Cold thinking on the currency circle under the craze of the central bank's digital currency

Text | Edited by Derek | Produced by Bi Tongtong | PANews

"What is the relationship between the central bank's digital currency DCEP and the currency circle? Why is the currency circle so excited? Is it because you want to speculate in RMB?"

"People in the currency circle are excited, thinking that their industry involves DCEP, which will bring business opportunities, but they don't know what it has to do with digital currency, and they think they will rush to the exchange."

In the past two days, with the internal testing of the legal digital currency DCEP wallet of the Agricultural Bank of China and the Bank of China, the market has attracted widespread attention. The community in the currency circle is even more lively, sharing internal test pictures and downloading QR codes everywhere, until the download link quickly expires.

What is the relationship between the central bank's digital currency and the currency circle?

The 1:1 anchoring of renminbi has no room for speculation, it is impossible to directly exchange for BTC, and it is not based on the bottom layer of the blockchain...but it may be beneficial to some criminals who commit virtual currency fraud in the name of DCEP.

However, it also draws on some blockchain technologies in technology, for example, using smart contracts to realize the directional circulation of funds, and using asymmetric encryption to authenticate identities.

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tragedy of the commons

There is a famous "tragedy of the commons" theory in economics, which refers to the fact that limited resources are destined to be over-exploited due to free use and unrestricted demands. Since each individual seeks to expand the resources he can use, the limited resources will eventually lead to conflicts and harm the interests of all.

There is a story about herdsmen and pastures. When the pastures are fully open to herdsmen, every herdsman wants to raise one more cow, because the increase in income from raising one more cow is greater than the cost of its purchase, and it is profitable. Even though the average amount of grass falls, adding one more cow may reduce the unit yield of cattle on the entire pasture. But for a single herdsman, it is beneficial for him to add a cow. But if all the herdsmen see this and add a cow, the grassland will be overgrazed, which cannot meet the needs of the cattle, and all the herdsmen's cattle will starve to death. This story is the tragedy of the commons.

Sort out the short stories above.

From the perspective of pasture, everyone in the village can graze cattle on a public pasture. The number of cattle that can be supported by a fixed area is limited. Uncontrolled grazing will lead to a reduction in the number of cattle that the pasture can sustain.

From the point of view of herdsmen, the behavior of cattle grazing that can earn profits drives people to herd cattle on the public land, and each additional cattle will bring more income. Farmers see other people’s methods of increasing income, and increase the number of cattle one after another. Barren, the number of cattle that can be carried is getting smaller and smaller, and the income has dropped instead.

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The Exchange Commons Dilemma

In smooth or down market cycles, exchanges also have their worries. On the one hand, the sluggish trading sentiment in the market and the absence of the enrichment effect in the spot market have led to a decline in the exchange's revenue.

In addition, the competition among exchanges is also relatively fierce. Existing users, product competitiveness and innovation are all points of contention for multiple parties. In the absence of incremental users and funds, exchanges are targeting existing users and Funds, various futures leverages are launched to promote users' transactions, and at the same time, it also brings more fee income to the exchange. This has led to the emergence of financial derivatives on the market: highly leveraged futures, options, ETF leveraged tokens, etc.

But leverage brings not only magnified benefits, but also multiplied risks. In the case of limited user stock and insufficient user education, blindly launching various derivatives will accelerate the "blood loss" and loss of users. Leverage played a certain role in fueling the currency disaster in March.

Survivor bias is particularly prominent in the futures market. The "so-and-so god" and "so-and-so brother" who emerged in every wave of market may have survived only by chance. However, the vigorous publicity of "survivors" often makes people ignore the 28th principle in the market, 80% of which are losers.

In order to compete for existing users, exchanges often start vicious competitions, such as black public relations, black drafts, and mutual scolding in groups.

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The ever-compressing profit margins of miners

Miners are about to face the halving of Bitcoin block rewards, but the computing power has continued to increase in recent years. With the price of Bitcoin falling below $7,000, more and more miners will face the price of shutting down their mines.

Converting the "tragedy of the commons" to the miner group, regarding the Bitcoin block reward as a ranch, Bitcoin miners as herdsmen, and mining machines as the herdsmen's cattle, it is found that the stories of the mining industry and the herdsmen and the ranch are completely consistent.

Mining machine mining can obtain bitcoin rewards. When the mining reward is greater than the cost, the miner group increases the mining machine configuration to increase the mining income. When all the miners see this phenomenon, they increase their investment in an attempt to obtain more benefits. However, every The daily bitcoin output is fixed, and as bitcoin miners invest in mining machines one after another, the bitcoin income generated has not increased significantly. When the price of Bitcoin cannot reappear in a long-term bull market phenomenon, the revenue of the mining industry is also gradually shrinking. This will be the "tragedy of the commons" that all miners must face.

In the miners' arms race where the tragedy of the commons may occur, the other path chosen by the "miners" is to expand the cake in the form of hard forks, just like herdsmen choose to open up another piece of pasture. But as we can see, among all the forked coins of Bitcoin, the surviving forked coins also face the crisis of 51% computing power attack, unclear technical route, and insufficient funds to support developers to continue their development plans.

Since the birth of Bitcoin, block rewards have been halved every four years. Why has the "tragedy of the commons" in the mining industry in the encrypted digital industry not been highlighted in the past 10 years?

In fact, according to an article published by PANews titled "Why the Mining Pool Business Becomes the "Sweet Pastry" of the Exchange", in the past time, 17 mining pools have been forced to close due to insufficient profitability .

On the other hand, the price of Bitcoin has achieved an unprecedented breakthrough in the past 10 years. While Bitcoin miners and computing power have continued to increase, it has been accompanied by the explosive growth of Bitcoin price and blockchain industry consensus. However, when the price of Bitcoin flattens, the Bitcoin mining industry becomes a limited resource, and the prerequisites for the "tragedy of the commons" are formed.

Under the premise that the price has not achieved a breakthrough in the past two years, the computing power of Bitcoin is still increasing. If it is still profitable for miners to increase mining machines, the arms race will continue to be staged, and the input-output ratio of miners will become lower and lower.

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The thousand chain competition is over

According to PANews statistics, among the top 30 blockchain projects by market capitalization, public blockchain projects account for as much as 30%. The public chain technology is supposed to serve applications, just like the highway infrastructure. Now it consumes a lot of manpower and material resources to build the infrastructure, but there are no cars to run.

Since the launch of Ethereum, there have been an endless stream of public chains called applications. When people waited with great anticipation for the mainnet launch, they found that the public chain for applications was full of gambling. How to "get out of the circle" is a big problem faced by public chains.

The time for the Thousand Chains competition is over, and the early dividends are gradually disappearing. At present, various technology giants are laying out the blockchain industry and are actively making blockchain technology reserves. In the various blockchain industry applications that have already landed, such as invoices, medical , traceability, DCEP, the traditional public chain seems to be excluded. The technical advantages of the public chain team have also been continuously narrowed or even surpassed.

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How to break out of the “commons” status quo

exchange

exchange

For exchanges, more energy should not be placed on competing with peers for stock users. As a blockchain industry giant, it should actively promote the innovation of blockchain and digital currency, so that more and more people can know and understand Blockchain and digital currency.

At the same time, exchanges establish industry rules and agreements to eliminate malicious "capital harvesting" routines, disclose vicious events and standardize punishment measures. In addition, the popularization and promotion of financial derivatives should not be exaggerated, user education should be strengthened, users' awareness of risk control should be cultivated, and the use of futures leverage should not be advocated.

In the solution to the tragedy of the commons, regulation is a good option. Major exchanges should actively embrace regulation, promote regulatory policies for cryptocurrencies, and access more funds from traditional investment institutions under compliance and legal supervision. , expand industry scale and compliance. While forming a virtuous circle, get rid of the outside world's concept of "chaos" in the encrypted digital currency industry, and attract more investors to enter.

mining

so

so"mine bully"The hard fork led by them may not be entirely due to the divergence of technical routes, it may also be"mine bully"self-help from the tragedy of the commons.

public chain

public chain

The blockchain development team should focus on the application, pass the concept verification of the blockchain, and prove the feasibility of the blockchain application before proceeding with the technical investment and development of the underlying public chain. The core competitiveness of the public chain is technological innovation And practicality, the fundamental thing is to further improve technical capabilities. In addition, by strengthening external cooperation BD, ecological construction, and starting from application scenarios to develop technology. Call for the establishment of talent alliances, strengthen technical education, and strengthen university cooperation and talent acquisition.

The blockchain and encrypted digital currency industry is still in the stage of constant exploration and collision. However, "sustainable development" must also be "sustainable" on the road of trial and error. We can't wait for the dawn to fall collectively in a pool of dark blood.