On the Value and Opportunity of Blockchain from the Differences among Virtual Currency, Electronic Currency and Bitcoin
Bitcoin is a digital currency in the form of P2P. Bitcoin has no currency issuer, but is generated by a specific algorithm through a large number of calculations, and the security of its transactions is guaranteed through blockchain.
It should be noted that although the currency value of Bitcoin cannot be manipulated artificially by mass production, it can be manipulated artificially by injecting funds into the trading market.
The design based on cryptography can make bitcoin only be transferred or paid by the real owner, which also ensures the anonymity of currency ownership and circulation transactions.
In this paper, we will discuss the differences between digital currency and other virtual currencies, cash and electronic currencies.
I. Bitcoin and Virtual Currency
Virtual currency refers to unreal currency. Well-known virtual currencies such as Baidu’s Baidu coin, Tencent’s Q coin, Shanda’s counting coupons, and micro-coins launched by Sina. The following is an analysis with Q coins as the representative.
Q coin is a kind of virtual currency introduced by Tencent. It has an issuer and its price is very stable, so it will not fluctuate due to market interference. Q coins can be used to open business and buy virtual goods in Tencent’s applications, and cannot be cashed out.
Bitcoin is not issued by a specific monetary institution, but is generated by a large number of calculations according to a specific algorithm. The biggest difference between bitcoin and virtual currency is that its total quantity is limited and it is extremely scarce.
Specific differences:
1. Different prices
Although both have prices, because Q coins are virtual products issued by Tencent, its pricing power belongs to Tencent completely and is not affected by any institution or enterprise.
Bitcoin is a decentralized product, and there is no central issuer, so its price is completely determined by the market, which also causes it to be hundreds of dollars when it is low and even tens of thousands of dollars when it is high.
Bitcoin has the nature of investment and can earn income through the rise and fall of prices; Q coins can’t.
2. Different distribution mechanisms
Q coins are distributed centrally, and the decision is made by Tencent. How much you want to issue, how much you want to issue, and what products you can buy are all decided by Tencent.
Whether Bitcoin can buy goods and other uses is up to the user. When the number of people who accept the concept of bitcoin reaches a certain number, businesses will consider accepting bitcoin payment, especially Internet websites and service providers.
For example, Reddit, a social news and entertainment website focusing on user-generated content, began to accept users to buy Reddit’s gold medal service using bitcoin in February 2013; Ok Cupid, a free social networking site, began accepting users to use bitcoin to purchase its services in April 2013.
Bitfash, a bitcoin fashion store launched in April 2013, became the first fashion website in the world to support bitcoin payment. Users can directly purchase products from Zara (Spanish clothing brand), Forever21 (American clothing brand) and Mr Porter (famous American online men’s boutique), and other fashion brands have joined in succession.
3. Different management
Under the distribution mechanism, all the distribution data, usage data and related information of Q coins are completely in the hands of Tencent. Theoretically, all data storage can only be viewed and analyzed by Tencent, and no one else has the right to completely centralize storage, which has the risk of data leakage.
Bitcoin is a self-managed mechanism in which data such as transactions and transactions are completely stored in the blockchain. Players can view the data through the blockchain browser, etc. The data storage does not depend on any server or person.
Second, Bitcoin and electronic money
Electronic money refers to the exchange of a certain amount of cash or deposit from the issuer and the acquisition of data representing the same amount, which is directly transferred to the payment object by using some electronic methods, so as to make consumption or debt repayment.
The essence of electronic money is conceptual money information, which is actually special information composed of a group of data containing the user’s identity, password, amount, scope of use and so on.
When people use electronic money to trade, it is actually a kind of related information exchange.
After the information is transmitted to the merchants who set up this business, both parties to the transaction settle accounts. This way is more convenient and faster than cash transactions in real life.
Bitcoin is a kind of electronic money, which is artificially designed, and does not need to be issued by the central bank or a third-party institution in the real society, nor does it need to be cleared by a specific network.
The number of bitcoin is growing steadily and the total amount is limited. No institution can control the issuance of this currency, so there is no worry that spamming will lead to inflation. With the increasing difficulty of acquisition, the value of bitcoin has soared.
Third, Bitcoin and Traditional Currency
Electronic money and cash belong to traditional money, and money refers to the goods separated from commodities and fixed as universal equivalent.
Bitcoin belongs to the encrypted digital currency, which is an equity accounting unit.
Bitcoin is fundamentally different from traditional currencies. The following will introduce the differences between Bitcoin and traditional currencies by taking the US dollar as an example.
1. Bitcoin uses P2P technology and is not under the jurisdiction of the central authority.
Bitcoin is a decentralized currency, which is implemented by end-to-end (P2P) technology, and there is no centralized jurisdiction.
All matters related to Bitcoin, including issuance, transaction processing and verification, are conducted through the Internet, and there is no need for specialized agencies to monitor the entire capital flow process.
In contrast, traditional currencies are issued by central banks. For example, in the United States, the Federal Reserve is responsible for issuing US dollars, at the same time, it is also responsible for implementing the national monetary policy, supervising the banking industry in the United States, maintaining the stability of the financial system, and providing corresponding financial services to deposit institutions.
2. Bitcoin mainly exists in digital form.
Although companies such as Casascius and Bit Bills have physical bitcoin, the original intention of bitcoin design is a kind of digital currency.
At present, the physical form of bitcoin is still a novel product, but for most bitcoin advocates, the physical form of bitcoin has violated the original design intention.
On the contrary, traditional money mainly exists in physical form, and the funds in bank accounts or online broker accounts can be converted into physical dollars.
3. Bitcoin has a distribution limit of 21 million pieces.
The mining program of Bitcoin can produce 25 bitcoins every 10 minutes, and the output will be reduced by half every 4 years, so the number of bitcoins in circulation will reach the issuance limit in 2140.
Although some critics think that the upper limit of bitcoin issuance is not large, supporters believe that the value of a bitcoin can reach 8 decimal places (the smaller unit of bitcoin is satoshis, and 1 bitcoin = 10,000,000 satoshis).
That is, the maximum number of bitcoins can reach 2.1×1015 satoshis, which is enough to meet various needs in the future; Traditional currency issuance has no upper limit.
4. The acceptance of Bitcoin is limited.
At present, there are not many places that can accept Bitcoin, and it cannot be widely used in physical stores. Of course, with its popularity, this may change in the future.
In contrast, the US dollar, as a global reserve currency, can circulate almost all over the world.
5. Bitcoin trading has its limitations.
The transaction needs to wait about 10 minutes or more to confirm, the transaction is almost irreversible, and the refund can only be made by the recipient of Bitcoin. With the consent of the recipient, the initiator of the transaction can also choose to cancel the transaction.
Traditional currency does not have this problem, even debit and credit card transactions can be confirmed in a few seconds.
6. There is no corresponding safeguard for bitcoin balance.
If you accidentally lose bitcoin, for example, the computer hard disk crashes or hackers attack the user’s bitcoin wallet and steal the bitcoin from it, or the trading center that stores the bitcoin balance closes down, then the user’s balance will be zero.
However, the monetary balance of existing banks can be protected from bank failures, because they enjoy the insurance of the Federal Deposit Insurance Corporation of the United States. Of course, if the government collapses, that’s another matter.
Fourth, Bitcoin ≠ blockchain
Blockchain is the underlying technology of Bitcoin. Although many people know about blockchain through Bitcoin, it is ok to say that Bitcoin has achieved blockchain, but Bitcoin cannot be equated with blockchain.
The official explanation is that blockchain refers to a new application mode that integrates computer technologies such as distributed data storage, point-to-point transmission, consensus mechanism and encryption algorithm.
In a relatively straightforward way, the essence of blockchain is actually a distributed account book, or it is a way for all people to participate in financial recording.
Human life can not be separated from bookkeeping, Alipay or WeChat, and bookkeeping is also carried out in their own systems, and bookkeeping is the central bank.
Bitcoin is the result of the bookkeeping process in the blockchain system. People often say that mining is actually the bookkeeping process.
The operation of Bitcoin adopts the mechanism of "workload proof". When any data in the system changes, the system will judge a computer with the fastest and best bookkeeping, and write its recorded contents into the account book, and the corresponding computer will also receive a corresponding number of bitcoin rewards.
Blockchain has a huge technical advantage. It can create and give birth to the first unrepeatable item in human history that is realized solely by technical means and has natural trust.
At present, almost everything we see in nature can be copied, even living things, such as cloning technology.
None of these items can guarantee its uniqueness and authenticity, so it is necessary for third-party institutions to provide credit for the items and prevent counterfeiting.
The U.S. government provides credit for the U.S. dollar, and the state relies on state institutions to ensure the validity of the U.S. dollar, and whoever makes fraud will be punished.
But this kind of credit also consumes huge social costs. For example, the United States has a population of less than 400 million, but it needs tens of millions of public servants to maintain the operation of the government and provide national credit.
The account books in the blockchain record the so-called "coins", which use technology to realize the characteristics of non-copying and non-modification, so they naturally have credit and can be used to represent various assets and values.
No matter where we are, alive or dead, the digital assets represented by the blockchain always exist.
If your assets were in Mr. Accountant’s account book, in case the account book was burned, the assets would be gone; If your assets were in the bank during the Republic of China, and the Republic of China perished, your assets would also be gone.
But if your asset is bitcoin, unless all the bitcoin nodes are eliminated, as long as there is still one person in the world, then the whole system can be restored. This is also the reason why some people joked that only alien invasion can eliminate bitcoin.
Since the Internet era, we have realized the interconnection of information; The popularization of mobile communication technology has realized the interconnection between people; Now, with the development of 5G technology and Internet of Things technology, we are about to realize the Internet of Everything.
What do we need to do next after information, people and things are interconnected? That is the interconnection and exchange of values.
The foundation of value connection is trust, and people are eager to establish trust through some technology and mechanism to establish a low-cost operation channel for the flow of value.
The blockchain just provides a solution that can meet the conditions. It can provide a safe and tamper-proof storage and recording method for data and transactions, and solve the trust problem from the mechanism level. From the perspective of economics, the establishment of trust mechanism can promote economic development.
Therefore, I hope that more friends will not focus on "speculating money", nor will they use traditional thinking methods to understand and learn the blockchain. They should learn more about the changes it can bring to social cooperation, and then look for opportunities to change their personal destiny from these changes.
I hope that each of us can grasp the real opportunities emerging in this technological feast and measure this era at our own pace.