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It is believed that many inexperienced people have no idea about the relationship between digital currency and blockchain. Therefore, this paper summarizes the causes and solutions of the problem. Through this article, I hope you can solve this problem.

From the perspective of historical process, the form of money has mainly undergone several changes. From the barter of early society such as animal skins, livestock and pottery, to the currency of various shellfish, to the copper coins behind, and even later, people chose gold and silver as the currency in circulation.

With the increasing consumer demand, people found that precious metals could be replaced by issuing paper money, so we entered the stage of credit currency together. Later, the development of technology promoted the emergence of electronic money. Nowadays, with the popularity of blockchain technology, its first application is digital money.

The concept of digital money

Digital currency is usually called at home, and abroad, it is generally called "cryptocurrency". Digital money sounds a little more abstract than cryptocurrency, and "numbers" are designed to show that it behaves differently from traditional currencies, that is, it can show more custom behavior through "numbers".

So, how to use one sentence to explain what is "digital currency" (cryptocurrency)? We can describe it this way: digital currency is usually a virtual currency based on blockchain technology, which is publicly issued around the world and is not endorsed by any national government. this kind of virtual currency has the characteristics of "de-trust", "peer-to-peer", "public bookkeeping", "non-tampering" and so on.

Now that we are talking about virtual currency, we can sort out the concepts of electronic currency, virtual currency and digital currency (cryptocurrency).

1. Electronic money

In recent years, the frequency of cash use has decreased, and many people prefer to use electronic payment. Electronic money is as invisible as digital money, but electronic money is actually the digitization of legal currency, such as third-party payment platform, bank card electronic cash, bank large and small payment system and so on. It only records the accounts of the original legal currency electronically. In essence, they still need to be audited and reconciled in multiple centralized systems. "electronic" itself has not become a part of finance.

two。 Virtual currency

During the blockchain speculation frenzy in 2017, the term "virtual currency" was basically used to refer to the basic tokens of blockchain projects, mostly from outside speculators. In fact, virtual money refers to a much broader concept than electronic money and digital money.

Virtual currency is usually non-physical currency issued by non-financial institutions, which is roughly divided into three categories.

The first category, such as game tokens, usually has nothing to do with the real economy. For example, in the game "Arena of Valor", if you want to get new props, you must have enough game tokens (diamonds and coupons). This virtual currency is also closed, that is, it can only be used in this game.

The second category is product classification, which can be associated with the real economy, such as frequent flyer points, supermarket gift cards, this virtual currency also has a feature called unidirectional, that is, it can only flow in, but not out.

The third category is, of course, the digital currency (cryptocurrency) we are talking about, and Bitcoin is a typical one.

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Generally speaking, corresponding to the "tangible" of legal currency, virtual currency is more reflected in its "virtual intangible". With the development of the Internet, virtual currency itself is gradually developing, thus giving birth to more new models and opportunities.

3. Digital currency

Digital currency generally refers to the basic token under the platform of public blockchain, which is recorded in a set of public accounts guaranteed by cryptography. unlike traditional currencies, due to decentralization and programmability, this currency has the attribute of customizable behavior.

In Bitcoin, we can define multi-signature transactions to achieve a true "multi-person institutional account".

For example, in the meta world, users can customize the behavior of transactions, such as specifying a lock period and unlocking conditions for tokens when transferring money, while in bitshares, this behavior is strengthened into a currency with derivative characteristics. this is unthinkable in the field of traditional currencies.

Corresponding to digital currency, there is the concept of digital assets, but this is another topic, which I will explain in detail later.

Traditional currency and digital currency

Because of the many new characteristics of digital currency, financial institutions and Internet companies have joined the research. More and more people want to study digital currency. Here, I want to show you the different characteristics of digital currency and traditional currency, so that you can more intuitively understand the difference between digital currency and traditional currency.

Anonymous vs real-name system

In the payment process of traditional currency, except cash, almost any other way retains the trader's information more or less, no matter you are an individual or an institution, operators can use these transaction data to track your activities.

In the field of digital money, this matter does not matter. At present, most digital currencies have false anonymity, that is, alias, so your own personal information will not be found.

At the same time, because the blockchain does not provide KYC (Know Your Customer), that is, full knowledge of your customers and enhanced scrutiny of account holders, it makes it difficult for regulators to track traders and makes digital currencies a hotbed of black market trading.

This disadvantage is mainly due to the fact that many public chain tokens do not include the concept of identity, but from the point of view of a technical person like me, this is only a demand, not a defect of digital currency itself.

Point-to-point vs centralization

The issuer of digital currency is usually the initiator of the project, and the issuing process of digital currency is defined in the white paper; after the main online line, all tokens will be slowly released to the market according to the initial designed issuance process. This process is actually the "mining" process that people like to see.

Therefore, after the main online line, even as the sponsor of the project, it is almost difficult to have the right to modify the distribution mechanism again, and everyone can only submit it to the community for discussion in the form of a proposal, and the final result of the discussion determines whether it can be modified again.

In fact, this process is very similar to the process of democratic election, but in the field of credit money, the issuer is usually the central bank, and the central bank can carry out macro-control through monetary policy. in a sense, the central bank model is the ultimate embodiment of centralization, while digital money is the embodiment of peer-to-peer mechanism.

Self-care security vs hosted security

Because the transaction process of digital currency needs the approval of every node in the network, and every transaction is recorded on the block chain, the historical transaction records never have to worry about being lost or tampered with.

As long as the encryption algorithm of the digital monetary base is not breached and the private key is protected, your assets are truly your own assets.

The transaction process of the traditional currency eventually falls to the bank, so the security of the banking system determines the security threshold of the traditional currency in the process of use, which also means that your assets are held in the bank.

Wide regional circulation vs intra-country circulation

Traditional currencies are sovereign and usually circulate only within sovereign countries; digital money currently has no such restriction, as long as you can connect to the Internet, you can send transactions to any place at any time.

To sum up, digital currency also has great risks at present, and there are no relatively complete laws and regulations to restrict the users of digital currency, so the use of digital currency will have higher legal and investment risks.

And ordinary people have accepted the setting of credit currency. At present, the acceptance of digital currency varies from country to country, such as low acceptance in Chinese mainland and high acceptance in Japan.

The issuing process of digital currency

Digital money began to accelerate in 2016 and developed in a blowout with the help of ICO in 2017. the digital money market formed a big bubble, which is very similar to the Internet bubble at the beginning of 2000, but the bubble is not terrible, it is just the inevitable process of a hot new thing.

If we need to find a pattern in this bubble, we must first understand the process of issuing digital money. We can take Bitcoin as an example to talk about its release process.

The process of issuing Bitcoin is maintained by mining and depends on miners digging mines to produce Bitcoin. It is equivalent to the miner himself is a small money printing machine.

Every time the miners dig up a block, that is, "pack an envelope" mentioned in the second article, there is a Coinbase transaction, which is equivalent to generating coins out of thin air, and the miners can get bitcoin from Coinbase as a reward for maintaining the system.

Coinbase's output declines by half every four years, with 50 bitcoins in each block in the first four years and 25 in each block in the second four-year cycle. Bitcoin is in the third four-year period, and Coinbase produces 12.5 bitcoins.

The above logic is stipulated in the Bitcoin White Paper and Bitcoin code, and all Bitcoin participants can verify it. And according to the above logic, we can draw the following release curve.

(the figure is quoted from the network)

We can see that the bitcoin issuance process changes every four years, and the release rate gradually slows down and slows down over time.

By the same token, we can see similar curves in other digital currency projects, but they may not be the same as the Bitcoin issuance curve, which may be discrete or linear, depending on the issuance process set out in the white paper.

For example, the issuing process of entropy coin ETP is also an attenuation process, but the attenuation coefficient of ETP is 0.95, so it can be said to be smoother than bitcoin, which converges to 30 million of the total mining volume over time, so the curve looks like this.

Therefore, the issuing process of digital currency can be regarded as a process of distribution of core interests of a blockchain project and a process of community motivation. How to distribute limited tokens to community people who are willing to pay for the project is an important indicator to consider the operational maturity of a blockchain project.

After reading the above, have you mastered the method of the relationship between digital currency and blockchain? If you want to learn more skills or want to know more about it, you are welcome to follow the industry information channel, thank you for reading!

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