The transformation of digital currency: from investment to blockchain

Author: Zhang Yue

I believe that most people, like me, are concerned about digital currency, which fluctuates with the market investment cycle. When it comes to digital currency, everyone wants to ask how much Bitcoin is worth now. "Bitcoin" was once the main topic of digital currency. However, with the digital currency seminar held by the central bank this week, digital currency seems to be being given the special term "general equivalent in the Internet era". Just like everyone's expectation that Bitcoin can change the world, the central bank's "ice-breaking move" is also seen as a signal that the existing currency issuance will also usher in a subversive signal.

Regarding this expectation, Han Feng, a lifetime member of the Bitcoin Foundation and a research scholar at Tsinghua University, said, "Although the central bank's attitude has changed from suppressing the spread and development of digital currency to a more cautious one. However, rather than saying that the central bank is making a statement on whether digital currency can be circulated, it is better to say that it is an affirmation of the application of basic technological innovations of digital currency such as blockchain in the traditional financial field." Wang Yongli, former vice president of the Bank of China, also pointed out that the "digital currency" proposed by the central bank this time is not a digital RMB.

my country is a major "mining" country for digital currencies. The "mining" factory in Northeast China caused a sensation. In the past, Li Xiaolai of New Oriental and Zhao Dong of Moji Weather both sold their assets to exchange for mining machines. All kinds of the most original and largest mining machines are in China. Today, 60 to 80 percent of the world's miners gather here.

However, with the diving-like value changes, some vested interests began to move towards Bitcoin investment and entrepreneurship, crowdfunding and other projects, and some enthusiasts also invested in Bitcoin itself. More transitioners have invested in the broader Internet financial field. Due to the limitations of Bitcoin itself, some fanatical followers have also followed Satoshi Nakamoto and began to try to establish a trust relationship between the two parties of the transaction through mathematical algorithms in the digital currency 2.0 era, so that weak relationships can rely on algorithms to establish strong connections, and began to calculate more decentralized "Bitcoins" that do not require any central bank or issuing bank and equally evaluate transaction history. These 2.0-era currencies are simpler and more convenient, allowing more people to participate, and breaking the 1.0 era, where digital currencies are increasingly difficult to obtain attributes.

Gradually, a series of digital currencies such as Yuanbao Coin, Huobi, Litecoin, and Guhuer based on mobile phones have also begun to have their own communities, making the scale of China's digital currency trading platform the third in the world. Derivative products such as digital currency ATMs and encrypted wallets have also become very popular. The blockchain distributed accounting links of digital currencies represented by Bitcoin are also increasingly concentrated in China. In the future, the development of many blockchain derivative industries in China will occupy unique resource advantages.

However, the greatest contribution of digital currency is not only the creation of decentralized currency, but also allowing the world to experience the power and future of the blockchain distributed financial method behind digital currency.

At the beginning of the establishment of digital currency, people packaged information within a period of time, including data or code, into a block, stamped it with a timestamp, and connected it to the previous block. The page header of each next block contained the index of the previous block, and then new information was written in the page to form a new block, which was connected end to end and finally formed a blockchain. This technology uses pure mathematical methods to establish a trust relationship between all parties, so that the establishment of a trust relationship between the transaction parties does not require the help of a third party, and it is possible to establish a trust relationship at zero cost. As the commercial integration and application of emerging technologies such as cloud computing, intelligent analysis, mobile commerce, and social media gradually mature, people have begun to realize that blockchain has become one of the most subversive Internet technologies.

The craze for digital currency has changed direction in China. This can be seen from the transformation of major domestic Bitcoin trading platforms in 2015. First, the launch of products combining technology and social finance to explore the application of blockchain in the financial field; then the establishment of the China Blockchain Application Research Center. OKcoin CEO Xu Mingxing said, "In 2015, the development of digital currency became more rational. People's attention to digital currency represented by Bitcoin has shifted from investment to technology itself, and they have begun to focus on how to apply its key technologies to solve problems." Last year, the Central Bank of Singapore funded a record system project based on blockchain.

In fact, although blockchain is essentially an Internet technology, it is the traditional financial sector that is embracing it. An interesting phenomenon is that in 2015, many mainstream financial institutions in Europe and the United States have been trying to test blockchain technology. For example, R3, founded by European and American banking giants, is committed to establishing a banking blockchain organization. However, emerging Internet companies in Europe and the United States, including China, rarely pay attention to or try blockchain. Especially for Chinese Internet companies, Internet finance is booming. Relying on big data technology, Internet companies have moved traditional bank financial services online, seized the market of traditional banking, and formed a unique wave of Internet finance in China.

However, as some small companies did not really develop big data resources and technologies, and even used illegal forms such as private lending as Internet clothing, Internet financial platforms began to suffer from accidents. At the same time, some large Internet companies did not really share data with the society, and the contradictions of data silos and user information being traded were gradually deepened. The trend of Internet finance bubbles is becoming more and more precarious without the underlying support of traditional finance.

Flowers bloom inside the wall and are fragrant outside the wall. When the traditional financial industry, which once looked on coldly and aloofly, met the hot technologies of financial technology, and discovered that technologies such as blockchain behind digital currency could solve its own old problems and even compete with Internet finance, it seemed that they were a perfect match.

In the past 100 years, the traditional financial industry has been trying to solve a philosophical problem: where does the money come from and where does it go? When the money is transferred from the left hand to the right hand, does anything change? Blockchain seems to be able to solve this problem, but of course it is more than that. This is just a narrow understanding.

In blockchain finance, the currency carrier in traditional finance has become code, and the organizational structure has become point-to-piece. In circulation, the friction coefficient of blockchain finance is close to zero. In addition, blockchain finance has achieved real-time, scenario-based, and 7X24 hours in circulation. This will inevitably have a profound impact on traditional currency issuance, monetary policy, clearing system, financial system, etc. Nowadays, mainstream financial institutions in Europe and the United States are trying blockchain technology. Dozens of financial institutions, including Nasdaq, NYSE, Citibank, UBS, Goldman Sachs, and Morgan Stanley, are carrying out blockchain financial innovation, simulating applications in financial transactions, payment settlement, and issuance of smart bonds. The central bank also established a research team as early as 2014.

At the same time, what is more important is that in the past traditional financial system, financial institutions at different levels were almost fixed in a small space due to the laws of currency circulation and had to abide by strict rules of survival. In the blockchain financial era, the decentralized operating attributes have allowed small and medium-sized financial institutions that were originally at a disadvantage or passive position to discover a dreamland.