Bitcoin: Money Revolution or speculative bubble?The future of bitcoin(IV)

IV. the future of bitcoin: restrict the development of private cryptocurrency, and accelerate the research and development of digital currency of the central bank

1. Bitcoin risks: inherent risks arising from its own operation mechanism

There are many potential risks behind the myth of bitcoin making. The design mechanism of bitcoin makes it different from other currencies, and there are many special problems. ——Market risk, market superficiality, storage transaction risk, operation risk, privacy related risk, and legal and regulatory risk.


Market risk: first of all, no matter bitcoin is used as an asset investment or as a trading medium, any bitcoin holder will face the market risk brought by the price fluctuation of bitcoin. Bitcoin without issuing entity is almost uncontrolled and easily affected by external factors. The lack of value basis makes it very difficult to determine the intrinsic value of bitcoin. Such uncertainty may bring loss to investors. Unstable currency value may reduce the motivation of investors to hold bitcoin, and make it difficult for merchants to use bitcoin to price, which hinders the further expansion of the circulation range of bitcoin._DJMINER


Storage risk: the bitcoin that the holder digs and purchases must be stored in various electronic wallets. The safety factor of the E-wallet on the online platform is often insufficient, and it is easy to be attacked by hackers and lead to bitcoin being stolen. While the offline wallet may be lost or damaged. If the computer is damaged without backup, bitcoin may also be lost permanently.


Transaction risk: irreversibility of bitcoin payment also increases transaction risk. If bitcoin is sent due to error or fraud, there is no built-in mechanism in bitcoin system to solve this problem. Although the buyer and the seller can voluntarily agree to correct the mistakes, there is no mechanism for bitcoin protocol to forcibly withdraw funds. Irreversibility puts bitcoin at a disadvantage in the competition of transaction mode: under the same conditions, consumers should tend to use a payment system that can avoid wrong payment.


Privacy related risks: bitcoin also brings potential risks to investors' privacy. Bitcoin transaction is actually a non real name system. The transaction information of each account is completely open, but the real holder of the account is unknown. However, the use of bitcoin for commodity purchase and online payment often requires mailing address and real name. In principle, the identity of bitcoin users can be obtained from these sources, which brings the risk of privacy disclosure to users.


Policy risk: finally, bitcoin system faces different laws and regulations in different countries. Every country's legislation on bitcoin income tax and bitcoin asset protection is relatively weak, and the legitimate rights and interests of investors may be difficult to obtain effective protection. At present, in China, bitcoin regulation has the following shortcomings: 1) the legal definition of bitcoin is vague. At present, the connotation and extension of "virtual currency" in China are not clearly defined or explained. It is a fuzzy concept itself. There are loopholes and gaps in legal supervision. In specific cases or practices, the law cannot play a guiding role. 2) it is difficult to recognize the value of bitcoin. The sharp fluctuation of bitcoin price leads to inaccurate judgment of bitcoin value. When the interests of bitcoin traders are damaged, it is difficult to properly deal with it. It is possible that some crimes that are convicted and sentenced due to bitcoin value will fluctuate, which will damage the legal authority and affect the subsequent judicial relief. 3) the jurisdiction is unclear and the applicable law has no choice. In the case of bitcoin infringement, a series of legal disputes, such as the country of jurisdiction, the court of jurisdiction, and the place of infringement, have become a major focus in the judicial field. When bitcoin cross-border crimes, how to determine the judicial power is the lack of unified national treaties or rules between countries, which increases the difficulty of solving international cases._DJMINER

2. Supervision of Chinese special currency

With the rise of bitcoin in the world, Chinese investors began to flow into the bitcoin market, becoming an important force in bitcoin trading. In June 2011, bitcoin China trading platform was launched, mainly as a service provider for bitcoin trading, and bitcoin in China began to be concerned. In May 2013, CCTV's "half an hour of economy" objectively introduced bitcoin to Chinese audiences for the first time. This is the first time that the official media of the Chinese government introduced bitcoin, which is considered as a positive signal. The transaction volume of bitcoin in the Chinese market has leapt to the first in the world. However, with the rapid development of bitcoin, there are many counterfeit currency transactions and illegal ICO financing projects in China. In order to ensure the capital security of Chinese investors and maintain the stability of financial market, our government has gradually tightened the supervision over the special currency trading activities.


In December 2013, the central bank and other five ministries and commissions issued the notice on prevention of bitcoin risk, believing that bitcoin is a virtual commodity, requiring financial institutions and Payment institutions not to use bitcoin as a product or pricing unit, not to directly engage in bitcoin trading services, and not to provide clearing, settlement and other services for bitcoin trading. In order to prevent bitcoin's risk from expanding to the financial industry, a fence is set up between bitcoin and the financial industry. Banks are also quick to respond to regulatory requirements, banning services for bit. After the notice was issued, the market shook violently, and the price of bitcoin fell sharply. In the following year, the price of bitcoin dropped by 70% from the peak of 8000 yuan, once below 2000 yuan.


In March 2014, the central bank issued the notice on further strengthening bitcoin risk prevention, which prohibits domestic banks and third-party payment institutions from providing services such as account opening, recharging, payment and withdrawal of bitcoin trading platform.


Stop illegal ICO activities and clear relevant exchanges. As of the first half of 2017, China's ICO market has begun to take shape, with a fundraising amount of 2.6 billion yuan. But at the same time, the lack of government regulation of ICO activities has spawned a large number of ICO projects which are mixed with good and bad. There are hidden dangers such as lack of clear norms, lack of proper management of investors, irrational behavior of investors, market bubbles and illegal criminals taking the opportunity to defraud money laundering. In September 2017, the central bank, together with seven ministries and commissions, issued the announcement on preventing the risk of token issuance and financing, requiring all kinds of ICOS to stop immediately and relevant trading platforms to stop operating. So far, bitcoin has been restricted in China.


On January 12, 2018, China Internet Finance Association issued "risk tips on preventing disguised ICO activities", pointing out that a mode named "issuing virtual digital assets with mining machines as the core" (IMO) is worth vigilance and has potential risks.


On March 28, 2018, fan Yifei, deputy governor of the people's Bank of China, said at the 2018 national monetary gold and silver work teleconference that in 2018, internal management and external supervision will be strengthened strictly, and various types of virtual currencies will be rectified and cleaned up._DJMINER

3. Central bank's digital currency: China is at the forefront of the world

The credit currency of the central bank is supported by the national credit endorsement and has the legal compulsory circulation ability. The cryptocurrencies such as bitcoin are based on the principle of cryptography. Because of the lack of credit endorsement and issuing subject, the currency value is easily affected by the changes of external policies and speculation, and the acceptance range is relatively limited. With the rise of bitcoin and blockchain technology, central bank digital currency has become a key research area in various countries. Central banks in the UK, Canada and other countries have expressed that they will be involved in this field, but no central bank has put forward practical application. Sheng Songcheng (2016) believes that the technological innovation of digital currency can not replace the central bank's currency issuance and monetary policy, and is expected to play an important role in reducing the issuance cost, ensuring capital security and improving transaction efficiency._DJMINER


China started earlier and developed faster in the research and development of legal digital currency. In 2014, the Central Bank of China established a special research group to demonstrate the feasibility of issuing legal digital currency by the central bank; in September 2016, the preparatory group of bill trading platform and the preparatory group of digital currency Research Institute established the preparatory group of digital bill trading platform to start the closed development of digital bill trading platform. On January 25, 2017, the experimental production system of the digital bill trading platform was successfully put into trial operation, successfully completed the digital bill issuing, acceptance, discount and rediscount business based on the blockchain technology, and achieved a breakthrough in the digital bill business, which is a milestone for the application of blockchain technology in the financial field.


There are two modes of operation framework of legal digital currency: one is that the central bank issues digital currency directly to the public; the other is to follow the traditional "central bank commercial bank" dual mode. Fan Yifei, deputy governor of the people's Bank of China, wrote that the second model (double-layer delivery system) is more in line with China's national conditions. This mode still adopts the current paper currency issuance and circulation mode. The central bank issues the digital currency to the commercial bank business library. The commercial bank is entrusted by the central bank to provide the public with services such as access to the legal digital currency, and together with the central bank to maintain the normal operation of the legal digital currency issuance and circulation system. The advantages of the dual model of "central bank commercial bank" lie in that it is guaranteed by the credit of the central bank and has unlimited legal compensation; it is conducive to fully mobilizing market resources to promote innovation, competition and optimization; it is conducive to dispersing and defusing risks; and it can avoid the "squeeze effect" of the direct issuance of digital currency by the central bank affecting the investment and loan ability of commercial banks.


Bitcoin and other virtual currencies have been included in their own regulatory system. While recognizing the risks of virtual currencies, we cannot deny the innovation and development potential of blockchain technology. The research and development of the central bank's digital currency conforms to the needs of the development of the times, but it must be guaranteed by the national credit and adhere to the principle of centralized management, so as to maintain the national currency sovereignty while providing efficient services._DJMINER