Disappearing Central Banks: A Look at Virtual Currencies

Recently, the first bitcoin fund in China has started to raise, and it has roadshows in Shenzhen, Guangzhou, Shanghai and other places. The initiator Li Xiaolai used to be a teacher of New Oriental and was one of the earliest people in China to contact and invest in Bitcoin. He says he now holds six-figure bitcoins. Because of the skyrocketing rise of Bitcoin, the benefit is at least hundreds of times.

Bitcoin, as an online virtual currency, has risen wildly in recent years, attracting more and more people in the industry to pay attention. Some legal persons believe that, according to Chinese law, private equity funds in China take the form of limited partnerships, and the number of enterprises should be between 2 and 50, otherwise it may involve illegal fundraising. The total amount of this fund plan is 20 million yuan, and the minimum contribution of individual investors is 100,000 yuan, which is very likely to exceed the limit. In addition, funds registered overseas are not allowed to be publicly raised in China. This fund has a public roadshow and there are compliance risks. Bitcoin investment funds still have great risks in terms of organizational form and investment targets.

Bitcoin originated in 2008, a domain name bitcoin.org was blocked After the successful anonymous registration, on October 31 of the same year, a paper titled "Bitcoin: P2P Electronic Currency System" was published on a certain website; 10 days later, an open source community called bitcoin appeared on sourceforge.net s project.

No one knows who the creator of this project is. The developer is left with only one name, Satoshi Nakamoto, who completely disappeared from the Internet after building the Bitcoin system. The project has since been maintained by two former Google engineers, but even both of them claim to have never met Satoshi Nakata.

Based on the concepts of openness, peer-to-peer, consensus, and direct participation, Satoshi Nakamoto has developed a bitmap on the platform of P2P peer-to-peer network and distributed database based on the open source software and the working mode of block cipher in cryptography. An operating system for currency issuance, trading, and account management. Its system allows nodes throughout the peer-to-peer network to reach network agreements according to their seed files, thereby ensuring fairness, security, and reliability in currency issuance, management, and circulation, and promises that Bitcoin will become an email-like system. "Electronic cash" can avoid inflation and cannot be counterfeited under the premise that no approval is required and everyone has the right to issue. After the payment is completed, the user loses ownership of the bitcoin.

Users can obtain Bitcoin through complex algorithms and a large amount of computing resources according to Satoshi Nakamoto's system. As long as they download the open source client and let their computers participate in solving mathematical problems, as long as they win, they can get this virtual cash , and this method is widely known as "mining" (Mine). Of course, users can also buy bitcoin through exchange services such as BitInstagnt and Coinbase.

Bitcoin users are given a number and can transact anonymously. They can use bitcoins on various online exchanges and can exchange bitcoins for cash through multiple exchanges. Japan's Mt. Gox is the world's largest bitcoin exchange market, currently handling 80% of the world's bitcoin transactions. Therefore, Bitcoin has been suspected of being used by cybercriminals for illicit activities such as money laundering.

Unlike traditional currencies, Bitcoin's operating mechanism does not rely on central bank, government, corporate support or credit guarantees, but on network agreements reached by seed files in a peer-to-peer network, theoretically ensuring that any person, institution, or It is impossible for the government to manipulate the monetary aggregate of Bitcoin, or to create inflation. Its total monetary volume gradually increases at a predetermined rate by design, and the increase gradually slows down, and finally reaches a limit of 21 million in 2140.

Currently, there are many ways to use bitcoin, which can be exchanged for local cash or gold coins through channels such as electronic currency exchanges, service providers and individuals; it can also be used directly to purchase goods and services. With the rapid growth of individuals, organizations, merchants and businesses accepting bitcoin payments, its exchange rate has risen thousands of times in four years. As of March 30, 2013, after all issued bitcoins were converted into US dollars at market prices, the total value exceeded 1 billion US dollars. Although bitcoin is currently the most widely used electronic currency, no country has made legal norms and guarantees for the issuance of bitcoin, except that some countries have express provisions on virtual currency.

For the virtual nature of Bitcoin, some people have accused it of "Ponzi scheme", but after a long discussion, this accusation is generally not recognized now. For example, the European Central Bank has made the following analysis: “There is no organizer in Bitcoin who holds users’ money and then disappears. Bitcoin users conduct transactions spontaneously, almost completely without the existence of intermediaries, and no one can directly transfer money from Bitcoin Profits are made directly from the expanding crowd of coins, unless the exchange rate rises. The bitcoins obtained by miners are also to incentivize them to process bitcoin transactions in order to maintain the safety of bitcoins.” This is similar to the currency manipulators in the Ponzi scheme “borrowing new returns” The old" trick is completely different.

Some analysts believe that the issuance of virtual currencies such as Bitcoin is not regulated and controlled by the central bank and other institutions, and its value fluctuations will be affected by the amount of issuance and the emergence of competing currencies. Although the circulation of Bitcoin itself is limited, its imitators and competitors have emerged in recent years, and the total amount of such "pan-Bitcoin" is uncontrollable. Since Bitcoin itself does not have an authoritative issuer and state power to maintain its authority and uniqueness, Bitcoin and its imitators can only compete on an equal footing, and Bitcoin does not have an exclusive status. Therefore, the future of Bitcoin and its competitors is not clear, and there is a risk of inflation in "pan-Bitcoin" in general.

However, some observers believe that Bitcoin is like a wheel-like invention, and there is no point in reinventing the wheel, because the world essentially needs only one digital currency. At present, most of the altcoins just copy the source code of Bitcoin, or modify a few parameters, such as adjusting the block generation speed. Such innovation is the same as adjusting the diameter of a wheel. It has no innovative value but only speculative value. And, as the number of altcoins grows, the more their value is diluted, and people will likely end up only identifying with the first digital currency, the revolutionary Bitcoin.

With the rapid development of computer and network communication technology, the application of Internet technology has gradually penetrated into various fields of human activities. Finance, one of the oldest and most innovative industries, is also undergoing dramatic changes. The emergence of bitcoins will lead the change directly to the foundation and core of finance - currency. Bitcoin does not have the "non-central" nature of the central bank, and is fundamentally different from the "fiat currency" system under the traditional central bank. Optimists believe that this can eliminate inflation, and problems such as changes in currency issuance and exchange rate fluctuations that depend on traditional currencies can be alleviated or even eliminated.

It is undeniable that compared with the traditional physical currency that has been in operation for thousands of years, the volume of virtual currency is still too small, far from being able to significantly influence or even replace traditional currency. But the development of the Internet is an irresistible trend, and "virtualization" is its important feature. Traditional currencies have been virtualized from "physical objects" to "general equivalents", and the emergence of Bitcoin seems to herald the gradual arrival of another virtualization of currency.