Should the inventor of Bitcoin win the Nobel Prize in Economics?

  Since its birth in 2008, Bitcoin has quickly attracted the attention of the world. People seeking wealth are interested in its investment value, skeptics are examining its unreliable image, and some economists are discussing the revolutionary ideas it contains.

     Some governments and regulators are cautiously embracing it — a recent EU ruling exempting transactions from taxes essentially recognizes Bitcoin as a currency rather than a commodity. What’s more, a Nobel Prize in Economics judge is considering nominating Bitcoin’s creator for the economic crown.

     In fact, no one knows who invented Bitcoin, because the inventor chose to use technical means to hide all his information. People can only associate the network ID " Satoshi Nakamoto" with the inventor, and speculate that it may be a mathematician proficient in economics, or it may be a technical elite team.

     Bhagwan Chowdhry , a finance professor at UCLA Anderson School of Management, wrote candidly in the Huffington Post last week:

    "The Nobel Prize Committee in Economics has invited me to nominate a candidate for the 2016 prize... A number of deserving candidates have come to mind, most of whom are widely recognized by the economics community... In all likelihood, sooner or later they will receive this coveted honor."

    “Then I started thinking, whose ideas could have a disruptive impact on the 21st century? The name of the inventor of Bitcoin suddenly popped into my mind - Satoshi Nakamoto - and I couldn’t get it out of my head.”

     Professor Chaudhry received his Ph.D. from the University of Chicago Booth School of Business in 1989, and also holds an MBA in finance and a bachelor's degree in technology. Chaudhry stressed that nominating "Satoshi Nakamoto" is not a fantasy, but an extremely serious matter. He believes that the invention of Bitcoin, a digital currency, is an absolute revolution.

     He believes that Bitcoin has advantages that physical currency and paper money do not have. It is safe, relies on almost unbreakable codes, and can be broken down into millions of smaller units. At the same time, Bitcoin can bypass governments, central banks, and financial intermediaries (such as Visa, PayPal, etc.) and complete transfers almost instantly and securely.

     Furthermore, he believes that the Bitcoin Protocol has sparked innovation in the field of financial technology. The protocol shows how many financial contracts can be digitized, securely identified and stored, and transmitted instantly. He said this could create an open, decentralized public infrastructure for transmitting funds and other smart contracts. This could be as easy as sending an email, but with guaranteed security and almost no transaction costs.

     Chaudhry even believes that Bitcoin could subvert the role of central banks in monetary policy management, destroy costly money transfer services, eliminate transaction taxes charged by intermediaries, save time-consuming and expensive notarization and escrow services, and completely change the form of legal contracts.

     He said that many industries such as banking, finance and law will see major changes. Consumers will be the biggest beneficiaries, and the poor and marginalized will benefit from financial and social inclusion in the coming decades.

Bitcoin price (USD) trends in recent years. Source: ft.com

     However, not everyone is viewing Bitcoin through a transformative lens.

    In 2014, the price of bitcoin fell 75 percent after the largest bitcoin exchange, Mt Gox, collapsed in a hacker attack, and the price of a bitcoin fell to as low as $100 when Silk Road, a major black market site that used bitcoin, was taken down.

    The Financial Times article said that such large price fluctuations weaken the possibility of Bitcoin being used as a currency. Eugene Fama, the 2013 Nobel Prize winner in economics, said: "Its value is so unstable that it is unlikely to be used as a medium of exchange." He even asserted that the value of Bitcoin may become zero one day .

     The article says that Bitcoin also lacks another characteristic of currency: the central bank balance sheet that supports it. This includes two aspects: the list of assets and the list of liabilities. In contrast, Bitcoin only has a glorified list of liabilities - a public log that records Bitcoin transactions. Not only that, although the total amount of Bitcoin is limited, the number of times it can be copied is unlimited (according to the creator's setting, the total amount of Bitcoin will be 21 million by 2140; if necessary, each Bitcoin can be decomposed into 10 to the 8th power)

     The article also links Bitcoin to the "Ponzi scheme". The article says that Bitcoin has some of the same characteristics as the scam. It needs continuous "evangelism" because its value comes from being used. The limited supply of Bitcoin has become a fatal constraint. The more people use it, the more its price rises, which also makes it difficult for it to become a currency.

     If it cannot be used as a mainstream currency, is the technical concept represented by Bitcoin revolutionary and subversive as Professor Chaudhry said? This may require going back to the special era when Bitcoin was born.

     In 2008, the financial crisis loomed. Just as many people were uneasy about the actions taken by central banks after the crisis, Bitcoin provided an alternative way to manage money through mathematical rules rather than a "printing machine" approach.

     At the same time, Bitcoin fits into a wave of technological innovation. It is created by computers running mathematical equations, and the limited total amount in circulation can be calculated over time. Its transactions are recorded in a public log to track its flow. In an era when small startups are valued in the billions for their ability to disrupt industries, anyone with a good idea and a clever piece of software could make a fortune. As Bitcoin gained more and more attention, its price began to rise, attracting more money and attention.

     On the surface, Bitcoin does have a bad reputation - its price is volatile, its supporters are almost fanatical, and it is often used for blackmail, drug trafficking, and hiring "hitmen" on the "dark net"; but this is not fair to it.

     The Economist believes that the greatest injustice is that the dark image has led people to ignore the extraordinary potential of the technology behind it - that is, "blockchain". The significance of this innovation goes far beyond the scope of digital currency. "Blockchain" allows those who do not trust each other much to no longer have to cooperate through neutral intermediaries. As the inventor "himself" said, Bitcoin provides an electronic transaction system that does not rely on "trust". In a nutshell, it is a machine for building trust.

     Next year's Nobel Prize money may not necessarily belong to "Satoshi Nakamoto" and his Bitcoin wallet address 1HLoD9E4SDFFPDiYfNYnkBLQ85Y51J3Zb1, but at least a possible nomination will allow its innovative ideas to spread further.