Xiao Lei: Why is Bitcoin still so expensive?

In the past two months, the price of Bitcoin denominated in RMB and USD has increased by more than 30% . Currently, the price of one Bitcoin (1,900 yuan) can still be exchanged for 8 grams of gold (237 yuan/gram) and 590 grams of silver (3.2 yuan/gram). In the more than one year since the Bitcoin price bubble burst, Bitcoin seems to have found its "fair value" and has begun to maintain a price that is gradually accepted by the market and is still very high. What exactly supports Bitcoin?

After four years of development, Bitcoin is no longer unfamiliar to the entire market. More importantly, blockchain technology, a derivative concept based on the Bitcoin network, has become a trend in the development of the shared economy and shared finance in the future global market. What it subverts is no longer a simple technical and cognitive issue, but with the help of the virtual economy dominated by blockchain, humans may usher in a real "sharing" era.

The focus on blockchain technology has directly led to the global financial market's renewed pursuit of Bitcoin. However, if blockchain technology leaves Bitcoin, how to demonstrate its due value and how to integrate with the current mainstream "centralized" trading market will seem to require a longer period of exploration. It is worth looking forward to that the current understanding of blockchain technology, just like the market's curiosity about the word "Bitcoin" a few years ago, is in a period of great controversy and rapid dissemination. My prediction is that the explosion and application of blockchain technology is only a matter of time.

In the eyes of many Bitcoin fans, blockchain technology is nothing without Bitcoin. In fact, Bitcoin and blockchain technology are like Apple phones and iOS operating systems. The two may not be separated for the time being, but they must be separated eventually. In the early stage, it can be said that Bitcoin "achieved" blockchain technology. In the later stage, the existence of blockchain technology is the guarantee that Bitcoin has more value.

In the traditional market model, the most effective market structure is nothing more than "effective supervision" and "free market", but no matter what kind of economics, it is difficult to fully integrate supervision and the market, and it is impossible to self-regulate. Therefore, in people's inherent market logic, supervision is supervision and the market is the market. With the complexity, randomness and high frequency of financial transactions, to achieve the effectiveness of supervision and make information and data more transparent, it often requires stronger technology and greater cost investment.

The problem is that even if taxpayers are willing to pay to build a larger regulatory agency, they cannot change the increasingly outdated and ineffective regulatory technology and methods. Assuming that blockchain technology matures and begins to be fully applied, the market's demand for regulation will drop significantly, the cost of regulation will drop rapidly, and the disclosure of information and data will be more thorough, greatly reducing the information asymmetry and transaction insecurity in the market. From a technical perspective, the world economy may truly enter a shared era without "barriers".

At the beginning of the year, IT giant IBM has already begun to get involved in Bitcoin technology - "blockchain" and began to consider creating digital cash and payment systems for major currencies. IBM has held informal discussions with the Federal Reserve and other central banks on the blockchain cash system. Last month, Barclays Bank, Spain's BBVA, Commonwealth Bank of Australia, Credit Suisse Group, JPMorgan Chase, State Street, Goldman Sachs, Royal Bank of Scotland Group and UBS have reached a cooperation to develop industry standards and protocols for the use of blockchain technology in the banking industry. These banks have gradually expanded their investment in blockchain technology. Unfortunately, there is no Chinese bank among them.

Simply put, blockchain technology provides a complete set of transaction and payment solutions. Transactions conducted using this software will make the entire transaction and payment faster, cheaper, safer, and easier to operate. Previously, this technology mainly referred to the Bitcoin market, which laid the foundation for the safe and efficient global spread of Bitcoin. Financial institutions such as banks in developed countries are currently eager to use blockchain technology and use it in transactions in traditional currency markets.

In the middle of this year, Goldman Sachs and IDG Capital Partners led a $50 million investment in Circle Internet Financial, a startup that uses technology-supported Bitcoin to improve consumer payment methods. It is worth looking forward to that China Wanxiang Holdings Co., Ltd. stated at the recently concluded first global blockchain technology summit that it will set up a special blockchain technology investment fund to invest in various projects related to blockchain business applications around the world. The fund may be as high as $50 million.

If we only look at it from a financial perspective, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system, which is currently operating relatively successfully in the world, mainly adopts a "centralized" management model. The United States has absolute dominance. In the process of sanctions against Russia and other countries in the past two years, SWIFT has played an important role. In order to consider its own financial security and the need for RMB internationalization, China has just launched the RMB Cross-Border Payment System (CIPS). If the global market and various countries have a long-term demand for such a system, then the development of blockchain technology may become the final form of this demand. Because the world is only temporarily closed in competition, the ultimate goal of market competition is to let everyone find a rule or system that is convincing to each other. The dominant factor of sovereignty will eventually be replaced by technology and market rules. People will eventually choose to believe in technology and market rules, rather than sovereign credit.

The biggest difference between humans and animals is that humans can virtualize their organizational forms. In the early days of stock trading, paper certificates were required, and later they were concentrated on the trading site for quotation and trading, and later they were directly electronic. No one questioned whether this kind of transaction that cannot be done face to face is trustworthy. People have long been accustomed to a higher level of credit and organizational methods. The use of blockchain technology has gradually upgraded from the Bitcoin market to the Nasdaq Group (   NASDAQ is one of the first institutions to try blockchain technology for its private stock system. Usually, when processing such share transactions, NASDAQ needs to go through a large number of informal systems, including electronic forms that need to be manually verified by lawyers. NASDAQ's current Bitcoin-based blockchain technology will replace its paper certificate system to achieve faster execution and more transparent transactions.

Leaving aside the professional explanation, I would say that blockchain technology is a "sharing economy" software application technology that is a "super operating system". Bitcoin has only opened the door and proved the significance of its existence. From the current situation, if we do not start from the logic of Bitcoin, the research on blockchain technology may be "stagnant" at any time, because not recognizing the value of Bitcoin will prove the "prospect" of blockchain technology. This is also the reason why Bitcoin can still maintain its price above the current $280 per unit after experiencing "global regulation" and a sharp drop. This price is really not low. In many second- and third-tier cities in China, many people may not be able to buy a Bitcoin with a month's salary (the current price of Bitcoin is 1,900 yuan per unit), and the current price of 1 gram of gold is less than 240 yuan.

In the traditional market, the accumulation of brands is very slow. Take gold, for example. As a commodity that has been passed down for thousands of years, it has accumulated an indelible credit value, which makes gold still maintain its strong appeal thousands of years later. The brand value accumulated by Bitcoin is actually somewhat similar to that of gold. The credit value of Bitcoin comes from the self-limitation of technology, which is the same as the natural "supply" limitation in the gold market. It costs money to obtain Bitcoin, and holding Bitcoin does not require the credit endorsement of any institution. Supported by blockchain technology, although Bitcoin has no physical form, it has "clear property rights" and sufficient evidence, which will never be erased.

In addition to the tangible needs of human beings for food, clothing, housing and transportation, in fact, many of their spiritual and psychological needs are intangible. It is precisely because of this intangibility that human creativity is unprecedentedly strong, and the needs and value judgments of things are "varied". It took only three years for the price of Bitcoin to rise from less than $0.1 per unit to $1,000 per unit. You can say that this is the biggest speculative bubble in history, but the fact is that the current price of Bitcoin is still nearly a thousand times higher than three years ago. The daily trading volume of Bitcoin in the global market is close to $1 billion. What is even more unimaginable is that the Chinese market accounts for more than 50% of the global Bitcoin trading market. The trading volume of many trading platforms such as "Huobi.com" and "Bitcoin China" remains high.

The logic that blockchain technology boosts the price of Bitcoin exists to explain the simplest truth, that is, the trend of "decentralization" in global transactions, payments and other markets is valid. But before the world completes the historical evolution of "denationalization", the logic of Bitcoin is still very sensitive, so blockchain technology is the best place to start. Countries pay attention to and study blockchain technology based on Bitcoin, first of all from the perspective of "using it for my own benefit", rather than really accepting the monetary attributes of Bitcoin. If we look at the history of market economic development that promotes human progress, the birth of Bitcoin and blockchain technology has its historical inevitability and has strong vitality.

The "共享经济" and "共享金融" driven by blockchain technology do not make property rights blurred or "publicly owned", but make property rights clearer, private rights more easily protected, government supervision costs lower, economic operation more efficient, and the total amount of wealth created by humans greater/faster. The power of the market and technology is often unimaginable. If calculated based on the after-hours trading price last Thursday, the total market value of the five major US technology giants Apple, Facebook, Alphabet, Microsoft and Amazon has exceeded 2 trillion US dollars, and their total market value has exceeded Russia's GDP and is equal to India's GDP. Except for nuclear war, I currently don't see where Russia's bargaining chips are if it competes with the United States for a long time?

Sharing economy and sharing finance have become the key research topics promoted by the People's Bank of China, the Chinese Academy of Social Sciences, etc. However, if we only understand them literally, the concepts of sharing economy and sharing finance are too broad. Whether in terms of research or practice, they only raise the question of "what it is like". Without a clear instrumental support, the questions of "what it is" and "how to do it" cannot be solved. Blockchain technology is a software technology that can be applied to trade, finance and contract markets, and can meet more "sharing" needs in the future. It is the best tool for realizing "sharing economy" and "sharing finance". It was not until I began to pay in-depth attention to the issues of "sharing economy" and "sharing finance" that I suddenly realized that blockchain technology was born for "sharing economy" and "sharing finance"?

Blockchain technology can bring online business upgrades to almost all financial and commercial enterprises, and while all kinds of transactions are taking place, all processes and details are open and shared. The trust between the two parties to the transaction will soar, ensuring the controllability and security of the transaction, making the word "sharing" no longer seem so "noble" and "perfunctory". "Sharing" has actually become a source of power, because "sharing" itself has become a purpose and a symbol of success.

However, any new thing will encounter another problem. The advancement of blockchain technology will change the existing supervision and information dissemination methods, and even change the interest structure of the entire market. This is the biggest foreseeable "obstacle" before the development and application of this technology, especially before reaching the level of large-scale application. In the eyes of many central banks, Bitcoin and blockchain technology may still be a "threat" or "childish". Just like the development history of gold, it took a very long time to completely get rid of various regulations and be correctly recognized. However, practice has proved that whoever first allows a market to explode its potential will be the first to reap the benefits of this market.