Wang Yongli, former vice president of the Bank of China: How can blockchain redeem itself?

Once upon a time, Bitcoin was synonymous with blockchain. When talking about blockchain, most people think of "mining, coin making, ICO, and coin speculation". This crypto-currency craze, which began in 2017 and swept the world with Bitcoin at its head, created too many myths of "getting rich overnight" and drove countless people crazy.

However, on September 4, 2017, the Chinese government officially stopped ICOs, and then stopped the trading of RMB and digital currencies, and this "feast of digital currencies" came to an abrupt end. After the hasty end, investors had to draw a clear line between themselves and digital currencies.

Nowadays, fueled by the capital frenzy, blockchain has become the most popular trend in 2018. The ICO token carnival has just been completely banned by regulators, and the slogan "blockchain will subvert tradition and profoundly change the world" has resounded across the sky . From Bitcoin to blockchain, it took investors less than half a year to get familiar with the new rules of the game. Such rapid adaptability makes people wonder: Has the so-called blockchain innovation really gotten rid of the thinking and paradigm of Bitcoin blockchain? How far can the blockchain, which is reluctant to cut its coins, go? Will blockchain technology become the golden key to open the third information technology revolution, or a sickle wielded by capital players?

In this episode of "Questioning Blockchain", we invited Wang Yongli, former vice president of the Bank of China, to tell you how blockchain should "redeem itself".

Wang Yongli, former Vice President of Bank of China

Blockchain innovation still hasn’t broken away from the “Bitcoin paradigm”

When talking about the development of blockchain, we can’t avoid talking about Bitcoin. As we all know, Bitcoin blockchain is the originator of blockchain and one of the most widely used application scenarios of blockchain. After the regulatory ban on digital currency transactions, the popularity of Bitcoin blockchain has declined, but some concepts such as "decentralization, no intermediary, peer-to-peer, distributed, irreversible, tamper-proof, traceable, open and transparent" are still regarded as holy books by blockchain entrepreneurs.

In this regard, Wang Yongli said: " Although there are many blockchain innovations at present, most of them still do not jump out of the Bitcoin blockchain paradigm . If you want to fully understand blockchain, you must accurately understand the core logic of the Bitcoin blockchain paradigm."

Wang Yongli believes that the original intention of the design of the Bitcoin blockchain is to create a new, peer-to-peer direct transaction and settlement system that can break away from traditional payment settlement and related social operation regulations. There are four implicit design concepts:

• Sharing of global computing power and storage capacity.

With the participation of different computers around the world, a system with powerful computing and storage capabilities is formed. This system is difficult to break from the outside and can reduce the redundant waste of computer computing and storage capabilities.

• Decentralization.

Through open source system and built-in rules, all users can download and run the system for free. The rules are built into the system and jointly maintained and modified by the nodes involved in the operation. Once the coder determines the rules, if more than 51% of the nodes do not agree, the coding rules cannot be changed. The system is regarded as God, and God is responsible for enforcing the rules to ensure absolute fairness and justice in the execution of the rules.

• Denationalization of currency.

Modeled after gold, the system uses hash calculation and encryption technology to generate the native (chain-born) asset Bitcoin through mining. It is different from the legal currency of any country. Its total amount is set, and the amount released in each stage is completely automatically controlled by the system.

• “De-intermediation” and “trustless” peer-to-peer transactions.

When everyone logs in to the Bitcoin blockchain system, since every Bitcoin acquisition will be confirmed and recorded in a distributed manner across the entire network, its account system is very authentic. The two parties to the transaction do not need to provide identity information and obtain sufficiently authoritative verification, and do not need to know who the other party is. They can conduct peer-to-peer transactions without the involvement of any intermediaries.

In this way, a perfect cyber world is built that is decentralized, intermediary-free, absolutely democratic, without human manipulation and corruption, without taxes and improper fees, difficult to falsify and tamper with, and able to prevent external attacks. It is safe and stable.

The fatal pain point of the Bitcoin blockchain paradigm

It is not difficult to see from the design concept of the Bitcoin blockchain paradigm that the Bitcoin blockchain system has a strong anti-social nature. Wang Yongli believes that it is precisely because the Bitcoin system is too perfect and is committed to getting rid of the existing world system and mechanism that it has exposed many difficult-to-solve pain points.

1. Bitcoin blockchain is difficult to truly achieve “decentralization”

The design concept of Bitcoin blockchain is to establish a system where all participants are equal and democratic. However, in reality, affected by computer computing power, Bitcoin mining and acquisition are not equal for everyone . Mining pools or nodes with strong computing power have a greater chance of mining and obtaining Bitcoin; although many people also participate in mining and consume resources, they may not be able to obtain Bitcoin. This makes Bitcoin more owned by a few people, thereby enhancing their voice or influence on the adjustment of network rules.

At the same time, computers involved in mining are largely unable to perform other functions.

2. Bitcoin blockchain’s “trustless” and “intermediary-free” peer-to-peer transactions actually have strict conditions

Usually, Bitcoin supporters like to call the Bitcoin blockchain "the Internet of Value, the Internet of Trust, and the Internet of Order". Since Bitcoin is a native asset of the Bitcoin blockchain system, it is strictly authenticated and distributed from the beginning, and the accounts are open and transparent, making it difficult to forge or tamper with the records. Therefore, Bitcoin transactions can indeed be conducted without knowing the identity of the holder, as long as the transaction account does have enough Bitcoin, to achieve "decentralized" and "intermediary-free" point-to-point transfers.

However, this peer-to-peer trading model has very strict prerequisites: first, only Bitcoin (the native asset of the system) can be run on the platform , and no other assets or values; second, all traders must register on the same Bitcoin blockchain network platform (the uniqueness of the platform). If the two parties to the transaction are not registered on the same network platform, the rules of different platforms are not unified, and cross-chain transactions occur, this peer-to-peer transaction will be difficult to achieve.

But in fact, under the current circumstances, as long as both parties to the transaction open accounts in the same bank or third-party payment institution, using existing network communication technology, banks or third-party payment institutions can also achieve peer-to-peer transactions. In addition, since there is no complex process such as full network broadcast, multi-layer verification, and distributed accounting, the speed and efficiency are much higher than the Bitcoin blockchain system .

3. The Bitcoin blockchain system is too closed, making it difficult to transfer offline value to online

For security reasons, the Bitcoin blockchain is actually a completely closed system, and it is difficult for real-world assets or values ​​to be transferred to this system for operation. Even if it can be pushed up, if there is no very strict offline verification system to ensure the legitimacy, authenticity, and accuracy of the pushed assets, once something false is pushed to the Bitcoin blockchain system, no matter how strict its operating system is, it cannot escape the result of "spreading rumors". If it is strictly limited to the Bitcoin blockchain system, based on the rules generated by Bitcoin, it cannot even solve the Bitcoin required for the interest or dividends that should be generated by using Bitcoin to issue loans or investments, which will seriously affect the development and function of finance.

In this case, in order to realize the value of Bitcoin, it is necessary to exchange it into legal currency and use the Bitcoin system as a transition link or new intermediary link for real-world fund transfers. From the results, this is not de-intermediation, but rather increases the intermediary link .

4. The Bitcoin network trading platform is just a plug-in system for the Bitcoin blockchain, which poses security risks

The Bitcoin blockchain itself only has the functions of mining, minting and transferring within the system, and does not have the function of exchanging legal tender . If you want to exchange Bitcoin for legal tender, you have to plug in to an external trading platform. The online digital currency trading platform that emerged based on this demand has greatly facilitated the exchange and transfer of digital currencies such as Bitcoin and legal tender, providing strong support for the realization of Bitcoin's value, price increase, and expansion of its influence.

However, these digital currency trading platforms are not decentralized and distributed, but a highly centralized operating system. Although the Bitcoin blockchain system itself is difficult to be hacked from the outside, digital currency trading platforms have been hacked, Bitcoin has been stolen, or trading platforms have closed down, and platform operators have "run away" repeatedly. The reason is that digital currency trading platforms are not fully constrained and protected by the Bitcoin blockchain system. So far, they have not received sufficient and effective supervision from financial regulators, and there are great risks. This should also become the focus of financial supervision.

5. Users registered on the Bitcoin trading platform are not nodes of the Bitcoin blockchain

Many people believe that if they hold Bitcoin, they are members of the Bitcoin blockchain. This is actually a very big misunderstanding. Holding Bitcoin only proves that you are a registered user of the digital currency trading platform. If you do not participate in mining, you are not a node of the Bitcoin blockchain, and the voting rights and other rights and interests of the Bitcoin blockchain node have nothing to do with you.

6. Over-emphasizing "decentralization" will affect actual efficiency and lead to "utopian" thinking

A large number of external computers are connected and run together, which is the basis for the Bitcoin blockchain to achieve "decentralization". However, at the same time, the more computer nodes are added, the more resources are consumed in the "mining" process . In addition, the exchange with legal currency needs to be processed through an external trading platform, which has complicated procedures, high costs and low efficiency. For example, when a Bitcoin wallet is first installed, it will take a lot of time to download historical transaction data blocks. It takes about 6 consecutive blocks to confirm a Bitcoin transaction, which often takes several days.

In addition, the excessive pursuit of "decentralization" of the Bitcoin blockchain has led it to fall into a "utopian" mentality that is out of touch with reality and self-enclosed. From the perspective of human development, the formation of a centralized and hierarchical social organization, rather than complete equality, democracy and freedom, may be an inevitable choice that is naturally formed in the long-term practice process. Although people have been constantly imagining the establishment of a "utopian" society where everyone is equal and distribution is based on needs, and even trying to "run into communism", it is difficult to succeed. In today's world, which is still based on the sovereignty, independence and autonomy of various countries, and there are huge differences between countries, it is also unrealistic to imagine the establishment of a "decentralized", anarchic network world and a super-sovereign world currency that is completely free from the constraints and supervision of national laws in the real world.

7. Bitcoin, which is highly imitative of gold, is unlikely to become a real currency

Many people believe that Bitcoin will replace legal tender and become a new supranational monetary system. In fact, this is a fantasy.

The fundamental reason for the continuous evolution of currency, from the initial physical currency, to regulated metal currency, to paper currency (representational currency) under the metal standard, and finally to complete credit currency under the metal standard, is that in monetary practice, people have increasingly realized that the most important function of currency is actually the "scale of value" and that efforts must be made to maintain the relative stability of the currency value . Otherwise, the currency value will fluctuate violently, the scale of value will become invalid, and currency will find it difficult to play its due role.

In order to keep the value of currency relatively stable, in theory, the total amount of a country's currency must correspond to the scale of the country's monetizable and tradable social wealth . Therefore, it is necessary to form a "social price index". As long as the price index is relatively stable or remains within the expected target, the currency value is considered to be basically stable. In this way, the monetary policies of countries around the world have a common intermediate target, namely the inflation rate or the price index. Moreover, they do not pursue its absolute stability, but have a certain room for regulation, making monetary policy one of the two major macroeconomic control policy tools like fiscal policy. At the same time, it also makes the currency a sovereign currency or legal tender, because a country's currency can only correspond to the country's sovereignty and legally protected social wealth, and it is impossible to be fully supported by other countries. It is also for this reason that Hayek's idea of ​​"non-internationalization of currency" is difficult to achieve.

In terms of design, Bitcoin is highly similar to gold, with a limited total amount, and mining is becoming increasingly difficult. The output is gradually reduced in stages, in order to eliminate the possibility of excessive artificial investment and create huge imagination space for the appreciation of Bitcoin. But in fact, this design concept itself is a regression . Precious metals such as gold have been used as currency for a long time, but because of their strong natural properties, their supply is difficult to adapt to the actual level of economic and social development, especially the scale of exchangeable social wealth, which can easily cause increasingly serious inflation, especially deflation. The sharp fluctuations in currency value make it difficult for currency to effectively play the role of a value scale. In the end, it will inevitably be replaced by sovereign currency or legal tender that can be regulated in quantity and can keep the total amount of currency basically consistent with the scale of exchangeable social wealth.

At the same time, Bitcoin does not have the use value of natural substances such as gold . As a natural substance, gold itself has a certain value; but once Bitcoin leaves the Bitcoin blockchain system, it no longer has any actual value.

Thinking outside the box

Only blockchain can usher in "real salvation"

Talking about the future development of blockchain technology, Wang Yongli believes that blockchain is integrated by multiple technologies, and Bitcoin is just one form of integration of multiple technologies of blockchain . To develop blockchain technology, we must focus on using relevant technologies to solve practical problems in the real world, and continuously improve and perfect it in practice to give full play to the positive role of blockchain.

Decentralization is not necessarily a necessary part of blockchain . Blockchain can also be run independently and centrally on a private computer cluster, or attract a certain number of qualified participants to join, forming a semi-centralized "franchise chain" operating system jointly operated by the franchisee computer group. If "decentralization" is not pursued, there is no need for an incentive mechanism like Bitcoin, which can shift the focus of blockchain operations : from focusing on "mining" to produce "digital cryptocurrency" to strengthening the verification of the legitimacy, authenticity, accuracy of assets and the authenticity and accuracy of the identities of both parties to the transaction, and then integrating blockchain into the real world, truly solving practical problems in the real world, and fully meeting national laws and regulatory requirements to avoid becoming a tool for illegal transactions, terrorist transmission, etc.

In Wang Yongli's view, breaking away from the thinking and paradigm of Bitcoin blockchain will become the "real salvation" of blockchain technology in the future.