Whether cryptocurrencies have the "value" property of "currency"

The history of currency has gone through several stages: the pre-coinage era, the mintage era, the bank currency era, and is currently moving towards the era of digital currency. Then, just as the coinage theory cannot be used to explain the practice of bank currency, it is also far-fetched to explain the practice of digital currency with the theory of mintage or bank currency theory.

Recently, the tone of criticism of cryptocurrencies (that is, encrypted assets) seems to have risen sharply. There are criticisms from international central bankers or financial regulatory authorities, warnings from the market field, and academic criticism. There are two focuses of criticism or opposition: First, do encrypted assets have "value"? The second is, is the rising price of encrypted assets enough to prove its value? The core lies in the issue of "value". If there is no value at all, there will be no "currency" attribute, let alone its price basis. Therefore, it is necessary to answer whether encrypted assets have "value"? If so, what is the "value"?

Are "Crypto Assets" "Currencies"?

Former Federal Reserve Chairman Bernanke was asked what he thought of Bitcoin when he left office. He said at the time that it was not under my supervision. This is a rigorous answer, that is, he bypasses directly answering the question of whether Bitcoin is money or not. Why bypass it? There is no law in the world that defines what is "currency". Of course, the U.S. Federal Constitution stipulates that the federal government—Congress has the right to issue currency. In practice, Congress entrusts the Federal Reserve to issue currency. From this point of view, the government monopoly of currency issuance rights is a principle established by the US Constitution, that is to say, there are no other currency issuance entities. Specifically, the law only stipulates the source of the currency, not the content-zce of the currency. Cryptoassets such as Bitcoin are not “currency” at all by their origins. So, from the perspective of content-zce or so-called essence, can encrypted assets become "currency"?

Hedge fund investment firm Brevan Howard starts investing in cryptocurrencies: Brevan Howard, one of Europe's largest hedge funds with $13.7 billion in assets under management, will start buying cryptocurrencies, News Bitcoin reported.

As previously reported, the investment firm bought a 25 percent stake in One River Asset Management, which operates some cryptocurrency funds.

The firm’s cryptocurrency investments will be overseen by Distributed Global’s co-founders Johnny Steindorff and Tucker Waterman, it is reported. [2021/4/20 20:39:45]

In theory, how to define "currency"? "Palgrave Dictionary of Money and Finance" and "Palgrave Dictionary of Economics" are masters of academic concepts, but there is no entry for "money—money", only one "money in the economic life" ", that is, the entry of "currency in economic life". However, the entry is extremely lengthy and does not constitute its concept or definition. In addition, there is indeed an entry for "currency—currency", that is, currency includes notes and coins—notes and coins. There is no doubt that the enumerated currency concept does not apply to digital currency, or digital currency.

Bitwise Chief Investment Officer: The number of financial advisors investing in cryptocurrencies may double in the coming year: On January 13th, Bitwise Chief Investment Officer Matt Hougan said that according to the latest survey released, the development of cryptocurrencies is still in its infancy, and now there are less than 10% of financial investment advisors made investment allocations. But at the same time, cryptocurrency adoption and investment interest are growing, and the number of financial advisors who will invest in cryptocurrencies may double or more in the coming year. This morning, according to a survey released by Bitwise Asset Management, the number of financial planners investing in cryptocurrencies has increased by 50% within a year. (AMBCrypto) [2021/1/13 16:03:50]

Is there a clear definition of "currency" in economics textbooks? Exactly, textbooks and others often avoid defining "currency", as if this is a concept that does not need to be defined. Specifically, the "currency" in money and banking is the "currency" under the "divided into different currency levels" from the perspective of the central bank; the "currency" in modern economics also refers to the "currency" in the central bank and the commercial banking system under "Bank Currency".

To discuss currency from a broader perspective, we have to go back to the discussion of "currency" in the era of political economy, which was the so-called "coinage" at that time. "Coinage" and "bank currency" do not form a shared theoretical basis. In terms of theory, the former belongs to the category of political economics, while the latter belongs to the category of money and banking or central banking. That is to say, currency has developed from the form of coinage to the era of bank currency, and the theory of currency has developed from the theory of coinage under political economy to the theory of bank currency under the study of money and banking.

Dynamics | KPMG report: More than 80% of Generation Z consumers are interested in the future of cryptocurrency: A recent study by KPMG pointed out that in the United States, Generation Z is the most active-zce population group with the most open attitude towards cryptocurrency: Survey results It shows that 83% of people between the ages of 18 and 24 are more interested in the future of cryptocurrencies. 71% of consumers aged 25 to 34 (millennials) are interested in cryptocurrencies, as are more than half of U.S. consumers aged 65 and over. (CryptoPotato)[2019/10/14]

This shows that monetary evolution determines that monetary theory also needs constant adjustment and innovation. Generally speaking, the history of currency has gone through the following stages: the pre-coinage era, the mintage era, the bank currency era, and is currently moving towards the era of digital currency. Then, just as the coinage theory cannot be used to explain the practice of bank currency, it is also far-fetched to explain the practice of digital currency with the theory of mintage or bank currency theory.

In fact, political economy does not define what "currency" is, but only expresses the four major functions of currency: value measure, payment instrument, value store and international currency. So, how to use the theory of the era of political economy to answer the question of whether encrypted assets are currencies, is it feasible? Where is the logic?

How to understand the "value" attribute of "currency"

IOTA stands out, leading the rise of the top ten cryptocurrencies by market capitalization: According to coinmarketcap data, the top ten cryptocurrencies in the world by market capitalization have all declined to varying degrees, but IOTA is on the rise. So far, it has closed at 12.82 yuan, an increase of 1.19%. IOTA is a new type of cryptocurrency that focuses on solving the problem of machine-to-machine (M2M) transactions. [2018/5/16]

"Value" is the "meta-concept" of political economy. Mercantilists proceeded from the accumulation of practical experience in commercial activities, and thus came to a "conclusion": only gold and silver are "wealth". This kind of understanding or judgment is based on the security or circulation of wealth. In this way, later people naturally connected the "wealth" mentioned by mercantilism with "currency" or "currency".

Quesnay of the Physiocratic School opposed this understanding or position. He did not discuss what wealth is, but raised it to a higher level and discussed the source of wealth. Quesnay believed that wealth comes from the land. Adam privately visited Quesnay in France and returned to Scotland. He began to study the source of wealth value until David Ricardo created the theory of labor value. Of course, John Locke put forward the theory of labor value earlier. So far, the theory of "value" in the political and economic era has been established. Latecomers consciously or unconsciously equate value with wealth, first using wealth and then using value.

Outdated versions of content-zce management software Drupal are vulnerable to encryption attacks: According to btcmanager, Bad Packets Report researcher Troy Mursch said on May 5 that he found more than 300 websites that had been targeted by encryption attacks. Notorious browser mining software Coinhive has been attacked again, with hackers mining monero by exploiting an "outdated and vulnerable version" of content-zce management software Drupal. After analyzing an encrypted hacking campaign against the websites of the San Diego Zoo and the government of the Mexican state of Chihuahua, researchers found that both sites were using outdated and vulnerable versions of the Drupal content-zce management system. [2018/5/9]

Does value equal wealth, or the source of wealth? These questions lead to more complex philosophical considerations. What needs to be explained is that value is not the "original concept" of economics, but derived from the thinking and debate about wealth in the era of political economy. The problem is that even the theory of labor value does not completely negate the value of precious metals. Marx even declared that "gold and silver are not money naturally, but money is naturally gold and silver." Furthermore, problems such as the antagonism between labor and capital and the alienation of labor emerged. So far, the philosophical and social political implications of "value" have completely surpassed the mercantilist view of wealth and the original intention of Physiocratism to study and judge the source of wealth.

Modern economics got rid of the shackles of value philosophical thinking in the era of political economy, and paid more attention to the issue of price. The "essence of value" was also replaced by "quantity facts". The "discipline" of quantitative constraints set by the transition period from the age of coinage to the era of banknotes has also been repeatedly broken through in the practice of bank currency policy. That is to say, the quantity is not "limited" but can be "unlimited". restricted".

As long as it has value, it may be generally accepted, and then, if it has both at the same time, it "can" become a "currency". In this regard, it has to be clearly declared that in theory or in practice, there is no such an iron law of currency value. This kind of knowledge or understanding is too rough and simple, and it is still an expression of possibility in essence, that is, it may "can" become currency, rather than certainty.

Encrypted assets have their "value", but they do not yet have the "value" attribute of "currency"

Those who think that encrypted assets have no value at all, the reason is that encrypted assets neither constitute a commodity for consumption nor an acceptable service, and their value is virtual, and its essence is "nothingness" and "air". , is worthless. Such an understanding is, in fact, specious. In the history of currency, the opinions against precious metals as currency are similar to it. The so-called "gold is cold and hungry". Encrypted assets do not have physical properties. Of course, they do not have physical value. They are neither consumable goods nor acceptable services. Equity assets, such as stocks, warrants, patents, etc., are also not consumable and do not constitute acceptable services.

The value of encrypted assets does not lie in the physical level, so, is it like stocks, paper gold, etc., whose value is reflected in the equity level? Opponents deny its equity value based on the lack of physical value, arguing that existing equity assets have indirect physical properties, or can be transformed into consumption or services. Then, those who support the value owners of encrypted assets also believe that through the fiat currency transactions of encrypted assets, monetary value can also be obtained, which can be converted into consumption or services. In this way, price and value are confused, that is, price means value.

The value of a crypto-asset, or its utility, is, fundamentally, generated or manifested within its digital community.

Any opinion or position that denies the value of encrypted assets must face up to the utility of encrypted assets in the digital community. This is a basic fact and principle. How to measure or circulate the function of encrypted assets in the digital community? It is an internal practice, which means it cannot be judged from the outside at all.

On May 22, 2010, at 7:17:26 pm, Laszlo Hanyecz (Laszlo Hanyecz), who lives in Florida, USA and works for the online retail company GoRuck, bought two pizzas with 10,000 bitcoins. It's Bitcoin Pizza Day. This is an epoch-making practice or event, marking the beginning and successful pursuit of external utility of encrypted assets in the digital community.

Whether it works well or badly, the measurement or operation of encrypted assets within the digital community in which they occur is a matter of initial setting, in a state or process of self-evolution. If you try to step out of your own digital community and enter other digital communities, you need practice to prove its utility. Furthermore, entering the physical or realistic social and economic system, the "value" of encrypted assets is not a matter of declaration, but a process of practice. In other words, encrypted assets can be traded, can be traded in fiat currency, and the price is rising, etc., these are not the embodiment of the value attribute of currency. Because too many goods or services can do this, but only when encrypted assets grow into a cross-community "digital currency" can they have the initial possibility of becoming a digital currency.

What is a digital currency? What is the value attribute of currency? These are all questions that need to be answered in practice. This is why the currency forms are so strange or different from each other in the history of currency. The continuous process of being discovered and corrected in real economic problems is not the result of an argument design or a bold assumption. Therefore, it is not only an arbitrary empty statement, but also an unreasonable assumption to assert that certain or various encrypted assets initially possess the "value" attribute of "currency".

It should be emphasized that the relationship between supply and demand determines the marginal price of market transactions of encrypted assets, but it cannot be directly identified as its "value". The value of encrypted assets should still be displayed based on its utility in the digital community. In short, based on the utility of its digital community, encrypted assets may become the carrier or channel of digital currency. However, it is too early to claim that it has the "value" attribute of "currency" at the beginning, and empty words are harmful.

(The author is the chairman of Zhejiang Modern Digital Financial Technology Research Institute)

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