Digital currency will be first used in the field of Internet finance

Three years ago, most people would not have thought that today, three years later, in big cities like Beijing, Shanghai and Guangzhou, you can live without any cash and with just your mobile phone. Whether it is shopping, eating, staying or taking public transportation, scanning codes or online payment has become very convenient. Wallets have become a kind of decoration.

On January 20, 2016, the People's Bank of China held a digital currency seminar in Beijing. The meeting was of a high standard and Zhou Xiaochuan attended. The meeting was not a closed-door discussion within the central bank, and digital currency research experts from Citibank and Deloitte were also invited.

There should be three purposes of the meeting. The first purpose is of course to show the market that the People's Bank of China is not backward or conservative, and has not fallen behind in the research of digital currency and blockchain technology. The central bank has long established a special research team and continues to pay attention to and study digital currency. The second purpose is to announce to the public that the central bank has begun to accept the concept of digital currency and is preparing for the early launch of the digital currency issued by the central bank. It can also be said that it has begun to study how to implement digital currency from the perspectives of technology and application scenarios. The third purpose is to discuss the specific structure and steps for launching digital currency, release relevant information, call on more people to pay attention, and raise some very difficult questions to encourage more researchers to participate in research and discussion.

This meeting may soon be forgotten by the market, but from the perspective of writing future money market history textbooks, it is a meeting of great historical significance and the beginning of changes in the monetary structure of the Chinese market.

There is still no very accurate definition of what digital currency is, but to be a true digital currency, I believe the following conditions must be met. Otherwise, it cannot be called digital currency, but can only be called the electronic version of paper currency.

First, digital currency is a form of currency that is completely based on Internet technology. Payment, settlement, storage, etc. can all be completed automatically without manual approval, and all path information that cannot be destroyed will be saved. Secondly, the issuance, circulation, supervision, and regulation costs of digital currency must be lower and should be much lower than the paper currency market. Otherwise, digital currency will lack fundamental vitality. Thirdly, the "price" of digital currency itself is highly stable, with a clear positioning (it is currency rather than a commodity), and has corresponding conversion rules with the existing paper currency system. Fourthly, it is supported by a legal issuance procedure and safe and reliable blockchain technology.

Digital currency is both near and far

The evolution and development of the currency market is not fundamentally different from other markets. Digital currency is actually just an inevitable trend of currency form from physical, paper, to digital. The existing currency system, as well as its technical support and operating logic, can hardly meet the market's demands for supervision, efficiency, convenience, and networked transactions.

The "transformation" of the currency market by Internet technology came many years later than other markets, and was not as timely as the impact on information, social networking, shopping, transportation, education and other fields. With the rise of mobile payment, Internet finance and other markets, more currencies have begun to "break away" from the traditional financial system and circulate themselves. The impact of Internet technology on the currency field has become increasingly obvious, and the effectiveness of macro-control is facing greater challenges.

The scale of China's third-party payment and Internet finance market has exceeded 10 trillion yuan, and the difficulty of supervision is increasing. If the traditional supervision methods and thinking are used to suppress the "new finance" based on Internet technology in a half-dead state, it seems to achieve the purpose of supervision, but China may lose the opportunity to catch up with the developed countries in the world again. Looking to the future, once digital currency and new finance are abandoned, it is actually giving up the efficiency of finance and the innovative gene that promotes progress.

There is already such a country in the world where people do not need cash. Whether in luxury shopping malls or street vendors, they can pay with a card. Even when donating to churches, they can pay with a card. This country is called Denmark. It is one of the most open economies in the world, with a per capita GDP of more than $60,000, ranking sixth in the world. Denmark has not yet promoted digital currency, but the withdrawal of paper money in Denmark has already announced the end of an era.

The biggest advantage of digital currency

The biggest advantage of digital currency is not the so-called decentralization and currency liberalization, which are not the most direct contributions of digital currency. Bitcoin is difficult to become a digital currency accepted by most countries because it is separated from the monetary management system of the real economy and cannot make relevant changes to human economic activities. When holding currency itself is a bet, currency loses its great and magical function.

The future of digital currency will be a process of "multi-centralization" rather than "decentralization", and "currency privatization" rather than "currency liberalization". Multi-centralization means the proven advantages of blockchain technology, including encryption, security, transparency, and controllability; "currency privatization" is an upgrade of property rights protection and the beginning of stimulating greater social creativity.

Regarding the issue of currency, it is actually linked to the issue of human nature. Decentralization and currency liberalization are relative concepts. Just like the United States is touted as the freest country in the world, but the proportion of prisoners in American prisons to its population is also the highest in the world. The same is true for the currency market. In order to ensure the freedom and fairness of currency and more efficient operation, it is difficult to completely decentralize.

The logic of "decentralization" is that real digital currency does not rely on a single "central data" processing center, but uses decentralized terminals involved in transactions to form a data chain. Countless centers participate in processing without affecting convenience, which makes the entire transaction data more secure, reliable and traceable.

The concept of "currency privatization" is that legal digital currency will reduce the country's endorsement of currency, or legal digital currency. The participants in digital currency are themselves a form of supervision. The issuance, use, destination, and distribution of currency have become easier to identify and public, which can effectively supervise and avoid the government's excessive reliance on inflation. Protecting the purchasing power of digital currency through relevant technologies is actually the most powerful protection for private property, which will stimulate the enthusiasm of more entrepreneurs and investors, and the speed of scientific and technological progress will be faster.

The biggest challenge in launching a digital currency

Regarding the legal issues faced by the launch of digital currency and the impact of digital currency on the economic and financial system, I personally think that the problem is not serious. In fact, in more large cities, due to the popularity of mobile payments, more and more people are starting to live a "cashless" life, and the electronicization of paper money provides a good practice for the launch of digital currency.

The most critical issue is to deal with the relationship between legal digital currency and private digital currency. Currently, no country has been able to create a set of independent digital currency technology and form a strong isolation or barrier to private technology. For example, China has launched its own legal digital currency. What is the relationship between these digital currencies and Bitcoin, what are the advantages of the former, how to define and trade them, all rely on various trustworthy rules, not the technology itself.

The United States has made it clear that Bitcoin is a commodity. That is to say, in the future, no matter how influential privately issued digital currencies are in the United States, they will still be priced in US dollars. This provides a direction for dealing with the relationship between legal digital currencies and private digital currencies after the launch of legal digital currencies.

Another challenge is how to regulate the liquidity of digital currency under the condition of multi-centralization and how to effectively implement supervision. From the development of digital currency in recent years, due to the development of blockchain technology and other fields, digital currency has made a qualitative leap in improving the convenience and transparency of transaction activities, but at the same time, it is also common to monitor money laundering, cross-border capital flow, tax evasion and other illegal and criminal activities.

If digital currency under decentralization is to meet future regulatory requirements, it still needs to overcome two technical issues. The first is how the anchor of digital currency is based on the real economy, rather than just Internet technology. In the process of economic cycle changes, how digital currency can use price tools or quantitative tools to adjust the liquidity of currency, and how to achieve it technically. The second is the reversibility of transactions, as well as the traceability and recoverability of transaction data, and there must be very smooth query and publication channels to achieve the purpose of correcting and punishing illegal and criminal acts. The current encryption and irreversibility of transactions in the Bitcoin market mean that no organization can terminate Bitcoin transactions unless the trader voluntarily agrees.

Digital currency may first be used in the field of Internet finance

Since Internet finance is based on young Internet user groups, the more concentrated the population, the more obvious the advantages of the Internet. Digital currency provides better marking and value measurement tools for the development of "new finance" in the Internet era. Regulators no longer need to use "prohibition" to prevent risks in the Internet financial market. For example, after the birth of digital currency, every unit of currency and every transaction will have a data stamp and a timestamp. The direction of investors' funds is clearly marked, and the path of where these funds eventually go is clearly visible, and the efficiency of supervision will be rapidly improved.

Since the digital currency's carrier terminals are inseparable from various electronic or mobile devices, the seamless connection between digital currency and other payment tools requires more application scenarios and market scales as experimental basis. In fact, the current wave of electronic payment such as Alipay and WeChat Pay has already provided sufficient experiments for the launch of legal digital currency. Therefore, the first field where legal digital currency can be applied for testing and issuance should be the Internet finance field. Geographically, it may start in the cities with the most developed mobile payments, and then gradually transition to second- and third-tier cities and rural areas.

Three years ago, most people would not have thought that today, three years later, in big cities like Beijing, Shanghai and Guangzhou, you can live without any cash and with just your mobile phone. Whether it is shopping, eating, staying or taking public transportation, scanning codes or online payment has become very convenient. Wallets have become a kind of decoration.

The electronicization of paper money will also mean that digital currency is actually getting closer and closer to us. Due to the unbalanced development of China, there is still a large demand for cash in the rural market. The debate on the introduction of digital currency will continue. Even if digital currency is born, it may only be used locally. From the perspective of the global market, a real digital currency country may be born in the next few years.