huge developments. Each of them is likely to attract far more users than the current blockchain .

For example, stablecoins may go beyond the blockchain field and gain a huge number of users. Stablecoins will expand a country’s coinage rights to other countries.

For example, it is difficult for Venezuelans to open a US dollar bank account, but it is very easy for them to open a US dollar bank account with a mobile phone. I can directly transfer US dollar stablecoins to you with my mobile phone . According to Hayek's theory of currency competition, Venezuela may use the US dollar. There is a precedent for this. The last country like this was Zimbabwe. After the hyperinflation in Zimbabwe, the US dollar and South African rand were used. This is a very scary thing - the US government's right to mint coins will cover all countries.

Stablecoins may bring national population-level users to blockchain .

In the huge wave of development, if Bitcoin does not make improvements, it will gradually fall behind.

Some people believe that the advantage of Bitcoin lies in its stability, and that the protocol is difficult to modify unless there is a huge consensus. Stability does meet the needs of users for value storage and investment, and can indeed attract users. But can the number of users attracted in this way exceed the number of users who meet the user's usage needs?

For example, smart contracts can be used to design games where the chips have a certain real money color. Even small games such as harvesting vegetables and grabbing parking spaces, if the tokens won can be exchanged for money, wouldn’t it be more exciting to play?

How many people in a city need to play games? How many people need to invest in stable gold? Moreover, people who invest in Bitcoin do not want to maintain their value. If they want to maintain their value, they should invest in gold. People who invest in Bitcoin want a tenfold or a hundredfold increase.

If Ethereum, BCH and other coins with smart contract functions solve the capacity problem through sharding and layering, and gain ten to twenty times the number of users of Bitcoin and ten to twenty times the total market value of Bitcoin in the next bull market , will Bitcoin's "belief", "consensus" and "stability advantage" still exist?

We must not only realize that Bitcoin will fall behind if it does not improve, but also realize that even if improvements are made to Bitcoin, including Bitcoin forks such as BCH, the market capitalization share will gradually decrease.

The reason is simple. Currently, there is only one BCH in the Bitcoin system that is actively improving, but there are a large number of coins in the entire market that are actively improving. We don’t know which path is correct, and we don’t know which path is the most efficient, but with so many coins trying, there will always be some coins that go in the right direction and achieve huge development.

In other words, in the future, the Bitcoin system will continue to grow tenfold or a hundredfold in absolute value, but the entire digital currency world may grow a thousandfold . A stablecoin may attract 100 million users, and an online gambling platform may attract another 100 million users.

▲ Market capitalization percentage of each currency

This is reflected in the trend that the total market value share of Bitcoin (including BCH, etc.) will become lower and lower, and more and more other currencies will appear below.

So, what we need to pay attention to is to embrace the entire market .

In this BCH hard fork, BCH supporters suffered heavy losses, which taught us a profound lesson: the anti-fragility of our investment is not enough .

We think that charging 1,000 yuan for a transaction is wrong, we think capacity expansion is right, we think the BCH route is right, and many of us have invested heavily in BCH, but we did not expect the emergence of an ambitious and conspiratorial person like CSW.

In the original BCH community, and even in the hearts of each of us, there are two views: one is that we are the orthodox, the original, and the real Bitcoin. The other is that we cannot cling to orthodoxy, but must actively evolve, attract users, and improve competitiveness.

In most cases, we don’t need to decide which is more important. The situation has not developed to the point where we have to choose one or the other. Both views have their merits and together affect the direction of BCH .

However, after long-term planning, CSW and others took full advantage of this, seized the tendency to adhere to orthodoxy, made it absolute, and set the two differences against each other.

CSW took advantage of the differences of opinion within the BCH community and radicalized and externalized them through fundamentalist methods such as "returning to and locking version 0.1", and then created a community split through the lie of "fork, no split".

After the lie of "fork, no split" was shattered, the BCH community had actually split into two chains , and CSW also achieved his goal - splitting a BSV chain that was completely controlled by him. The entire BCH community suffered heavy losses.

In our future investments, we should pay less attention to judgment and more attention to risk control. We should not rely on the correctness of judgment but on the control over incorrect judgment .

Don't make the road narrower and narrower, but make it wider and wider.

Finally, I believe that digital currency will evolve into a variety of species and ecosystems, just like this evolutionary tree, to adapt to a variety of needs and environments. Such a colorful ecosystem requires the joint efforts of all developers, so that we can embrace the future. Thank you.