Bitcoin's Eternal Risks and China's Financial Security

On the afternoon of September 4, 2017, the central bank and seven other ministries and commissions jointly issued the "Notice on Preventing the Risks of Token Issuance and Financing" to stop ICO. On September 8, 2017, the regulatory authorities carried out a centralized rectification of virtual currency exchanges. Since September last year, ICO and virtual currency have experienced a round of the strongest regulation in China. At present, the cleanup and rectification of domestic ICO and virtual currency exchanges has been basically completed, and significant results have been achieved. However, since the end of last year, some domestic people have turned to overseas websites and platforms to participate in ICO and virtual currency transactions, and related behaviors have shown signs of resurgence. From February 2018, the regulation of virtual currency will continue to increase. For domestic and foreign ICO and virtual currency transactions, the relevant supervisory agencies will take a series of regulatory measures, including the abolition of related commercial existence, the abolition and disposal of domestic and foreign virtual currency trading platform websites, etc. According to media reports, the regulatory authorities decided to close the virtual currency exchanges in China, and the price of Bitcoin in China and the world fell.

The Void of Survival Soil: Anarchist Carnival

Bitcoin emerged after the 2008 financial crisis, when people around the world blamed the financial crisis on the manipulation of currencies by governments and financial institutions and high inflation. Bitcoin, with its characteristics of not being manipulated by anyone and a fixed number (21 million), was born with the right time and people, but it has not yet found the right place (general acceptance by the country).

In traditional monetary theory, currency is a symbol of national sovereignty. Does a currency that is completely divorced from the meaning of sovereignty have any meaning? Does a currency that has no third-party endorsement and relies entirely on the approval of both parties to a transaction, and the more people who trade with it, the higher its credibility, have any value?

The answer is obviously no.

From the perspective of human nature: no matter how advanced the technology is, the national credit is always higher than the personal credit. This is the meaning of the existence of the country, and currency is also one of the indicators of the national symbol. The anarchist carnival of Bitcoin is just a temporary happiness of speculation. Can it be eternal? At least not at present.

At the same time, Krugman said: Bitcoin is never suitable as a currency. Its natural deflationary nature makes it similar to gold, but it has no physical object, and it is difficult to adapt to the ever-changing new economy. Even precious metals like gold are no longer suitable for the world's monetary system, let alone a new type of currency technology without a theoretical system, a government foundation, and immature.

Fertilizer for the flower of evil: money laundering and arbitrage

On October 16, 2013, a well-known drug and weapons crime website in the United States was investigated by the US regulatory authorities, which involved a large number of records of Bitcoin transactions; in April 2017, the Bitcoin ransomware virus swept the world; in addition, hundreds of millions of money laundering and foreign exchange fled. All of them took advantage of the characteristics of Bitcoin: untraceability and anonymity.

In this case, Bitcoin has become the fertilizer for the evil flowers of human nature, but once you look at such a currency from a historical perspective, you will understand: this is the lesson of justice and evil.

Human survival still has to be based on justice. How long can a currency that helps evil survive? Unless the devil defeats the angel.

From a cryptographic perspective, Bitcoin is more like a reward after decryption, but the password will eventually be cracked. If new and better algorithms emerge in the future, can they replace Bitcoin, such as Ethereum today?

As the first killer application of blockchain, Bitcoin is considered a revolutionary currency.

But virtual is virtual, fake is fake, it can never be real!

Out of Xinjiang Wild Horse: The trading platform is unreliable and there is a regulatory vacuum

On February 28, 2014, Mt.Gox, once the world's largest Bitcoin exchange, claimed that it had "lost" a total of 850,000 Bitcoins, including about 750,000 Bitcoins in user trading accounts and about 100,000 Bitcoins in the website owner's own account. In 2013, GBL, a Bitcoin trading platform registered in Hong Kong, suddenly ran away, causing its registered users to lose millions of dollars in Bitcoin. According to statistics, from 2010 to the present, 50% of Bitcoin trading platforms have closed down within a few years of opening.

There are no qualification restrictions on the builders of Bitcoin trading platforms, the trading system is insecure, and there are no nationality restrictions on the registration location of the trading platform, resulting in the small number of circulation venues for Bitcoin, the so-called "anarchist" currency, becoming vulnerable and risky.

At the same time, given the above reasons, how to collect taxes and manage circulation have become important problems facing various platforms and regulatory authorities.

When it comes to supervision, we have to say that whether it is the United States, Japan, the United Kingdom, Germany and other countries that have already regarded it as an asset or virtual currency, or Russia and other countries that have warned of risks, they still cannot accurately judge whether this thing that has been developed for 7 years should be classified as "securities" or "financial assets" or "currency". In the current financial regulatory landscape of countries around the world, under the two regulatory frameworks of "separate industry" or "mixed industry", it seems impossible to effectively supervise and manage it.

Currency conspiracy theories are not groundless

Due to the credit currency era, the existing international monetary system and sovereign national monetary system are not as solid as a rock. The dominant position of the US dollar makes its monetary policy affect the world, and the virtual economy in the credit currency era is prone to excessive inflation, affecting the development of the real economy.

The emergence of Bitcoin highlights humanity’s doubts about the existing paper currency system and national credit. It is also a warning to economic entities and governments of various countries: it is necessary to establish a good national and government credit system, otherwise new currency varieties will spontaneously emerge to replace national sovereign currencies.

As the first successful application of blockchain, Bitcoin also proves that network currency will be an important development trend of future currency. However, as a major Bitcoin trading country, China has accumulated a lot of speculation risks, and various speculators and leeks blindly followed the trend and took over at high prices.

This regulatory action is a major benefit for establishing an efficient and safe financial operating system and mechanism, and for preventing national financial risks and hidden dangers. It is worthy of applause in terms of proactive supervision.

However, we must also reflect that an important reason why virtual currencies such as Bitcoin are so popular in China is that China lacks a multi-level and multi-category investment product market. Investing in virtual currencies can generate profits, which has led many investors to choose speculative products such as Bitcoin.

In short, my country should speed up the construction of a virtual currency and electronic currency system that is in line with the background of the times. At the same time, it should establish and improve the investment product market, improve the supervision of the new financial technology system, and make good use of financial technology on the premise of preventing financial risks so that it can better serve the real economy, rather than being separated from the entity and becoming an unstable factor in the economy and endangering national financial security.