"Economy is the expression of technology." When a new technology appears, it will often impact and reconstruct the existing economy. The blockchain is even more special. It has spawned a new asset class. How to understand the blockchain and the new asset classes it brings? Dr. Xiao Feng, Chairman and General Manager of Wanxiang Blockchain, shared his thoughts at the 9th Yinhua Fund Asset Management Forum. As a pioneer in the blockchain field and Dr. Feng Xiao, who has more than 20 years of experience in asset management, what foresight? Please see below.
Distinguished guests, good morning everyone! Today’s forum is an asset management forum. Obviously, blockchain technology must be paired with asset management.
Since 2020, mainstream Wall Street financial institutions and mainstream investment funds have begun to flood the field of encrypted digital assets. World-renowned financial companies such as Fidelity Fund, Oaktree Capital, and Black Rock have all begun to enter the field of encrypted digital assets.
This reminds me of what Kevin Kelly said in "Inevitability": "It will take about ten years after a technology comes out today to establish a social consensus on its meaning and use." 2020 happens to be Bitcoin The 10th anniversary of the creation of the blockchain, so I think it is the right time to talk about this topic on the asset management forum.
My sharing today mainly consists of two parts: one is blockchain technology, and the other is how to understand the new asset classes brought by blockchain technology.
One
Blockchain technology
I introduce blockchain technology from the perspective of the asset management industry, which will be more closely related to our industry.
1. The economic characteristics of blockchain
The economic characteristics of blockchain can be summarized as three: decentralized, distributed, and self-organized.
(1) Decentralization
"Decentralization" is worthy of in-depth and extensive discussion. It is also the core content of blockchain that has always been controversial. The inventor of the World Wide Web at that time said when he returned to the world three years ago, he said that the current Internet is too centralized, which violates his original intention when he created the World Wide Web. Therefore, he wants to re-emerge and transform the Internet, which will be too centralized. The network is transformed into a decentralized network.
From the second half of last year to this year, in China, not only the regulatory authorities, but also the market order management departments are discussing this topic. The so-called Internet platform anti-monopoly, in fact, the other side is that the Internet platform is too centralized and needs to be reviewed technically. .
When the marginal cost is almost zero and the coefficient of friction for expansion is basically zero, a digital economy can truly grow to infinity if it is not decentralized, not supervised, and not subject to certain antitrust restrictions. This is an unlikely phenomenon in the industrial economy period. This is a new problem.
I very much agree with the previous speech of Mr. Qin Xiao, chairman of the former China Merchants Group: “These Internet giants need to be supervised, and how to supervise is a question that needs to be discussed carefully. In terms of Internet technology, decentralization cannot be discussed only from a social perspective. The decentralization of technology is a reflection on Internet platforms and Internet giants in the world."
Centralization and decentralization are not a life-and-death relationship. Centralization and decentralization reflect the contradictory relationship between fairness and efficiency in economics. When we need to emphasize fairness, we must be decentralized, and the entire platform, network, and system cannot be controlled by a certain organization or centralized point. When we need to pay attention to efficiency, we may need to use some centralized things to ensure efficiency. "
In terms of the simplest payment settlement, the Bitcoin blockchain originally wanted to build a payment network, but as far as the payment network is concerned, it was not successful. why? A completely decentralized, peer-to-peer, peer-to-peer network, to handle payment and clearing services that require high efficiency, is obviously not efficient in terms of efficiency.
How can we satisfy efficiency? If it is like Alipay, to satisfy 300,000 and 500,000 transactions per second, a centralized mechanism must be used, otherwise the efficiency will be greatly lost. This is not a contradiction in itself, but depends on whether we need to be more efficient or fairer?
After the Internet has become a very large and complex network, it is difficult to use a centralized mechanism to manage and coordinate it from top to bottom. Gradually decentralizing and decentralizing in a complex network world is an inevitable trend in technology. Under this understanding, the acceptance of blockchain technology will be higher.
(2) Distributed economic characteristics
The blockchain-based economy is a distributed structure, peer-to-peer, networked, and equal relationship. For all nodes, you do not decide me, I decide you, nor do you control me, I control your relationship. It is a distributed architecture.
The Internet has developed more and more complex, and only distributed technology can be used to manage such a large network. After the economy becomes more complex, distributed will also be more efficient in decision-making.
The characteristic of a distributed economy is a peer-to-peer network where things are done on the peer-to-peer network.
From the perspective of the economic organization of the blockchain, it is more self-organizing, using consensus algorithms to coordinate so many equal participants and parallel links, and using consensus algorithms to restrict everyone, instead of relying on top-down or Bottom-up organization system. Use agreements and contracts to reach an agreement to jointly govern an economy and share the interests of the economy.
(3) Self-organization
From an economic point of view, self-organization is the new "benefit". In the 1970s, there was an important economics article saying: "Enterprises should maximize the interests of shareholders." This sentence has become the core concept of corporate governance since the 1970s. We call it "shareholder capitalism."
Today, self-organization based on blockchain technology advocates "stakeholder capitalism". Here, shareholders, employees, customers, and society are all stakeholders, and all interests should be properly taken care of, not just the maximization of the interests of the shareholders.
There is a book called "Finite and Infinite Games". If you are interested, you can take a look at this book. Sports competition is a limited game. It must have an end and a set of rules. According to the rules, there must be time, deadline, winners and losers. The infinite game never ends, there are no winners and losers. All stakeholders get their own way. This game can last forever. As long as it is a limited game, one person’s interests will be maximized, he will take everything, and the rest will be weak and losers.
This is the first aspect I introduce, the economic characteristics of blockchain.
2. Technical characteristics of blockchain
The technical characteristics of the blockchain can be discussed a lot, but the core one is "the blockchain is a machine of fact and a machine of trust". Through the law of trust and mathematical algorithms, the transaction cost and trust cost in economic activities are reduced to zero.
It turns out that many economic activities or business ideals may not be commercial enough due to cost issues, or they cannot be realized on a commercial level, because it is difficult for you to establish a trust relationship on the original basis.
How does the blockchain realize a machine of fact and a machine of trust? Rely on machines, rules, computer programs, smart contracts, consensus algorithms, etc., to minimize the cost of trust and make all data on the blockchain a credible and reliable fact. The most important feature is here. Point.
How can this be achieved? A distributed database based on the blockchain is technically designed so that everyone can only add data to it, and no one has the right to delete, modify, or even roll back data from the database. This is the biggest technical feature of blockchain.
Therefore, we believe that as long as the data is natively on the blockchain, the data is true and credible, and you don't need to doubt it.
How to ensure that all data on the database cannot be tampered with, cannot be rolled back, and cannot be deleted? The method of data entry and database management in the blockchain is very different from the traditional method of data. No one person or centralized node on the blockchain can decide how to enter data into the system. If you want to enter the system, all nodes in the network must reach a consensus, and everyone will keep accounts together. If you want to modify the data, you need to master most of the network nodes and conspire with most of the network nodes. This is a very difficult task, and it is also a mechanism design that is too costly to do evil.
3. How is the application of blockchain, especially different from the application of the Internet?
(1) Blockchain is based on the distributed network of the Internet, but it goes further and forwards than the distributed network of the Internet. The blockchain structure can be divided into seven levels, and the distributed network is a peer-to-peer network.
(2) Distributed storage. In the 5G era of the Internet of Things, distributed storage is particularly important, because there are tens of billions or hundreds of billions of machines that are generating data, and it is difficult to store data in a centralized database. Therefore, distributed storage has changed compared to a few years ago. More and more important.
(3) Distributed computing. Storage is not the ultimate goal, the collaborative computing of these technologies is the ultimate goal. Distributed computing includes Internet-based distributed computing and blockchain-based distributed computing.
(4) Distributed ledger. This is the watershed between Internet applications and blockchain applications. All Internet applications do not have a ledger system. Adding a set of distributed ledger on top of distributed networks, distributed storage, and distributed computing will have the basic characteristics of blockchain.
(5) On top of the distributed ledger is a set of community governance mechanisms based on consensus algorithms-self-organizing distributed governance mechanisms. After such a set of governance mechanism is built, you can innovate many distributed business models on it. On the distributed business model, thousands of distributed applications can emerge. These things combine the economic characteristics of the blockchain and the technical characteristics of the blockchain, and there will be many innovations from zero to one.
From distributed networks to distributed applications, from Internet applications to blockchain applications. From the Internet to the blockchain, these two are superimposed relationships, not a life-and-death relationship.
4. The general status of global blockchain technology
No matter how complex the blockchain world is, there are about five core blockchain projects, and the rest is to do other distributed commercial and distributed applications around these five core blockchain projects, or to provide certain technologies and developments. Tools or some management tools to let others do their own things better on these five platforms.
The five core projects are the Bitcoin blockchain network launched in 2009, the Ethereum blockchain network in 2015, Polkadot and Filecoin launched last year, and Dfinity, which will be launched this year. These networks focus on different directions.
The Bitcoin network is set up to issue electronic cash. Ethereum is more for others to write smart contracts on its platform. Certain protocols can create many distributed commerce and distributed applications through smart contracts. With the establishment of different blockchain systems, these blockchain systems must be interconnected, so there is Polkadot, a system that focuses on cross-chain and multi-chain technology to connect different chains together. After Polkadot comes up, it can interconnect the Bitcoin network and the Ethereum network, and interconnect other networks.
But these networks also face a problem: how to do new distributed storage and distributed computing based on blockchain. Filecoin will use blockchain technology to build a decentralized distributed storage network. Dfinity also uses blockchain technology to build a decentralized computing platform, which is very different from the current cloud computing. It is more edge computing and end computing.
Familiar with these five core blockchain systems, basically master the most basic things in the blockchain world.
In the previous part, briefly talk about what blockchain technology is all about. From the perspective of asset management practitioners or investors, I feel that mastering these points basically understands the core things of blockchain.
two
How to understand the new asset classes brought about by new technologies?
I would like to quote a sentence from Brian Arthur. Professor Arthur is a professor of economics at Stanford and the founding director of the first Santa Fe Institute. The Santa Fe Institute mainly studies how various technologies affect society and the economy in the information age. He wrote a book called "Complex Economics". In the era of complex networks, information technology has made society more and more complex. How do you view the impact and reconstruction of technology on the economy?
Another book by Arthur is called "The Essence of Technology", in which he puts forward the conclusion that economy is an expression of technology, and the combination of many technologies creates something called economy. Behind the economy are technological changes, which have brought changes in economic paradigms, economic models, economic organizations, economic activities, and commercial products. "
Mr. Bai Chunli, the former dean of the Chinese Academy of Sciences, talked about the current global frontier science and technology development in the science report of the CPPCC National Committee. He mainly talked about four aspects of technological development:
information Technology. Quantum technology has brought about the rapid development of information technology, bringing many impacts and innovations.
The energy revolution. The world is facing the third energy revolution.
biomedicine. Biological technology is currently advancing by leaps and bounds and undergoing reconstruction.
Aerospace aerospace.
The breakthroughs of these four technologies in this decade or the next decade have actually affected our investment and the innovation of asset classes. If you do not understand the background of technological development, you cannot understand the new asset classes brought about by technology, including Bitcoin.
Take Tesla as an example. Many people do not understand Tesla, but it has repeatedly set new heights in people's doubts. The market value of this auto company exceeds the sum of the market value of many old auto companies over a century. Why does this happen? On this issue, all indicators of PE, PS, and PB are invalid. We can never understand Tesla's performance as an investable asset through these indicators.
The same is true for Bitcoin. It is a new asset class brought about by the iteration of information technology, a new investable product and investment tool, and it is difficult to understand it through traditional thinking. Tesla is a new species, new assets, new investable products and new investment tools spawned by the global energy revolution in the context of the energy revolution.
NVIDIA founder and CEO Huang Renxun believes that in the future, automakers should sell cars at cost prices and make money by providing software services. He roughly estimated that if an automobile factory sells 10 million cars at cost prices and earns five thousand dollars in software service revenue from the cars, the annual revenue will reach 50 billion dollars. This profit model is completely different from the profit model of traditional automobile companies, and it cannot be understood by traditional thinking.
The same is true for Bitcoin, which is a new digital asset class spawned by technological breakthroughs from Information Technology 1.0 to Information Technology 2.0. The rationale and background behind these new species are actually very similar.
In the past ten years, whether in Wall Street or China’s A-share market, the stocks of companies based on information technology and new energy technologies have risen the most, such as Ali, Tencent, Tesla, Weilai, etc., as well as new biotechnology breakthroughs. The rise of bio stocks and so on. Not paying attention to and understanding these companies may lose their future.
The British "Economist" magazine published an article a few days ago, entitled "Is Bitcoin a Better Gold?" ". I think Bitcoin is a new species and cannot be simply compared to gold, but comparing it to gold can help us better understand the new species of encrypted digital assets.
Bitcoin and gold have similar characteristics, both have relatively high production costs, and both have limited supply. Gold is really going to be dug in mines, and the yield rate of gold can reach a few percent is very good. Bitcoin uses a set of mathematical algorithms to generate several Bitcoins every ten minutes. In addition, gold is recognized globally as a kind of quasi-currency, or a type of asset with monetary characteristics. It can be recognized by everyone without the endorsement of the sovereignty of any country. Other currencies such as the U.S. dollar and the renminbi require the endorsement of a powerful sovereign country to be recognized by people. Gold and Bitcoin don't need it.
Someone asked where does the value of Bitcoin come from? Is there cash flow? Is it profitable to buy it? No. Like gold, its value comes from global consensus. When central banks compete to issue currencies, there are always some foresighters in the world looking for assets that will not be affected by the irresponsible behavior of central banks. Therefore, the market for gold and Bitcoin is very good.
The Bank of Japan is now the largest investor in the Japanese stock market. It holds more than US$600 billion in Japanese stock ETFs. This means that the central bank’s balance sheet not only issues currency through government bonds, but also issues currency directly to companies through stocks. In 2008, under the pressure of Europe, a similar approach was adopted. The Fed did the same during the epidemic, so there are many assets on the Fed's balance sheet that could not have appeared on the central bank's balance sheet before.
In the end, neither gold nor Bitcoin has interest or cash flow. But compared to gold, Bitcoin has more obvious advantages. It is digital and easy to carry and keep.
Although the value of encrypted digital assets represented by Bitcoin fluctuates greatly, its market value has been rising. So we should study and analyze it seriously, especially when its market value reaches one trillion US dollars in 2021.