Wang Yongli: the redemption of bitcoin blockchain
Wang Yongli, former Vice President of the Bank of China, talked about the drawback of bitcoin and the redemption of blockchain. He pointed out seven critical flaws of bitcoin blockchain and concluded the bitcoin would not be
From the design concept of the Bitcoin block chain paradigm, it is easy to see that the Bitcoin blockchain system has a strong anti-social nature. Wang Yongli believes that because the Bitcoin system is overly pursuing perfection and is committed to getting rid of the existing world institutional mechanisms, it has exposed many pain points that are difficult to solve.
1. Bitcoin blockchain is difficult to truly achieve “decentralization”
The design concept of the Bitcoin blockchain is to establish a system of equality and democracy for all participants. But in reality, it’s not equal for everyone in terms of mining profits due to the variance of hashing power. A pool or node that possess greater hashing power has greater opportunities for mining bitcoin. Many people may not be able to obtain Bitcoin despite the fact that they also participate in mining and consume resources. This makes bitcoin possessed by a small number of people, thereby lifting their influence on the governance of the network.
At the same time, computers involved in mining are basically useless in other aspects.
2. Features like “trustless” and “deintermediation” of bitcoin blockchain are achieved under strict conditions.
In general, Bitcoin advocates like to refer to the Bitcoin blockchain as “the internet of value, trust and order” because Bitcoin is completely a native asset on the Bitcoin blockchain system. Its initial production is subject to strict global network authentication and records. It’s difficult to fake or tamper records. Therefore, bitcoin transactions can indeed be conducted without knowing the identity of holders as long as the account had sufficient balance.
However, this kind of peer-to-peer trading model has very strict prerequisites: First, only Bitcoin (that is, the system’s native assets) can be operated on the platform, but not other assets. Second, all traders must register to the same Bitcoin blockchain network (platform uniqueness). If the parties to the transaction are not registered on the same network platform, cross-chain transactions cannot be conducted. This type of peer-to-peer trading is difficult to achieve.
In fact, under the current circumstances, as long as both parties register accounts in the same bank or third-party payment processor and use existing network communication technologies, banks or third-party payment institutions can also implement peer-to-peer transactions. In addition, because there are no complicated processes such as network broadcasting, multiple authentication and distributed ledger, the speed and efficiency of current banking system are far higher than the Bitcoin blockchain.
3. Bitcoin blockchain system is too closed to deliver online value to offline system.
For security reasons, the Bitcoin blockchain is actually a completely closed system, which makes it difficult to run real-world assets or values. Even if it could be realized, if there is not a very strict offline verification system to ensure the legality, authenticity and accuracy of the pushed assets, once there are fake assets being integrated in the Bitcoin blockchain system, it is hard to avoid the result of “rumor arise from rumor”. If it is strictly confined to the Bitcoin blockchain system, it could not even solve the problem like loaning or interests, which will compromise the function of financial industry.
In this case, if you want to realize the value of Bitcoin, you must convert it into fiat currency, and use the Bitcoin system as new intermediary link for real-world money transfer. From such perspective, it leads to more intermediary instead of losing it.
4. Bitcoin exchange is just a plug-in system for Bitcoin blockchain and has potential security risks.
The Bitcoin blockchain only has the function of mining and transfer within the system, and does not have the function of exchanging fiat currency. To convert Bitcoin into a fiat currency, you have to go through an external trading platform. The online trading exchange has greatly facilitated the exchange and transfer between cryptocurrency and fiat currency, and provided strong support for the realization of value, price promotion and expansion of Bitcoin.
However, these exchanges are not decentralized and distributed. Instead, they are a highly centralized platform. Although it’s difficult to break down the Bitcoin blockchain system from outside, the exchanges are often hacked, stolen bitcoin. Shutdown and runaway of exchanges has repeatedly occurred. Exchanges are not protected by the Bitcoin blockchain system nor effectively supervised by financial industry. The exchanges should also be the focus of financial regulation.
5. Users registered on the Bitcoin exchange do not belong to the Bitcoin blockchain
Many people think that owning Bitcoin is a member of the Bitcoin blockchain, which is actually a very big misunderstanding. Holding Bitcoin can only prove that you are a registered user of a digital currency trading platform. If you do not participate in mining, you are not a node of the Bitcoin blockchain. The voting rights and other interests linked to the node has nothing to do with you.
6. Overemphasis on “decentralization” has affected the actual efficiency and has become trapped in “Utopia” thinking.
A large number of external computers access the same network and operate together, which is the basis for the “decentralization” of the Bitcoin blockchain. However, at the same time, the more computer nodes that are added, the more resources it will need to consume in its “mining” process. In addition, trading with fiat need to be handled through a external processor. The processing procedures are complicated with high cost and low efficiency. For example, when a Bitcoin wallet is installed for the first time, it will consume a lot of time to download historical transaction data blocks. Processing of a bitcoin transaction requires the 6 confirmation, which often takes several days.
In addition, the “decentralized” that has been overly sought after would drag bitcoin network into a “Utopia” mindset. From the perspective of human development, the formation of a central and hierarchical structure in social organizations may be a natural choice in the long-term rather than a completely equal, democratic structure. Although people are constantly contemplating the establishment of a “Utopian” society where everyone is equal. The modern world is still based on the sovereign independence and autonomy of various countries. With wide disparity between countries, it is unrealistic to implement a “decentralized” currency that override the sovereignty of nations.
7. Bitcoin is hard to become a real currency
Many people think that Bitcoin will replace the fiat currency and become a new super-sovereign currency system. Actually, this is an illusion.
Money evolved from physical currency to metal currency, then to the paper currency until the complete credit currency. People have come to realize that the most important function of money is the “scale of value”. It is necessary to work hard to maintain the relative stability of currency values. Otherwise, the currency value will fluctuate violently and the value scale will become invalid, and money will not be able to play its due role.