What kind of stimulation does blockchain need to turn the “opposition” into the “pro-position”?

As the Blockchain Hackathon (a programming design competition) jointly organized by Wanxiang Blockchain Lab and Deloitte in Shanghai came to an end on January 10, the topic of blockchain continues to heat up in China.

Blockchain technology is a technology that collectively maintains a reliable database through a "decentralized" and "trustless" approach.

Bitcoin is only the first application of blockchain technology. Bitcoin is figuratively called a brick used for construction by the industry. It is not perfect, but a broken brick. Personally, I think Bitcoin is not a "flower of evil", but some of the "evil" standing on its petals must be removed. We need Bitcoin to exist, and the industry overturning after the establishment and the destruction before the destruction also needs the blockchain behind it to exist.
What’s important is that some “opponents” have become “pro-party”, and one of the most sufficient reasons is that blockchain has unlocked the market and benefits.

Bitcoin is not the five petals of the "flower of evil"

People first see the limitations of Bitcoin, and then see its advancement. The flower is beautiful, but not everything standing on the petals is beautiful.

One of the petals, the inventor does not want to reveal his identity . On October 31, 2008, a crypto enthusiast who called himself "Satoshi Nakamoto" created a project called Bitcoin, which is a new P2P (Peer to Peer, peer-to-peer computing) electronic cash system that does not involve a trusted third party. "Satoshi Nakamoto" mentioned in a blog post in August 2008 that he would release a virtual currency, which later seemed to be the "foreplay" for the release of Bitcoin. In November 2008, the Bitcoin white paper was made public. In 2009, Bitcoin was born. Even if the invention is released, the identity of the inventor remains a mystery. The latest news came from December 9 last year, when Australian police officers came to Craig Steven Wright's home in the suburbs of Sydney. The Australian branch of the British "Guardian" revealed that the raid was due to the investigation of the Australian Taxation Office and had nothing to do with whether Wright participated in the creation of Bitcoin. The website of the American magazine Wired claims that the founder of Bitcoin may be Australian financial geek Wright and his close friend Dave Kleinman. The former's home was searched by the Australian police, while the latter has passed away.

People pay attention to the inventor of Bitcoin with the same concentration as they pay attention to Bitcoin. So the question is, for a great invention, the inventor has been in hiding for several years. Does Bitcoin, which is not a "flower of evil", make it difficult for him to bear the heavy responsibility?

Petal 2, the fluctuation range of Bitcoin price is nearly double that of Shanghai Composite Index . On January 2 this year, Victoria Cleland, Chief Cashier of Bank of England (the central bank of the United Kingdom), told BBC that she was considering whether to use digital currency to give people the same security and protection. Although some central banks have taken an attitude, digital currency, such as Bitcoin, which is different from legal currency, cannot reflect the function of currency value. Last September, the Commodity Futures Trading Commission (CFTC) of the United States classified Bitcoin as a commodity rather than a currency. At present, the global payment system is still a centralized model, with currency transfers passing through central banks, and legal currency is guaranteed by central banks. The attitude of regulators is also one of the reasons for the fluctuation of Bitcoin prices.

Take last year as the observation period to see its price fluctuations. The "cool" blockchain has stimulated the active trading of Bitcoin. It closed at 1,950 yuan on the first day of the year and 2,760.97 yuan on the last day, with a range increase of 41.59%. On January 14, it experienced the lowest transaction of the year, with a closing price of 1,178.94 yuan; on November 4, it experienced the highest transaction of the year, with a closing price of 3,229.04 yuan. Compared with the lowest closing price, the highest closing price increased by 173.89%. Price is not a reflection of value, but it is precisely because of the high volatility of Bitcoin that speculators in turn promote more active transactions.

Let's look at another reference indicator. For example, the Shanghai Composite Index closed at 3350.52 on the first day of last year and 3539.18.97 on the last day. The range increase was weak, only 5.63%. On August 26, it experienced the lowest price of the year, closing at 2927.29 yuan; on June 12, it reached the highest price of the year, closing at 5166.35 yuan. Compared with the highest closing price and the lowest closing price, the increase was 76.49%.

Last year was the most worrying year for the Chinese stock market, which experienced a stock market crash and had an unlucky start to 2016. However, its index fluctuations are nothing compared to the fluctuations in Bitcoin prices. Compared with the Shanghai Composite Index, Bitcoin's increase in the first and last intervals of the year was nearly 36 percentage points higher, and the increase in the highest closing price and the lowest closing price was 97 percentage points higher. In other words, in terms of the extreme fluctuation range, the price of Bitcoin is nearly double that of the Shanghai Composite Index.

The third petal is that the processing speed is limited . Bitcoin cannot process more than 7 transactions per second, and customers have to wait 10 minutes to get transaction information confirmation. From the perspective of payment, the business processing capacity of the "removed" "centralized" intermediary institutions of blockchain makes Bitcoin far behind. For comparison, the "intermediary" companies that have already developed blockchain technology. According to the data, Visa's latest laboratory test data is 56,000 transactions per second, while MasterCard's laboratory test data is 40,000 transactions per second. Visa and MasterCard's processing capacity is about 8,000 times and 6,000 times that of Bitcoin respectively.

Petal 4: The company's own technology is "much ado about nothing" . The purpose of the establishment of DAH (Digital Asset Holdings), a global blockchain technology benchmark company, is to establish a financial asset trading venue to facilitate investors to convert traditional currencies and Bitcoin at a lower price and time cost. DAH was established in early 2015. Even though it is considered a benchmark in the blockchain industry and former JPMorgan Chase executive Blythe Masters took over as CEO, the company was still struggling to advance its first round of financing by the end of 2015. One of the reasons is that the company uses blockchain technology to reduce the settlement and clearing time of financial institutions, but it needs to acquire most of the technology through acquisitions, and potential investors are concerned about the software products provided by DAH. Even if this is the case for benchmark companies, we can also get a glimpse of the level of other homogeneous companies.

Petal 5: The possibility of anonymous "support for terrorism" . Bitcoin under the blockchain makes it easy for funds to flow, especially the anonymous use of digital currency. Last November, Reuters reported that the European Union was ready to crack down on the use of Bitcoin to anonymously finance terrorist activities.

It is worrying that Satoshi Nakamoto's encryption technology products are used for other purposes, just like a kitchen knife is not used in the kitchen under control.

Commercial banks, when “disintermediating”, “revolutionize” their own intermediaries

Even if the United States treats Bitcoin as a commodity, blockchain still builds a complete "monetary system" for us. Indeed, as a typical electronic currency, Bitcoin does not need the support of the government's central bank to operate freely. Radicals even describe the iteration of paper currency under traditional finance to cryptocurrency.

First, blockchain helped realize my childhood dream . My childhood dream was to encounter commercial banks, but it was blockchain that made my dream come true. When I was a child, I sold vegetables from my own plot and used the proceeds to buy salt. The account book handled the income and expenditure of a farmer's household very well. However, if every household kept accounts in this way, a lot of paper would inevitably be wasted. So I had a dream to deliver goods and pay money with one hand, and make a record on the banknote delivered to the other party to indicate my settlement voucher for a transaction. The country would know that a farmer sold vegetables and then bought salt; a town household received a salary and bought vegetables. Things and account books were unified. Of course, my childhood dream could not be realized. Everyone had to mark the banknotes when trading, which was as dirty as writing "I was here" on the scenic spot, and there was a penalty for damaging legal tender. Farmers and town households then found commercial banks as intermediaries, depositing money first and then withdrawing money when they needed to spend.

Blockchain has helped realize my childhood dream. Blockchain uses an "algorithm proof mechanism" to ensure the security of the entire network. All nodes in the entire system can automatically and securely exchange data in a "trustless" environment, and events and ledgers can be unified. Every transaction is settled and recorded every 10 minutes. In addition, the "shared ledger" that I wanted to "know to the country" when I was a child can be shared transparently.

Second, commercial banks become the "opposition" of blockchain? Traditional finance, or mobile Internet finance, cannot do without a trusted third-party intermediary, which is the reason why commercial banks exist reasonably . Even the support function of the central bank has been put aside by blockchain, so the intermediary status of commercial banks will naturally be shaken by blockchain technology and will be "removed". In the future financial world of cryptocurrency, it will be a false proposition that customers need commercial banks.

Due to the emergence of blockchain, commercial banks have lost their path dependence and naturally become the "opponents" of blockchain at first contact.

Third, commercial banks have suddenly become "pro-blockchain" with the goal of "disintermediation" . The main body of "decentralization" in the financial sector is commercial banks, but commercial banks are rushing to do "decentralization" out of the need for "disintermediation". The revolution must first "revolutionize" their own intermediaries.

The word-of-mouth effect of "disintermediation" in the past decade is far more popular than that of blockchain in the past five years. Direct transactions between supply and demand parties, bypassing the middleman, is the core of "disintermediation". Financial disintermediation is actually a synonym for "financial disintermediation". Under the premise of financial regulation, the essence of "financial disintermediation" is that the capital supplier "passes the ball over the head" in the face of the commercial banking system and directly delivers it to the demander.

Marketization has accelerated the process of "financial disintermediation", and the important position of commercial banks as the main financial intermediary has gradually declined. Taking China as an example, there are two main reasons. First, the diversion of savings and the increase of direct financing. The 1980s and 1990s were the era of deposits. Relying on the long-term stability of deposit interest rates at around 10%, the growth of residents' wealth mainly came from bank deposits, with an average annual savings growth rate of about 30%. Subsequently, the third diversion of residents' savings occurred. The first savings diversion was approximately from 1997 to 2000, the second occurred from 2006 to 2007, and the third diversion has occurred since 2013. In 2014, the new residents' deposits were only 4.14 trillion yuan, lower than the lowest value in the past six years. The social financing method has gradually shifted from indirect financing to the parallel development of direct and indirect financing. Although IPOs were suspended due to the stock market crash last year, the registration system for stock issuance will be implemented, and the "de-administration" of the primary market will promote the increase of direct financing. The proportion of direct financing from the stock market and bond market increased from 12% in 2010 to 20% in the first three quarters of 2015. At the end of last year, Zhou Xiaochuan, governor of the People's Bank of China, predicted that by 2020, the proportion of direct financing of non-financial enterprises in the scale of social financing will increase to about 25%.

Second, zero interest rate is a long-term trend. As the demographic dividend peaks, interest rates have shown a long-term downward trend. As early as August 2014, Orient Securities even proposed that "zero interest rate is a long-term trend", and has not changed its view so far. Since commercial banks understand that "financial disintermediation" is a "decentralized" process, the status of commercial banks as the main financial intermediary will be reduced, and social finance will evolve from indirect finance to direct finance, and even to everyone's (self-) finance, so there will be no entanglement.

Fourth, create a "shared ledger" for commercial banks . Often, "decentralization" is misunderstood. In fact, blockchain technology replaces the current Internet's reliance on central servers at the hub with data blocks. Transaction records are recorded on the cloud system, realizing the "self-certification" of data during transmission. Since the authenticity of each piece of data is proven one by one, all the data in the cloud system can be "trustless" and directly trusted.

R3 CEV has attracted more than 30 banks from around the world to participate in a banking alliance based on blockchain technology. The banks have reached a consensus on how to use blockchain technology in the financial sector. In addition, the company's London development team is writing an open source, universal "shared ledger" that will significantly reduce coordination costs for banks.

Card organizations jointly issue Bitcoin debit cards to force adoption

Visa and other card organizations are at the hub of transfer and clearing, and are typical intermediaries and "centralized" entities. The "decentralization" of blockchain will inevitably affect their business structure. Therefore, they are considered "opponents" of digital currency by early blockchain commentators. Of course, there are many facts to prove their turning into "advocates" of digital currency. For example, they use Bitcoin blockchain for remittance experiments, establish a blockchain legacy payment system, and expand blockchain car rental projects.

In the United States, Bitcoin is a legal "commodity" but is used for payment. The biggest attraction of the card organizations is the joint issuance of Bitcoin debit cards, which in turn promotes its application in daily payments.

Back to the acceptance, the biggest obstacle of Bitcoin is that it is difficult to be widely used as a circulating currency. Therefore, it is urgent to promote Bitcoin to mainstream consumption and let holders use it as widely as using bank cards online and offline. Fortunately, the "zero distance" connection between digital currency and real payment life was completed in March 2015. Bitwage, a Bitcoin salary payment startup, and Xapo, a Bitcoin security storage service company, jointly issued the world's first international Bitcoin salary debit card, which is used in the case of local legal currency, one is to pay wages; the other is to convert it into local currency for payment, which is a targeted breakthrough in the use of Bitcoin in daily life.

The trial run by a professional Bitcoin company has influenced the bank card associations. As a card association, jointly issuing cards to promote the application of Bitcoin seems to be a forced path. It is not wrong to give a child a name first. Visa and Coinbase, one of the world's leading large Bitcoin wallet companies, launched a Bitcoin debit card for use in the United States in November 2015. When the cardholder swipes the card for consumption, he can convert the required Bitcoin into US dollars.

Although the emergence of Bitcoin debit cards is a paradox in itself, at least in the United States, it is called a "commodity" and is converted and cleared with the US dollar legal currency, just like driving a flock of sheep to the bank to exchange for US dollars instead of selling them in the market and finally getting US dollars. However, the emergence of Bitcoin debit cards has accelerated the integration of digital currency into people's daily payment life.

In addition, Bitcoin debit cards have better overcome the difficulty of the fifth petal above. Because, like other debit cards, Bitcoin debit card holders must verify their identities with their real names. Then, the possibility of anonymous "assisting terrorism" will no longer exist.