Recently Bitcoin has risen and fallen wildly, and a great deal of discussion has sprung up as well. Of course there are those who strongly support it and those who predict its doom; in any case, this peculiar electronic currency has officially entered public view.
In fact, I heard about this thing a few years ago, and at the time I also thought about joining the ranks of the “miners.” Unfortunately I was still too wary of trouble to pursue it in depth. More crucially, my insights in media philosophy were not yet mature enough then, so I failed to seize the opportunity.
And these past few days, gritting my teeth and stamping my foot, I rushed in at a time when the exchange rate had fallen sharply, carrying a few thousand yuan and buying a few coins. Aside from leaving a little change for some short-term trading, the rest I have all deposited in my own Bitcoin wallet for the long haul.
So clearly, I belong to the camp that is bullish on Bitcoin.
In fact, the people online who are now touting the advantages of Bitcoin may not necessarily be truly bullish on it either; perhaps they merely hope it will rise another round so they can unload it. Conversely, perhaps those predicting Bitcoin’s doom are hoping to buy the dip while it is falling hard. That is certainly possible too. For example, my own current attitude is: either don’t fall, or if you must fall, then fall hard; even if it drops to a few dozen yuan or even a few yuan, I will definitely buy in on a large scale~
Why am I bullish on Bitcoin? Of course I have thought about it. Whenever this comes up, I always think of the legend of Thales investing in an olive press—others mocked him, asking what use it was to study philosophy all day, and Thales lightly showed them what he could do: he predicted a bumper olive harvest the following year and invested in olive presses in advance, making a windfall. But Thales did not go on to do business; his speculation was not for making money, but merely a way of proving himself by playing at it. My present speculative behavior is probably of this sort too. It is not that I really pin my hopes on getting rich from it; in the end, it is to show whether my theory’s judgment really has practical effect~
I will not introduce here the common knowledge about what Bitcoin is. Let me just talk about my views on a few questions.
First, is Bitcoin a virtual currency?
This seemingly most certain assertion is precisely the most suspicious one. I am willing to say that Bitcoin is a kind of “network currency,” or “electronic currency”; here network is opposed to bank, and electronic is opposed to paper, referring to the difference in operator and medium. But as opposed to “real,” Bitcoin is simply one of the least virtual currencies in history. So what counts as virtual currency? For example, in a single-player game, the gold coins in the pocket of a game character—that is virtual. Sometimes we can use real money to buy some virtual currency from the game developer, but if that currency cannot be further circulated, then it can still be called virtual currency.
Such virtual currency looks rather similar to Bitcoin in terms of its medium, and this is one reason people easily mistake Bitcoin for being “virtual.” But in fact virtual currency does not necessarily lack a tangible medium—for example, the money in Monopoly or other board games, or the ghost money burned for memorial offerings and the counterfeit bills used by banknote counters for practice. Sometimes they are game pieces, sometimes cards; no matter how sturdy and crisp they are made to be, they are still virtual.
Then what if a kind of virtual game currency purchased from a game company becomes freely tradable among other players? Does virtual currency then suddenly transform into real currency? Indeed it does. The reality of money as money lies in its circulability, because money in essence is circulability itself. A currency from the Qin dynasty may be very valuable today, but it has already become an antique rather than money.
Of course, as for the essence of money, there has always been controversy—something like the confrontation between instrumentalism and realism. The former holds that money is nothing more than a medium of exchange agreed upon by the community, while the other camp thinks that money must point to some real thing in order to have value—for instance, that is how the principle of gold-backed currency works. The gold standard, initiated by the most famous mint director in British history, finally collapsed in Einstein’s era, which is indeed symbolically significant, and perhaps really bears some internal relation to the history of scientific thought. The monetary system after Einstein is relativistic: although it generally takes the U.S. dollar as its standard, that standard does not have an essentially foundational basis.
But I think that when it comes to the essence of money, both instrumentalism and realism are right. First, money as money is merely a medium of circulation; what serves as this medium is entirely a social convention and has nothing to do with the substance of the money. But second, money as money is itself not worth much; apart from its substance, money has no independent value. When we measure a currency by its circulability, we can only say that this currency is very good, very popular, very stable, and so on, but we cannot say that it is definitely “very valuable.” In fact, “valuable” is something that exists only in relation to money—“worth money.” How much is 10 dollars worth? 10 dollars is worth 10 dollars—that is a tautology. 10 dollars is worth more than 60 yuan; that too is only a relative relationship. These comparisons are not a measure of money as money either—1 yuan being worth more than 1 yen does not mean that the currency called yuan is necessarily better than the currency called yen. As money, money always has only relative value and no intrinsic value, unless some material is taken as the standard and all currencies contain that material; only then might they have intrinsic value.
Money is nothing but a medium for barter. Zhang San has chickens and wants ducks; Li Si has ducks and wants fish; Wang Wu has fish and wants chickens. If they meet in pairs, transactions will be hard to carry out, but if the three of them sit down together and hold a meeting, the trades can be concluded very easily. Thus the significance of money lies in the fact that it replaces this general assembly, so that transactions can be completed even when traders meet only in pairs. Therefore the status of money is in fact established in that secret meeting—it is the product of the entire community’s “tacit understanding.” So in this “meeting,” what sort of thing will people jointly elect as an effective medium?
In theory, everyone can issue a medium of exchange. For example, Zhang San can issue his own “chicken vouchers”; Li Si, who neither wants to eat chicken nor raise chickens, can exchange his ducks for Zhang San’s chicken vouchers, then use the vouchers to get fish from Wang Wu, and finally Wang Wu can take the chicken vouchers to Zhang San to redeem chickens. In this way the whole transaction is completed. If Zhang San enjoys sufficient authority, then his chicken vouchers may circulate.
Everyone who holds money needs to take on a double risk: whether other traders have confidence, and whether the issuer keeps faith. Even if the issuer keeps faith, if others lack confidence, the money will still rot in one’s hands. For example, Li Si, who exchanges ducks for chicken vouchers, has to run the risk that Wang Wu will not believe in the vouchers; naturally, Wang Wu, who accepts the vouchers, also has to run the risk that Zhang San will refuse to redeem them.
In short, this “chicken-backed” currency is supported by Zhang San’s prestige. And very soon, Zhang San’s chicken vouchers will become more “valuable” than chickens themselves—if you have a roast chicken, then you merely have a chicken, and its quality is rapidly declining toward spoilage; but if you have a chicken voucher, then not only can you eat roast chicken at any time, you can also buy anything else—you can buy half a roast chicken, then a set of bowls and chopsticks, a packet of seasonings, and a few side dishes. You obviously feel that such a rich set meal is more valuable than a single roast chicken. Therefore the chicken voucher will inevitably become more attractive than the chicken itself; this is perfectly natural.
Then besides Zhang San, other people may also be selling chickens. Even if the chicken vouchers themselves do not rise in value, they may still set different exchange rates for the vouchers. For example, if Ma Liu’s cost of raising chickens is lower than Zhang San’s, then he may well attract business by offering two chickens for one chicken voucher.
Over time, the relationship between the chicken vouchers and chickens also becomes just like the relationship between the chicken vouchers and ducks, fish, and any other commodity: all of them are in a fluctuating relative state.
Going further, if everyone stops going to Zhang San to redeem chickens, then what has Zhang San become? We find that Zhang San has become a money printer: he can use the chicken vouchers he issues to buy ducks, fish, and all sorts of other things, while people merely go to Ma Liu and the others to redeem chickens. Zhang San may not even need to raise chickens at all. If there are still people who come to Zhang San for redemption, then Zhang San can simply take the chicken vouchers to Ma Liu, exchange them for two chickens, fulfill the redemption promise, and even make a net profit of one chicken himself.
So what further relationship do the chicken vouchers need to have with Zhang San and his chickens? In fact, just as Zhang San can stop raising chickens, Zhang San the person can also cease to exist, so long as the chicken vouchers continue to circulate. Thus Zhang San, the chicken farm owner, can be completely replaced by a specialized money-printing factory. This factory may still be a private individual or company, but it could also be a public institution established through collective deliberation. It does not have to exchange chicken vouchers for ducks and fish, but can instead exchange them for supplies to build bridges, pave roads, and carry out public works. Would that not be better than the situation where Zhang San alone monopolizes all power?
But if the issuer of the chicken vouchers no longer takes responsibility for redeeming chickens, then how is the value of the money guaranteed? In Zhang San’s era, no matter how much the chicken vouchers depreciated, everyone could still firmly believe that one voucher was worth at least one chicken, right? But now, wouldn’t there be no bottom line? Yet in fact the old chicken vouchers under Zhang San likewise had no bottom line—the idea that they were worth at least one chicken was only based on the premise that Zhang San always kept his word. But if the chicken vouchers, under normal circumstances, would be far more valuable than chickens, then once these vouchers were to collapse, Zhang San would no longer be able to use them to buy chickens from Ma Liu and the others, and his own chicken farm, worn down by age and lack of maintenance, would also be unable to deliver goods. In that case, Zhang San would very likely have no choice but to break his promise to the people. So the bottom line of the chicken vouchers was certainly not “at least one chicken,” but only the value of a piece of waste paper.
Now, a new public institution issues money, and this money seems to come into being out of thin air. It is no longer a chicken voucher or a voucher for anything else, but simply a pure credit instrument. Its circulability is related to the extent of its circulation in the market, and its credibility is related to the degree of everyone’s trust in it—this may seem like mere empty talk, but such is the fact. The more people trust this currency, the more inclined I am to accept it; the more places this currency may circulate in, the easier it is for me to use it.
Then aside from following others’ trust and trusting it along with them, why do people trust a certain currency? That is still because people trust the issuer of the currency. But what do people trust in the issuer of the currency? Do they trust that he will definitely redeem it for me with a chicken? Not at all. We trust the issuer of the currency—often a central bank backed by a large organization or state power—precisely because we believe it will not flood the market with too much currency, even if it does so fairly, for instance by giving ten million to each person on average. In that case, those who originally had ten thousand and those who originally had one million will become equally rich or equally poor; all the various contracts that had already been signed will become a tangled mess, and people’s savings and wages will depreciate sharply.
In fact, in a static economic model, money never needs to be issued in additional amounts. For example, Zhang San can borrow 1 yuan from the central bank, use it to buy ducks from Li Si; Li Si can then use that 1 yuan to exchange for fish with Wang Wu; Wang Wu can then buy chickens from Zhang San; and once this round of transactions is completed, the 1 yuan returns to Zhang San, who then pays it back to the bank. Money is just a medium borrowed from “nothing” and finally returned to “nothing.”
In fact, the circulation of money today works the same way, but after the cycle from central bank to central bank, there is still some additional issuance. This obviously is not simply to make up for the wear and tear of money. Sometimes, in order to fill the fiscal deficit, the state will issue more money; on the other hand, the demand for money in market transactions may also be increasing day by day.
More frequent transactions do not necessarily increase the demand for new money; they merely speed up the circulation of money. What truly drives the whole market to “appreciate” is probably technological innovation.
In a static cycle of chicken-duck-fish transactions, the total amount of money needed may always be only one yuan, but if one chicken farmer launches a technological innovation so that the quantity or quality of his chickens is greatly improved, then others will naturally need to spend more money to buy his goods. But technological innovation may be widespread: for example, Zhang San invents more delicious chickens, Li Si increases his ducks to two, Wang Wu catches bigger fish, and thus the transactions among the three of them may still use that one yuan, while that one yuan has relatively appreciated. Or, the central bank could simply lend Zhang San two yuan at the outset, and this additional yuan would amount to an affirmation of the entire market economy’s appreciation.
Both models have their defects. One maintains the stability of the total money supply, so that money is bound to keep appreciating; in this way, people who hoard money without participating in transactions more easily get something for nothing, and the willingness for money to circulate will decline. But the less it circulates, the more valuable money becomes, and the more people want to hoard it, eventually creating a deadlock that can only be resolved by issuing new money or a new currency. This is one of the reasons why the gold standard collapsed, I suppose. And relying on politicians and economists to determine the amount of additional issuance often also leads to inflation, financial crises, and so on because of misjudging the value of the market.
From the standpoint of stimulating transactions, a slowly depreciating currency is indeed superior to a constantly appreciating one, because you are always inclined to spend money rather than hoard it. Moreover, the central bank can guide the public’s willingness to transact by finely adjusting bank interest rates—that is, the degree to which people who hoard money can get something for nothing. In this way, the whole market economy seems very scientific.
The conclusion is that a deflationary currency (one that is never additionally issued) is not likely to be maintained for long as a standard currency, but a constantly appreciating currency, because it keeps appreciating, ends up depreciating—this conclusion is also really hard to believe. In fact, after the gold standard was eliminated, gold itself was not eliminated either; it still continued to appreciate relatively steadily, and thus became a much-favored safe-haven investment.
Of course some will say that gold is expensive because, after all, it still has many practical uses, such as making jewelry or electronic components. But we find that gold and other precious metals do not occupy exactly the same position; people still use gold as a reserve and as a backup medium for transactions. The collapse of the gold standard merely removed gold as the basic currency, but it did not destroy gold’s value, nor did it even eliminate gold’s circulability. Much more, before the gold standard declined into obscurity, gold had already been in circulation for one or two hundred years, if not even several thousand years, as the main currency or principal currency.
In the era of the gold standard, gold was trusted not because of its practicality. Things like electronic components that must use gold are only recent products; in terms of practicality, gold is not irreplaceable. Gold’s resistance to reckless issuance and its ease of circulation—its minting, measurement, and storage being relatively convenient—made it an effective currency. The de-standardization of gold could only become possible once economics theory, social organization, international trade, digital technologies (such as settlement and statistics), and so on had all developed to a very mature stage. Moreover, the present position of the U.S. dollar also benefits from the United States’ dominant role in the world as the sole superpower, and this system still remains far from perfect. As the pattern of markets and politics changes, and as people’s lifeworld and transactional behavior shift toward the network, the monetary landscape will also inevitably be rewritten.
I regard Bitcoin as the gold of the network age. That is to say, unlike some optimists, I do not think Bitcoin can become the “standard” currency of the network age, or at least I do not think it can hold that position for long. Nevertheless, I believe it still has enormous room to appreciate and a strong capacity to preserve value.
The characteristic of the network age is decentralization and diversification. Bitcoin satisfies decentralization, but if there were only this one currency ruling alone, that would not fit the character of the network either. It is foreseeable that in the network age there will still be many kinds of currency; different communities will all issue their own currencies, and the decentralized currency will not be only Bitcoin. It is very likely that a more popular “silver” will also emerge.
Other currencies of the network age will probably still have central issuing institutions, except that this center will no longer be a single authoritative organization bounded by geographical regions—a state—but rather multiple overlapping organizations within cyberspace. Every relatively large organization can issue its own chicken vouchers, duck vouchers, fish vouchers, and even an abstract currency that circulates within the range of its own “territory.”
For example, the Q coin issued around Tencent’s web portal is a genuine network currency. It can be used to buy all sorts of products under Tencent, and can even be traded among users. For instance, I give you 10 Q coins, and you give me a set of equipment or a set of QQ Show outfits in the game; that is a real transactional act. Q coins roughly correspond to the yuan, but there is also an exchange rate relationship—for example, if 10 yuan buys 10 Q coins, then Q coins will be a little cheaper than the yuan. Of course, Q coins are not yet circulating with especially great freedom, and this is to a large extent due to government intervention. Once the free circulation of Q coins is left unchecked, it may well become a hard-to-regulate channel for money laundering (and this hard-to-regulate quality is precisely one of Bitcoin’s strengths and risks). In fact, even before government intervention, Q coins had already long shown a tendency to become a black-market currency.
If Tencent’s open platform construction proceeds smoothly, there may be many other merchants settling in Tencent, selling their own games or services, and ordinary players will pay them in Q coins. They will then convert the Q coins into yuan for profit. But why must Q coins be converted into yuan? If Tencent’s platform becomes big enough and provides netizens with a sufficiently rich space for life, so that one can subscribe to newspapers, watch movies, play games, and even buy boxed meals with Q coins, then I may be more willing to spend the Q coins I get directly. When I receive Q coins, I have already made a profit, and I do not necessarily always need to cash them out.
Just like the current world order, the network age will also always have a few giants standing in a tripod formation—such as Tencent, Alibaba, Facebook, and so on. They may all control their own monetary systems—Tencent and Facebook already do, while although Alipay uses yuan, it is entirely possible that Ali Finance may at any time provide some kind of token voucher as well. Many small shopkeepers selling goods on Taobao do not need to keep withdrawing the profits in Alipay, because most daily consumption can still be made directly using Alipay. If Alibaba gradually advances its independent financial system (for example, the microloans it has already launched), then issuing an independent monetary system is also possible.
If the future world still has the renminbi or the U.S. dollar, then they will also inevitably be digitized, just as copper coins were replaced by paper money; sooner or later, paper as the carrier of currency will also be phased out. But compared with digitized Q coins, Alibaba coins, and the like, what irreplaceable advantage does a digitized renminbi have? Of course, we believe that the issuer and manager of the renminbi are a bit more authoritative; for example, if the boss of Tencent suddenly decided to change “9 yuan for 10 Q coins” to “9 yuan for 100 Q coins,” then Q coins would depreciate violently overnight. We trust that the People’s Government would not casually flood the market with currency like that. But why do we trust the People’s Government? Because its past credibility, together with the corresponding operation of laws, rules, and social organizations, guarantees that issuing money cannot be something one person simply bangs out a decision on by tapping his forehead. However, what if a corresponding organizational structure were established on the Internet as well? What if the issuance of digital currency on an open platform followed a set of rules that was more transparent, rigorous, complete, and open than those governing the renminbi? Why can’t we trust Q coins? In that case, if 9 yuan for 10 Q coins suddenly became 9 yuan for 100 Q coins, we might also say that the renminbi had appreciated tenfold overnight.
The day will come when the digital currencies issued and controlled by the giants of the Internet world will replace the renminbi, and even the dollar, becoming currencies that circulate in everyday consumption and even in international trade. The dollar is the benchmark currency in international trade because of the United States’ absolute dominance. But after all, the United States is not an international organization; this model in which America acts as both referee and player is hard to sustain indefinitely. America’s position can at any moment be replaced by a new hegemon or a new coalition of forces. And these new forces may not necessarily be traditional polities like the European Union or China, but more likely the world’s third great power—Internet communities like Facebook.
But the pattern of the Internet world is after all much less stable. The geopolitical pattern among states can be measured in centuries, whereas the pattern of the Internet world can be turned upside down in less than ten years (Facebook is still less than ten years old even now). If that is the case, then digital currencies issued by specific entities will find it hard to become a choice for preserving value and hedging risk. In addition, because of the extreme diversity of the Internet world, among the various giants, and also among small and medium-sized websites that do not want to become complete dependents of the giants, there is always a demand for an open, value-preserving currency that is not subject to any central control and is universally recognized. Bitcoin is perfectly capable of playing this role.
What some people who question Bitcoin imagine is the situation in which Bitcoin becomes the standard, or even the only, currency of the Internet world. They find that Bitcoin’s deflationary nature will lead to insufficient circulation and make it impractical. But the issue is that if, besides Bitcoin, there are relatively scarce silver coins with much higher output, and copper coins with abundant output but mining costs, and then all kinds of Q coins with no mining costs or issuance limits, then under the whole monetary ecology Bitcoin does not need to shoulder the mission of promoting circulation all by itself; on the contrary, it can precisely play a role in restricting circulation.
Indeed, if Bitcoin really becomes the gold of the Internet world, then its infinite room for appreciation can certainly make its early holders fantastically rich. But is this a Ponzi scheme or a pyramid scheme? Not at all. Or rather, even if it is a Ponzi scheme, and the pioneers’ purpose is ultimately to cash out and walk away, Bitcoin still will not collapse. Because Bitcoin is originally a decentralized currency, once the pioneers sell off the monetary reserves they had monopolized, these currencies flow to new holders, and Bitcoin’s various qualities as a decentralized, open, value-preserving, and universally recognized currency do not collapse along with them. The new bag holder may become the new hoarder, and after some time cash out and leave. If one insists on calling this a Ponzi scheme, then the characteristic of Bitcoin is that innumerable Ponzi schemes can take place on this platform; after every massive sell-off by hoarders, this currency still retains the ability to appreciate. It is precisely because hoarders can cash out and become rich that Bitcoin can combine both hedging and liquidity. Because of its deflationary nature, people who hold Bitcoin will not rush to spend it, but because of the possibility of profiting through hoarding, hoarders will sooner or later have to sell it, rather than letting it rot forever in their hands. People will not distance themselves from Bitcoin out of envy and resentment at the windfall profits of the pioneers; on the contrary, it is precisely that envy of windfall profits that still gives people the motivation to keep buying Bitcoin. The decentralized mode of operation of Bitcoin ensures that as long as there are still people who believe in Bitcoin, its market will continue to exist.
Then is it possible for Bitcoin to be completely abandoned? Of course, that is not impossible either. Even something as solid as gold is not without the possibility of turning into worthless scrap metal. For example, one day a meteor made of gold might fall from the sky, or an enormously huge lump of gold might erupt from the deep crust, with a total amount far exceeding all existing gold; then overnight gold would be everywhere. Or if cheap alchemy were truly achieved, then gold would become worthless scrap metal, even a pollutant in urgent need of cleanup, and no longer a precious metal that preserves and increases in value. The dollar is the same: if the American empire suddenly collapses and the financial system becomes as chaotic as Zimbabwe’s, then the dollar is not impossible to turn into waste paper. Bitcoin, however, does not have these risks. A rigorous mathematical algorithm guarantees that the limits of its issuance speed and quantity will almost never be broken. Its issuance and transactions are jointly constrained by all Bitcoin users; unless a certain cluster of computers can surpass the combined computing power of all the other computers mining Bitcoin, neither the mining nor the transactions of Bitcoin can be forged.
But this possibility cannot be completely ruled out either. For example, the true debut of the first revolutionary quantum computer may suddenly increase computing speed by several orders of magnitude, and if the early holders of quantum computers were to unite and crack Bitcoin, they might really be able to contend with the entire Internet. Yet even if quantum computers were really that powerful, such a situation would still be unlikely to happen, because on the one hand, expending every effort to bring down Bitcoin is utterly thankless work; if the Bitcoin earned by cheating becomes worthless, and one also becomes the public enemy of the whole world as a result, that does not seem like something the people who created the first quantum computers would do. On the other hand, even if such an extremely abnormal situation did occur, the foundation responsible for maintaining Bitcoin might still take action in time. Although a decentralized open-source platform has no absolute master, it is not without maintainers. In fact, Bitcoin has several times suffered sharp drops because of network or program issues, but it quickly recovered after timely maintenance.
The real threat to Bitcoin comes from other digital currencies. As the progenitor of decentralized network currency, the technology and model adopted by Bitcoin can hardly be the most perfect. But human beings are creatures that care about history, and Bitcoin’s ancestral status also ensures that its recognition is hard to shake. Even if later arrivals possess more exquisite technology, so long as Bitcoin has no fatal flaws, it will always be gold. Silver coins and copper coins may replace Bitcoin’s position in the sphere of circulation, but they will find it hard to replace Bitcoin’s value.
Recently Bitcoin’s price has been swinging wildly; within half a day, fluctuations of 50% or even 100% are common. This is because many participants are still in a state of blind speculation and restless lack of confidence. But in any case, even after Bitcoin’s exchange rate stabilizes in the future, its volatility will still be more intense than that of any traditional currency, because Bitcoin truly exists in the space-time of the Internet world; it follows the rhythm of the network, not the rhythm of traditional empires measured in centuries.
By the way, over the past few days I have been continuously buying Bitcoin—the total amount I won’t disclose. My average purchase price is roughly around 600 yuan. At the time I am writing this, the trading price on Bitcoin China is about 719 yuan, and on the international market about 712 yuan. As a short-term investment, it is still possible to make money, but of course I am in no hurry to sell. Although I strongly recommend that other friends convert their spare cash into Bitcoin, please do not invest blindly before thoroughly understanding and thinking it through, and once you do invest, please do not panic; otherwise, if you lose money, don’t blame me. But if any friend really invests after listening to my introduction and makes a fortune, you are also welcome to come back anytime and donate me half a coin or something~:
bitcoin:1411wgvec6AKWa5cp7sYqNdo8bq6T4xpe6
Translated from the Chinese original with AI assistance. The original text is authoritative.
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