Li Lihui: IFO Is Another Disguise of ICO
On December 16, Li Lihui, former President of the Bank of China and Director of the Blockchain Working Group of the China Internet Finance Association, accepted an exclusive interview with Ifeng Finance at the first Qiantang River Forum. He said that “the bitcoin bubble has been big enough that it simply does not worth the present price. If relevant regulation is missing, “Tulip Mania” may happen again.” He also stated that the 4 conditions must be met for the issuance of CBDC (Central bank-issued digital currency). Bitcoin is only a small fraction of blockchain applications. Big Data, AI and Blockchain technology are building the brand-new financial service model. He believed that there would be two directions for blockchain development. One is the traditional blockchain, aka public blockchain, which is characterized by decentralization. The second direction is to entertain large-scale and complicated trading, which requires multiple center or distributed entities. As for the blockchain technology of bitcoin, Li believes the technology should be viewed separately:
“Bitcoin is the earliest application of blockchain technology, but only a very small one.”
Li Lihui, former President of the Bank of China and Director of the Blockchain Working Group of the China Internet Finance Association
Below are excerpts of the interview.
How do you see the development of bitcoin now? Do you think there is a bubble?
Bitcoin is the earliest application of blockchain technology, but it is only a small application. Technologies such as big data, artificial intelligence and blockchain are reshaping new financial services models. There are some issues worthy of attention during the development of bitcoin. First, the price of bitcoin is driven by speculation to over 10,000 U.S. dollars. It is not backed by any physical assets, nor is it acknowledged by law. Will Bitcoin become a new “tulip mania”? I think Bitcoin transaction is controlled by relatively small group of people. I does not rule out the speculation or manipulation of the market.
Secondly, IFO of Bitcoin first appeared in August 1, 2017. The original intention of the forking is to solve the blockchain congestion problem, so Bitcoin Cash (BCH) was forked at block height #478559. People who owns bitcoin got free BCH at 1: 1 ratio. After that, more IFO like BTG (bitcoin gold), BCD (bitcoin diamond ), SBTC (super bitcoin) appeared. IFO is another disguise of ICO.
How is the current progress of digital currency research in China? When do you think that the central bank will issue digital currencies? How does digital currency change the landscape of financial industry?
This is hard to predict. Earlier this year, the central bank’s research team has released some initial reports that cover the basic technical architecture, issuance preconditions and legal requirements etc. They are fairly comprehensive. The central bank is very active in promoting digital financial products, and we look forward to some new digital products.
I think the digital currency must be a legal tender, which is credible. There are many tokens now like bitcoin, most of which are defined as virtual currency. At present, many countries are developing legal digital currencies. If legal digital currency is to replace traditional currency and payment tools, several conditions must be met:
1. Higher efficiency
2. Highly reliable
4. Legal status.
The so-called legal digital currency can be promoted if these conditions are met.
If the central bank issued digital currency, will it affect the market share of Alipay and WeChat pay?
I don’t think so. They are different in market positioning. In terms of payment processing, there is only one legal tender but t but the payment tools are varied. Alipay, WeChat Pay can also be a payment tool. They are very convenient and has occupied a large share of the payment market. In the future, I don’t think the legal digital currency have much advantage in small daily transactions. It cannot be as popular as Alipay and WeChat. If China wants to issue digital currency, it would mainly applied to the trading of financial assets. For example, Goldman Sachs has applied for a digital currency patent, which is aimed at the U.S. securities market. The settlement of U.S. securities market is still T + 3, which poses unpredictable risks to the parties to all parties concerned. However, if T + 0 or T + 1 could be implemented using digital currency, the risk may be reduced.
One of the characteristics of blockchain technology is decentralization. Is the digital currency issued by central bank against such idea?
Everyone’s understanding of decentralization is biased. Blockchain in the early stages of development, such as Bitcoin, Ethereum, is characterized by decentralization. However, the decentralized scenario can only be fit for the relatively simple and small transactions. The result of decentralization is slower confirmation and higher cost. The founder of Ethereum, who attended a conference in Shanghai in September, mentioned that the development of the blockchain in the third phase is characterized by large scale implementation. In the process of scale-up, the central database using the hash algorithm will also be integrated into the entire blockchain technology system. That is, future scale-up development requires centralized entity. This center may not be the only one or assigned by any administrative order. The system has multiple centers. The identification of backbone center or real center relies on the algorithm and the hashrate of the system.