Clear Lake Fisherman: Bitcoin's Monetary Complex

Bitcoin

So far, whether Bitcoin can play the role of currency in the market in the future and replace the RMB or the US dollar is still a concern for Bitcoin holders! However, whether it is the view that supports or opposes Bitcoin becoming a currency, it is based on the monetary concept formed by people based on traditional monetary theory. However, due to the defects and misunderstandings in these concepts, people's understanding and debate on the "currency role" of Bitcoin have never been able to go deep into the social attributes of currency; the confusion on this issue has led to people's behavioral contradictions, but it has maintained the mystery of Bitcoin and continued to be a hot topic.

Bitcoin’s name has nothing to do with currency

On November 1, 2008, a person who called himself Satoshi Nakamoto posted a research report on a secret cryptography review group, and Bitcoin was born. Bitcoin uses a public distributed ledger to get rid of the constraints of third-party institutions, which Satoshi Nakamoto called the "regional chain". Users are willing to contribute the computing power of the CPU and run a special software to be a "miner", which will form a network to maintain the "regional chain". New bitcoins will also be generated in this process, and the transfer of bitcoins will also extend on this network. The computer running this software actually cracks irreversible cryptographic puzzles, which contain multiple transaction data. The first "miner" who solves the problem will receive a 50 bitcoin reward, and the relevant transaction area will be added to the chain. As the number of "miners" increases, the difficulty of each puzzle also increases. In the early stage, the bitcoin production rate of each transaction area remained at about 1 per 10 minutes.

First, Bitcoin is an electronic symbol generated by open source P2P software. How to name this electronic symbol depends on the personal wishes of the creator. The creator can name it anything he wants. The concept of virtual currency Bitcoin was first proposed by Satoshi Nakamoto in 2009. Secondly, Bitcoin is now also used to refer to the open source software designed and released by Bitcoin according to Satoshi Nakamoto's ideas and the P2P network built on it. Some people also translate Bitcoin as "bit gold". Satoshi Nakamoto only invented the mathematical technology to create this electronic symbol and named it Bitcoin, but Bitcoin may not become a currency as some people, even the inventor, think. Equating Bitcoin directly with currency actually takes advantage of the confusing nature of Bitcoin's name, and is a substitution of concepts by some people who demand Bitcoin to become a currency. Thirdly, using Bitcoin as an electronic currency is also deliberately emphasizing the novelty of this so-called "new thing" in cyberspace, and taking advantage of people's lack of knowledge of new things to subtly mislead people.

Bitcoin is only used as a means of payment

A survey shows that thousands of merchants around the world have expressed their acceptance of Bitcoin as a means of currency settlement. At the beginning of this year, there were more than 400 "treasures" related to "Bitcoin" on the "Taobao" search page. Not only that, some Taobao stores have also appeared in stores that use Bitcoin as the official settlement currency. Some stores have completed 3 Bitcoin payment transactions, equivalent to more than 2,000 yuan. Many websites targeting technology players have begun to accept Bitcoin transactions. Including websites such as Mt.gox and btcchina, as well as some Taobao stores, they can even accept Bitcoin in exchange for US dollars, euros and other services. At present, hundreds of avant-garde foreign Internet companies accept Bitcoin, from online services, recruitment, tangible goods to charitable donations, but it has not yet gone to the well-known e-commerce companies such as Amazon, Taobao or JD.com. After PayPal and VISA blocked WikiLeaks' donation channel, WikiLeaks recently announced that it would accept anonymous donations of "Bitcoin".

Many people think that Bitcoin has become a currency because it has the function of transaction payment. This is a misunderstanding. First of all, we need to make it clear that the circulation scope of Bitcoin is limited. It is limited to those merchants who use Bitcoin as a means of settlement and payment and those who hold Bitcoin and trade with them. Bitcoin is not recognized outside this scope or interpersonal circle. One of the necessary prerequisites for a currency to exist is that it has a circulating market system. All people connected by this market system use currency to obtain their survival materials, basic survival materials such as food, clothing, housing and transportation, and organize social production on this basis; and because of the social nature of the production and consumption process, currency is the value concept tool of everyone in this market system, and an economic system or social survival system is formed with currency as the center or medium. Bitcoin is only recognized by a part of the people in a certain social survival system, far from being widely used in this system, and it is not widely recognized in the social concept system; in these transactions involving Bitcoin, the actual value scale is RMB, and the settlement measurement of transactions is because Bitcoin can be exchanged with RMB at a certain ratio. Bitcoin is limited to being used as a means of payment. It is no different from the exchange of some commodities, such as the exchange of a pound of rice for three cabbages. In terms of being a payment tool, Bitcoin is no different from Tencent's Q coins, Taobao's "gold coins", game coins on various game websites, and other things called "coins".

Secondly, under market conditions, the circulation of money relies on the support of capital. Capital is the main body of the market and dominates the operation of capital to manipulate the market. Money, as a market value tool and a value scale function, is endowed by capital, that is, the currency of capital. Here we can compare Bitcoin with early banknotes to observe the limitations of Bitcoin. Before the emergence of central banks, banknotes were issued by private banks, that is, the creation of private bankers. Their existence was due to the free exchange of physical gold and silver with banknotes. Therefore, gold and silver currencies became the issuance preparation of banknotes. People holding banknotes could exchange gold and silver with private banks without restrictions. Banknotes participated in commodity exchange and circulation only as currency substitutes, and gold and silver currencies were actually used as the value scale in the market exchange process. The issuance of banknotes was limited to the interpersonal circle related to private bankers because private bankers maintained the credibility of the free exchange of banknotes with gold and silver. At this stage, banknotes could not replace the monetary status of gold and silver.

Bitcoin is also a creation of people in the Internet space. A Bitcoin is an information string. A Bitcoin wallet is also an information string. It can participate in market transactions not because it is a currency, but only as a means of payment, because it is valued by capital (merchants) in the transaction process due to the formation of transaction relations, and the actual value scale is RMB or US dollars. Bitcoin has three key links as a payment tool, namely virtual wallet, exchange and payment; virtual wallet services help users hold Bitcoin and provide some functions of bank current deposit accounts; exchange services convert US dollars into Bitcoin, or convert Bitcoin into US dollars; payment services help merchants accept Bitcoin payments in transactions. Today, many websites targeting technology players have begun to accept Bitcoin transactions; including various Bitcoin websites and some stores such as Taobao, which can even accept Bitcoin exchange services such as US dollars and euros. However, the user group of Bitcoin is just a drop in the vast sea of ​​​​business.

The natural and social attributes of Bitcoin

Bitcoin is the first distributed electronic symbol or group of data, and the entire network is composed of users. Its issuance and circulation are achieved through an open source p2p algorithm. Bitcoin relies entirely on the p2p network, and there is no issuing center, so it cannot be shut down by the outside world. Unless the global power outage or the entire Internet is blocked. You can exchange bitcoins with currency, or you can "mine" them as a miner, searching for 64-bit numbers with your computer. By repeatedly solving puzzles with your computer, you will compete with other gold diggers to provide the required numbers for the Bitcoin network. If your computer successfully creates a set of numbers, you will get a number of bitcoins. Bitcoin is decentralized and needs to create a fixed number of bitcoins per unit of computing time. By 2140, the upper limit of circulating bitcoins will reach 21 million. The use space of Bitcoin is limited to the network, and the existence of the network is a prerequisite. The specific algorithm and creation process of Bitcoin are a kind of processing process, just like the printing process of RMB banknotes. There are far more than one way to create "network coins" similar to Bitcoin, such as Litecoin and the newly emerging "Permacoin". In terms of natural properties, Bitcoin is very different from other monetary materials due to its network and electronic technology characteristics, and has both advantages and disadvantages.

Bitcoin is built on algorithms. Many people believe that the basis of its trust also lies in algorithms. However, algorithms can only guarantee the safe transmission of Bitcoin and ensure that Bitcoin will not be forged or copied. Bitcoin is designed to allow anonymous ownership and usage rights. Bitcoin can be saved in the form of computer files on personal computers or stored in third-party hosting services. Regardless of the form in which it is saved, Bitcoin can be sent to anyone on the Internet through a Bitcoin address. The benefits of Bitcoin are also reflected in the fact that it will not be frozen, cannot be tracked, does not need to pay taxes, and has extremely low transaction costs. The value of Bitcoin does not come from the certainty, scarcity, anonymity and unbannability of the rules for the generation and use of Bitcoin; rather, it comes from the existing market system and transaction process, and from the fact that people use it as currency to measure or measure value; currency as a value scale has conceptual characteristics, and its connotation is generated from the transaction relationship or the relationship between people in the market itself. The relationship between commodities and currencies changes because of changes in people's behavior. Its engineering and technical characteristics alone are not enough to become a sufficient condition for it to replace the RMB or the US dollar as a currency. The basis for paper money to become a currency lies in its social attributes.

The main obstacle to Bitcoin becoming a currency

Bitcoin thus becomes personal property and a commodity that can be used for exchange. Bitcoin and its owners together constitute the individual form of capital or personal capital. However, Bitcoin cannot become currency simply because of the personal claims or support of Bitcoin owners. The capital that supports the widespread use of a certain natural material as currency in the market and becomes a measure of value is not the general capital subject in the market, but the monopoly capital or the union of dominant capital in the market, which is the dominant capital power group that dominates a certain market.

Market-dominant capital manipulates the formation and change of market value, thereby manipulating the operation of the market mechanism. Money, as a social tool of the market, becomes the carrier of value scale and means of circulation. Money, as a value scale, has conceptual characteristics. Its connotation is generated from the transaction relationship or the relationship between people in the market itself. The relationship between commodities and money changes because of changes in people's behavior. The basis behind market value is people's social values, which is also an aspect of economic sociality. The dominant position of monopoly capital groups over society and the market is first because of the private ownership relationship of capital, and secondly because they have absolute control over the survival materials of the whole society through the market system, thus controlling people's survival. If there is a power of pricing power, then because monopoly capital controls people's survival, such as controlling labor conditions and possessing social production and distribution of consumer materials, monopoly capital always holds the pricing power of the market. The proportional relationship between money and commodities is formed in the transaction relationship between people, that is, the mutual recognition of buyers and sellers, thus forming a value evaluation process, which is always dynamic. The central bank came into being because the monopoly capital power group has controlled and manipulated the government's political power system. The establishment of the central bank has become a change in government functions in response to the need for the monopoly capital power group to dilute credit and participate in social distribution with the newly issued currency. The central bank has the exclusive right to issue currency, which means that the benefits brought by currency issuance are monopolized by the monopoly capital power group.

As a creation of private capital owners, once Bitcoin becomes a currency, it divides and plunders the monopoly of ...

Due to the rapid development of Internet technology and the rapid popularization of Internet applications, more and more commodity and financial transactions are being carried out in the Internet space. However, Bitcoin is more of an object to be bought and sold in this field. It only occasionally becomes a means of payment and settlement in rare occasions for those who are willing to accept it. We have noticed that in just four years, Bitcoin has gone from an average of 1309.03 Bitcoins per US dollar at the beginning to more than 1 ounce of gold, nearly 1,300 US dollars, not long ago. However, the US dollar is still used as a measure of value and a means of circulation in this process. The US dollar is a tool, while Bitcoin is an object denominated and traded in US dollars. We cannot reverse the basic relationship between the tool and the object.

Bitcoin and Sovereign Currency

Countries around the world have begun to see two distinct camps of supporters and opponents on the issue of Bitcoin's currency status. In mid-December 2013, the French central bank, the Bank of France, issued a warning: virtual currency is unregulated, unsecured, and not legal tender. Once it is exchanged with real currency or becomes a means of payment, it will cause financial risks and bring new difficulties to the global fight against money laundering. On December 5 last year, the central bank and five other ministries and commissions issued the "Notice on Preventing Bitcoin Risks", clarifying that Bitcoin does not have the status of currency and should not be circulated as currency. On March 7 this year, the Japanese government officially stated that Bitcoin is not a currency and will not regulate Bitcoin as a financial product. Although the Japanese government has made its position on Bitcoin clearer, it does not mean that the Japanese government will create a new regulatory framework. At the end of June 2013, after the German Parliament decided to exempt Bitcoin from tax for holding for more than one year, Bitcoin was recognized as a "unit of account" by the German Ministry of Finance, which means that Bitcoin has been regarded as legal currency in Germany and can be used to pay taxes and engage in trade activities. In August 2013, Amos Mazzant, a judge in the U.S. District Court of Texas, ruled in a case involving a Bitcoin virtual hedge fund that Bitcoin is a currency and should be subject to financial regulation. On the afternoon of November 18, the U.S. Senate held a hearing on the theme of "Exploring the Development Prospects and Risks of Virtual Currency Systems in American Society": Although law enforcement agencies generally emphasized the importance of combating virtual currency crimes at the hearing, no one publicly or severely denied Bitcoin. Representatives of the U.S. Department of Justice and the Securities and Exchange Commission (SEC) said that Bitcoin is a legal financial instrument.

Whether the official recognition or denial of the law by various countries is just a policy gesture, lip service, and Bitcoin is destined to be isolated from the official legal currency; the essence of the problem is that these countries will not let Bitcoin touch the cheese of the official legal currency, and even the official legal currency will be replaced by Bitcoin; the monopoly capital power groups standing behind these governments will not sit idly by and watch Bitcoin be confirmed by capital activities in the market and become the center and medium of the market relationship system. Traditional sovereign currency theorists only see the appearance of the central bank's policy behavior of currency issuance, but ignore the essence of the distribution of interests behind the process. This is of course due to the misunderstanding of the relationship between capital and the state. In terms of appearance, they believe that the government controls and manages capital and the market, but in essence, it is just the opposite. Capital controls and manipulates the operation of the government. The so-called "Bitcoin challenges the status of sovereign currency" is nonsense.

Bitcoin and Super Sovereign Reserve Currency

On April 9 this year, Lin Yifu, professor at the National School of Development at Peking University and former chief economist of the World Bank, told Tencent Finance that Bitcoin cannot become an international reserve currency; Bitcoin now only has a transaction function, not a reserve currency, and these two functions are different. Reserve currency should have the same similar properties as gold, and every central bank is willing to reserve it. There are obvious differences between the two. A good reserve currency should be a supranational currency, and paper gold may be a better choice, as it is a credit currency. It is also different from the current supranational currency such as the euro. If each country uses paper gold as a reserve currency, sovereign currency can still be continued. At the same time, paper gold as an international reserve currency will not bring about the problem of conflict between national interests and global interests. Paper gold can solve the problems of various existing solutions in a package. Using paper gold as an international reserve currency requires a supranational international monetary committee, which can be an improved version of the existing International Monetary Fund or a separate one. The main problem with using sovereign national currencies as reserve currencies is the conflict between national interests and global interests. If there is competition between several reserve currencies, any currency must be self-disciplined to maintain its status as an international reserve currency. If there is no constraint, for example, if too much currency is over-issued, the market will expect it to depreciate and will flee and sell it, and the currency will lose its status as a reserve currency.

Professor Lin Yifu believes that the main problem with using sovereign currencies as reserve currencies is the conflict between national interests and global interests. This statement is inaccurate. The dollar, as the global market support behind the world's currency today, comes from the Wall Street consortium in the United States. The so-called supranational reserve currency will definitely be opposed by the Wall Street consortium. This can be confirmed by the fact that the relevant motion to convert the special drawing rights into a supranational reserve currency was aborted several decades ago; the US government, which represents the interests of the Wall Street consortium, initially opposed this motion, and the plan to include the special drawing rights in the world currency reserve was also an extremely castrated version, and its use was subject to many restrictions; if the establishment of a supranational international monetary committee is useful, then the world currency status of the US dollar will be replaced by the special drawing rights, and the special drawing rights are also the currency role that is most likely to challenge the US dollar.

Bitcoin can be managed on any computer connected to the Internet. No matter where you are, anyone can mine, buy, sell or receive Bitcoin. Because of the global distribution and connectivity of the Internet, the use of Bitcoin does transcend national boundaries, but it is still far from becoming a super-sovereign reserve currency. People who come up with such a fantastic idea first forget that the Internet platform itself is still controlled by American capital and is a means for American capital to make profits; even if American capital tolerates the creation and existence of Bitcoin on the Internet, it does not mean that American capital will support "Bitcoin replacing the US dollar" which is irrelevant to their interests. Secondly, people who come up with such a fantastic idea do not understand the essence of the interests of the current market rules of the game. For Bitcoin to become a super-sovereign reserve currency, it must be supported and endorsed by powerful global capital forces. Thirdly, Bitcoin supporters still naively believe that Bitcoin itself is a decentralized currency and does not need national recognition. Governments including the United States and Germany are regulating it to prevent its illegal use. They are powerless and unwilling to stop the operation of Bitcoin itself. Those relatively open countries hope to gain a dominant position in the world after Bitcoin "matures". In today's world of capital movement, Bitcoin cannot challenge the official currency of the country where it is located, let alone become a supranational reserve currency.

So-called “democratic” currencies

Linking Bitcoin to "democratic currency" is also a "creation" of people who support Bitcoin becoming a circulating currency. This idea can be traced back to Hayek's idea that everyone creates money. In "The Denationalization of Money", Hayek put forward a "revolutionary" suggestion: abolish the central bank system, allow private issuance of currency, and free competition. This competition process will find the best currency. Robert Shiller, a famous economist, advocates the expansion of financial democracy, believing that this is the direction of the financial industry and the best way to solve social equality. According to their point of view, Bitcoin is undoubtedly in line with the future development trend. People who put forward the proposition that Bitcoin is a "democratic currency" have made full use of the technical characteristics of Bitcoin distributed on the Internet, and these characteristics are highly consistent with Hayek's idea of ​​the denationalization of currency. First, Bitcoin is generated by the mechanism of network mathematical operations. As long as people have mining machines, they may obtain this specific set of digital information strings, so all people have equal opportunities to obtain this "currency". Second, the increment of Bitcoin is controllable. Theoretically, the total number is 21 million. The total amount is controllable and because virtual Bitcoin can be technically split, the unit is constantly refined, which is convenient for pricing and trading. Third, Bitcoin is anonymous and completely independent, because it is impossible to stop its trading by shutting down a core infrastructure; the personal information people can see is nothing more than the Bitcoin wallet address and a string of random text and numbers. Apart from this, there is no information that can identify personal identity. For those paranoid people, they can create several new wallet addresses for free; so Bitcoin has anti-counterfeiting function. Fourth, Bitcoin has the characteristics of decentralized transactions and storage. Credit electronic currency is stored in the central system of the bank. The government can easily control this central system, which is equivalent to controlling the currency; and the existence of Bitcoin is based on a distributed database spread throughout the entire P2P network node.

The so-called "Bitcoin is a democratic currency" is a strange claim that is entirely due to ignorance of the nature of the market and currency! Perhaps my criticism is too harsh and offends Hayek and the supporters of "democratic currency". The market is a place for commodity exchange in terms of appearance, but in essence it is a social place for capital circulation and a social mechanism for the survival, circulation and distribution of interests. Currency is a social setting and interest tool that maintains the operation of the market system. People who tout Bitcoin as a "democratic currency" only pay attention to the natural properties of Bitcoin as a monetary material, but do not understand or even ignore the social attributes of currency itself. Currency is always owned and controlled by people, and is also a tool used by people to realize their interests. Its existence depends on the operation of the capital-dominated market system. Its functions and roles are all given by the people who own it or the capital owners through the market exchange relationship between people; a monetary material becomes currency in a market system where a group of people live, which is based on the rule of the monopoly capital power group, because monopoly capital manipulates the market value formation and change process. The choice of natural material as currency is the market power of the monopoly capital power group. In fact, creating the desired monetary material is no longer a problem under current scientific and technological conditions, because there are far more network currencies than just Bitcoin. Following Bitcoin, Litecoin and other democratic currencies continue to emerge; the problem is how network currencies can obtain the consent of the monopoly capital that dominates the market operation and enter the market system for wide circulation; if Bitcoin wants to obtain currency status, it must be accepted by everyone in a certain market system, including the monopoly capital power group. Aren’t political issues also issues of interests?

Bitcoin protects against rising prices

In existing online discussions, Bitcoin's "democratic currency theory" is still possessed by the spirit of Western monetarism. The late economist Milton Friedman once advocated the abolition of the Federal Reserve. He envisioned replacing the central bank with an automated system to increase the money supply at a steady rate and eliminate inflation. Now, Friedman's fantasy currency, Bitcoin, has come into being. It is not founded by any government, enterprise or bank, has no rules, and can be traded in real terms. However, whether it can set inflation (price increases) at a controllable level remains a question.

Satoshi Nakamoto, the founder of Bitcoin, did not explicitly state that he created Bitcoin to implement the ideals of Hayek and Milton Friedman, but its appearance after the financial crisis and its decentralized nature made some later participants regard Bitcoin as the best tool for practicing these theories. They all regard decentralization as the core potential value of Bitcoin, believing that Bitcoin itself is not controlled by any central bank, transactions need to be publicly confirmed by the entire network, everyone is equal before the algorithm, and there is a limit on the number of Bitcoins that cannot be issued at will, and it can be infinitely divided, and it will neither expand nor contract, which is the real future of currency development. They also pointed out that it is precisely because of its decentralization that Bitcoin has an essential difference from all other virtual currencies; other virtual currencies such as Q coins are still controlled by the issuer, and they are just a conversion of currency forms. In their view, hyping Bitcoin is only a temporary behavior of short-sighted people. The real future of Bitcoin does not rely on hype, but on the formation of a Bitcoin ecosystem to compete or coexist with legal currencies, thereby changing human economic behavior.

Those who support Bitcoin as a currency will certainly not forget the value of Bitcoin. They believe that the difference between the redemption value of ordinary currency and Bitcoin is that ordinary currency redeems value to the corresponding central bank currency issuer, that is, the central bank stores the value of human labor, while Bitcoin redeems value to Bitcoin buyers, that is, the psychological value of buyers. Bitcoin can only redeem its existence value in transfer, which also means that people can only redeem the value of Bitcoin to those who are willing to accept the lengthy algorithmic labor of Bitcoin mining machines. If this person thinks it is cost-effective to use ordinary currency to purchase the "once" wasted electricity and CPU computing power that no longer exist in reality, then the value of Bitcoin has been realized.

The total number of bitcoins is fixed, so people who support bitcoin as a currency use the logic of the quantity theory of money to teach them how to comfort the market masses who are exploited by rising prices. It seems that as long as people participate in the creation of currency issuance democratically, the specter of rising prices will stay away from them. The problem is that 21 million "big" bitcoins are obviously still inconvenient as a currency unit, such as the calculation and delivery of small transactions, and the limit of bitcoin splitting can reach 2100 trillion "smallest" bitcoins. So, as a currency, is it considered "abuse" in the process of continuous splitting? Currency is just a tool used by people. Just as a knife itself has nothing to do with good or evil, currency itself cannot be abused and do evil. The initiator of currency chaos and continuous price increases is always people. It is meaningless to blame the object itself instead of trying to find a solution from human behavior and social management mechanism, or to control human behavior, or to say that people are unable to solve the troubles and problems they have created.

So far, people who participate in the trading of Bitcoin, Litecoin and other online currencies are still struggling with the question of whether Bitcoin can become a currency. With the development of the Bitcoin hype and the emergence of new online currencies similar to Bitcoin, the currency complex of Bitcoin has become increasingly strong in the market. The development of this complex is largely reflected in the social consciousness that "RMB is sorry for the people"; people try to get rid of their own difficulties and demand the creation of new currencies, so Bitcoin came into being. The motivation behind this kind of pandering is beyond the scope of simple currency in reality.