From a peer-to-peer cash system to a bubble-free financial system

After the author wrote the article “Bitcoin system with self-control is superior to the current financial system,” some readers thought self-control was understood, but the financial part seemed understood. Still, they did not fully understand it. Although Satoshi Nakamoto did not say it clearly, his ambition was to realize a bubble-free financial system on the Bitcoin peer-to-peer cash system, thereby changing the extremely unreasonable phenomenon of over-issuance of legal currency and bubble lending. Converting the “cash system” into a financial professional term is a “bubble-free financial system.” He didn’t explain it thoroughly due to historical reasons. It is a brand-new perspective, and Baidu and Google have entered “bubble-free financial system” as keywords, and there is no article to be found.

Many articles discuss the shortcomings of the current financial system, but this is not the focus of this article. This article focuses on how to solve the shortcomings of the current financial system, what inspiration can be drawn from Satoshi Nakamoto and cryptocurrency, and what is the next step.

First, the industry has a consensus on what the future financial system should look like

Zhou Xiaochuan, former governor of the People’s Bank of China, believes that “creating an international reserve currency that is decoupled from sovereign states and can maintain long-term currency stability, thereby avoiding the inherent defects of sovereign credit currencies as reserve currencies, is ideal for the reform of the international monetary system. “Now the People’s Bank of China reserves sovereign currencies such as the U.S. dollar, the euro, and the pound sterling, but the arbitrary over-issuance of these currencies and the currency value instability have brought difficulties to the operation of the renminbi. The keywords here are the decoupling from the sovereign currency of the country and the long-term stability of the currency value.

Bitcoin is a reserve currency decoupled from sovereign currencies, in line with Zhou Xiaochuan’s ideals. The key is how to keep the currency value of Bitcoin stable. Regarding how to maintain stability, after the invention of Bitcoin, cryptocurrency has carried out many meaningful explorations, and three breakthroughs have emerged: cross-chain, Ethereum smart contract platform, and stablecoin, which, together with Bitcoin, can The elements that make up the Bitcoin Standard. Realizing the Bitcoin standard will allow the emergence of a long-term stable standard currency and make a bubble-free financial system possible. The author believes it may take 12 years to form a bubble-free financial system prototype, including legal and regulatory prototypes, and another 24 years to build a bubble-free financial system initially.

Jiang Rushan, an industrial economist, believes that: “From the beginning of the 21st century and before 2030, the development of network technology and the rise of digital finance will ruthlessly eliminate “paper money.” This stage is in progress, and this process will gradually Weaken or squeeze the currency issuance authority of sovereign central banks. A new global currency exchange system based on globalization will gradually take shape.”

“By the end of this century, a global network financial credit payment system based entirely on global economic integration without sovereign state intervention will be established, and global network banks will be ubiquitous and operate in accordance with unified rules. The characteristics of future bank products and services will be : Quantitative data management of credit ratings and credit payment capabilities. At that time, a more fair, non-ethnic, and an “international central bank” that can’t be watered down will be born, and traditional financial derivatives will basically be eliminated. It is worth noting that In the future, the multiple shareholders of the “global central bank” will not be the representative agencies of sovereign governments, but the most influential global large companies to participate in the control, global financial user network votes and international legal institutions to monitor and rule.”

His views represent the views of avant-garde economists. Although the point-to-point understanding is a bit lacking, the overall thinking is very forward-looking. It is not easy to make such an assumption, but the practice of examining and analyzing cryptocurrencies may be more instructive. For example:

There is no bubble in the project on the chain

On-chain refers to projects running on the blockchain, such as DeFi distributed financial projects. From the perspective of cryptocurrency practice, there is no bubble on the chain. Satoshi Nakamoto removed the bank as an intermediary in a peer-to-peer manner. On-chain financial applications allow users to directly connect with project parties, such as docking with DeFi projects such as mortgage stablecoin DAI and lending Compound, without banks. The disadvantage is that it is still too complicated and does not have the conditions for large-scale popularization in terms of practicality. These projects demonstrate the characteristics of financial operations in the unbanked era. A profession will be born in the future: the project broker profession, helping users make money.

It should be noted that the project may still be centralized before it is put on the chain, such as the stablecoin USDT, the off-chain data is not transparent enough, and there is a possibility of capital amplification. A peer-to-peer system cannot solve the problem before it is connected to the chain. This issue requires transparency across the financial system.

The current financial system needs to learn from cryptocurrencies to reduce regulatory costs with transparency.

The current banks cannot achieve the transparency of the Bitcoin system, nor can they achieve the transparency of DeFi. In terms of transparency, the on-chain system is ahead of the current financial system, and it is worth learning from the current financial system.

The Bitcoin system sets an example – no need for regulation. Just imagine which current financial system has done it. If the financial system as a whole is transparent, supervision will be very simple. In a bubble-free financial system, the cost of regulation is meager.

Traditional supervision methods have some effect on centralized projects such as cryptocurrency centralized exchanges and stablecoin USDT, but the challenges are great, mainly because supervision is regional, while projects are global. For on-chain and transparent systems, different supervision methods must be adopted. The principle of “same business, same risk, same rules” adopted by the Hong Kong government and relevant regulatory agencies in Hong Kong is perfect. Can Hong Kong’s traditional banking supervision be improved by referring to the principles of transparency and openness of cryptocurrencies?

In fact, cryptocurrencies and stocks have many similarities. The core of the stock market is based on transparency regulation and has formed an ecology of regulators, exchanges, listed companies, investment banks, analysts, funds, and users. The right to speak of cryptocurrencies has returned to the hands of investment banks such as A16Z and Wood Sister, which shows that this is a natural evolutionary path. Because cryptocurrencies are very transparent, they are in line with the regulatory principles of the stock market and are easier to implement. The Ethereum Foundation voluntarily publishes its annual report, which shows that regulators and project parties can reach a consensus on transparency.

Jack Ma said: “The bank does not change, we change the bank.” Ma’s Alipay can be transparent in minutes, and there is no need for secondary supervision. Transparent supervision is better than secondary supervision, and opaque supervision is a breeding ground for corruption.

Credit funds are the source of economic cycles

Satoshi Nakamoto said in the Debut Notes of Bitcoin that the peer-to-peer cash system can solve the problem of bank bubble lending, that is, solve the problem of bank credit lending. Credit funds refer to the sum of M2 broad money, and M3 can statistic monetary aggregates. Credit has great uncertainty, and circular mortgages push asset prices to spiral upwards, eventually resulting in oversupply; then asset prices fall, forming large and small economic cycle changes. That is, credit funding is at the root of the emergence of economic cycles. The economic cycle is divided into the concepts of long cycle and short cycle. The long cycle is generally measured by the 60-year Kangbo cycle. There are many short cycles of 5-8 years in the long cycle. The short cycle will not cause major adjustments and change the long-term trend. Bitcoin is very special. It is designed with a short cycle of adjustment every 4 years. Bitcoin’s coin issuance cycle is 132 years, the length of two Kangbo cycles. How do we overcome the resonant decline caused by the superposition of short and long cycles? Bitcoin is designed to be halved for four years, artificially reducing the supply by half. Under the condition that the original supply and demand were basically balanced, the supply was suddenly cut in half so that the upward trend of Bitcoin’s shock remained unchanged, avoiding the influence of the Kangbo cycle, that is, the long cycle. The table below is quoted from Snowballs’s Stupid Old Man article, the time division of the 5 Kangbo cycles.

The third depression listed in the table was the 1929 U.S. stock market crash, and the fourth was the global economic depression caused by the oil crisis of 1973. Symptoms of the Fourth Depression have lessened. For the fifth time, the U.S. subprime mortgage crisis that started in 2008 caused a financial tsunami, and the recession occurred as scheduled. Policymakers maintained asset values by issuing an excess of US$2 trillion in currency, which prevented the depression in 2015 from occurring as expected. Ray Dalio, the founder of Bridgewater Fund, believes that a long cycle is 70-100 years. The author thinks that the Kangbo cycle is a bit mechanical, and Dalio’s view may be more in line with the current reality.

By the way, Dalio’s opinion is critical because he thinks China has entered the Great Depression phase.

After decades of growth, China escaped the recession phase through the 4 trillion stimulus in 2008, but it seems that this time, the depression phase cannot be run. Depression must be the superposition of various contradictions. There are obvious signs of depression in 2023. If it is not handled well, there will be a resonant decline, destroying many bubbles and eliminating a large amount of value. Everyone has a premonition that the storm is coming. In 2023, the central bank released data that RMB deposits increased by 20.1 trillion yuan in the first half of the year! The monthly deposit increase means expenditures have decreased; the downward spiral has not stopped. That is the inevitable result of credit lending. Generally speaking, it is a slow rise and a sharp fall. Even more frightening is that the short-term and long-term declines are superimposed to cause a rapid decline. Satoshi Nakamoto used the four-year halving to overcome the superposition of long and short cycles, and the adjustment method for the legal currency was the central bank to release water. The central bank releases water to inflate the balloon and support asset prices, but the central bank’s ever-increasing money injection eventually destroys the central bank’s credit. The release of water by the central bank is the first problem Satoshi Nakamoto proposed to solve in the Debut Notes of the Bitcoin peer-to-peer cash system.

Is it OK without bubbles?

“We know that the amount of money issued must match the demand for commodity circulation in society. More precisely, the amount of money issued must be in line with the rhythm of the increase in output of the whole society. From the historical situation, the world Although the productivity of ancient society developed slowly, the mining of gold and silver was not much different in theory. If all the gold and silver could be circulated, the problem would not be a big problem. The terrible thing is that the result of social development is the polarization of the rich and the poor. Gold and silver are continuously hoarded as wealth, which leads to less and less gold and silver circulating in the society, and deflation has gone out of a spiral self-realization process.” (Quoted from the column of the Snowballs’s Stupid Old Man ) Hoarding Bitcoin and Saving gold is the same. If this problem is not resolved, realizing a bubble-free financial system will be impossible. It means that the deflation of gold will be reproduced on Bitcoin, and this problem must be solved.

Doesn’t the gold standard cause inflation?

The gold standard has a long history, and the origin of what people call the gold standard in modern times is the Royal Bank of England. The banknotes issued by it magnify the gold stock. Its gold reserve is equivalent to the current deposit reserve, which is roughly 8% of the gold reserve. In order to issue additional currency, there must be gold reserves and gold reserves are not free; there are costs, obviously not as easy as the issuance of legal currency. There were no giant bubbles during the gold standard era, and the financial crises of the U.S. gold standard period had more to do with U.S. financial regulation than with the workings of the gold standard itself, which is recognized by all financial historians worth their salt. The gold standard still has credit lending, so there is a bubble, but unlike fiat currency, which is so feckless, people have to pay for their greed eventually.

A bubble-free financial system also has bubbles

Economic development is the joint result of credit funds and the improvement of production efficiency. Without credit, a bubble-free financial system only corresponds to increased production efficiency. The progress of production efficiency is linear, and the development is stable and predictable. Credit creates a bubble, which disturbs the linear system. The uncertainty of the existence of the bubble breeds speculation. As the bubble grows, getting rich through hard work has become a joke, and getting rich through speculation has become the kingly way. The cryptocurrency field is the kingly paradise of speculation.

Is there no foam in the non-foam system? The bubble-free system remains collateralized, leveraging the stock of assets. The situation of lending money to others without collateral has not been seen in practice on the cryptocurrency chain. We regard the bubble-free financial system as a whole. If a specific node has a credit capacity, it may generate bubbles. For example, there is no bubble after the stablecoin USDT is on-chain, but it is not fully mortgaged when USDT is issued. That is still a credit behavior, and there will be a bubble if there is credit. Therefore, it has bubbles looking at the on-chain and off-chain as a whole.

There has never been a stablecoin in the Bitcoin system because it takes only 10 minutes to pack a block, and the stablecoin is not easy to stabilize. Many other cryptocurrency projects have stablecoins; that is, in order to meet the requirements of a bubble-free financial system, there must be legal constraints and supervision on large-scale bubbles. Of course, transparency is also a soft constraint.

The Bitcoin peer-to-peer cash system is only a prototype of a bubble-free financial system, and laws and systems are still needed. In other words, just like intelligent robots also have safety valves.

Bitcoin, like gold, has no rulers

A complete currency has at least three financial properties: a store of value, a medium of exchange, and a gauge. Stored value is easy to understand. The popular explanation is that it is a currency that does not depreciate. Currency has a stored value called a stored currency or a reserve currency. Bitcoin and gold are both store-of-value currencies. The medium of exchange is well understood: the currencies recognized by both parties to the transaction, including Bitcoin and gold. The ruler is also called the pricing unit, which the two parties use to price the traded goods, such as U.S. dollars or RMB. Currency does not necessarily function as a ruler. Renminbi is not an international unit of account. There are many reasons for this result; at least the global settlement volume of RMB is insufficient, only a little over 2%. What kind of conditions does currency have as a yardstick for pricing?

1. cannot be limited,

2. Must be stable,

3. There is a critical settlement volume of global trade.

Both gold and bitcoin are finite. Neither gold nor bitcoin is stable enough to have significant settlement volumes for global trade.

Bitcoin can be divided into “Satoshi,” nearly ten-thousandth of the U.S. dollar. Gold has long been denominated in grams. Does the “limit” not hold? The “limited amount” here means that the overall amount fails to keep pace with economic development. Zhou Xiaochuan believes that “an international reserve currency that can maintain the long-term stability of the currency value,” the stability of gold and Bitcoin cannot be achieved. Of course, it does not have the settlement volume of global trade. So, neither gold nor Bitcoin has a ruler function. If Bitcoin is used to achieve a bubble-free financial system in recent decades, it must be equipped with a ruler.

bitcoin ruler

In cryptocurrencies, collateralizing the stablecoin DAI is a great experiment. It issues DAI by mortgaging Bitcoin, and DAI is anchored to the U.S. dollar. This good experiment lets us see the feasibility of a bubble-free financial system. The author’s article “Proposal to Realize the Bitcoin Dollar Standard” ( refers to the experimental results of DAI. However, this plan always has centralization, which does not meet Zhou Xiaochuan’s requirement of “creating a decoupling from sovereign countries and maintaining long-term stability of currency value.” Bitcoin’s ruler must meet Zhou Xiaochuan’s requirements as a bubble-free financial system.

Adjustment ability

In the previous section, “Is it OK without bubbles?”, the insufficient circulation of gold and the difficulty of adjustment will cause deflation. Using Bitcoin as a standard currency must solve the problem of deflation. It cannot be solved by Bitcoin alone. It must be equipped with a ruler and cannot be issued in limited quantities. Dai has already solved this problem. But the adjustment is not enough; it is a bit complicated. From the perspective of the U.S. dollar, the Federal Reserve is responsible for issuing U.S. dollars, and the market is responsible for regulating the price of U.S. dollars. The market adjustment is based on expectations, not the actual money demand. Reasonable adjustment means that as much as the market demands, it can be released automatically, and the issuance and adjustment are integrated. Therefore, it is necessary to change the current outdated way that the Federal Reserve adjusts according to market forecasts, that is, the manual adjustment method, and replace it with an automatic adjustment mechanism, a negative feedback mechanism. Negative feedback refers to the process of affecting the input through the output signal when the output of the system deviates from the target so that the output returns to the target value.

The Contradictions Between Overall Measures of Wealth and Individual Commodity Measure

The monetary is the measure of the wealth of transactions of the total wealth, which can be added to the base currencies of roughly 80 trillion U.S. dollars of various countries. The legal currency has a credit effect, that is, the multiplier effect of bank funds. If calculated by a 4-5 multiplier, the total currency used to measure global transaction wealth is 320 trillion to 400 trillion U.S. dollars. If a bubble-free system is used, that is, the total amount of currency that uses Bitcoin to measure the wealth of global currency transactions, it is estimated that 400 trillion U.S. dollars will be needed based on the current transaction scale, and this value is still rising. Based on this, the price of each bitcoin is estimated at 19 million U.S. dollars. When the market value of Bitcoin reaches 400 trillion, it may be synchronized with the growth of the global economy. At this time, the fluctuation of Bitcoin will be minimal. When the fluctuation is similar to the U.S. dollar, Satoshi may be used as a pricing yardstick. At this time, one Satoshi is $0.19. The author has predicted when Bitcoin will reach this price level in the “Bitcoin Natural Growth Curve” ( It is the prediction under the Bitcoin standard conditions. If it is not the Bitcoin standard, it will be far lower than the article’s prediction; that is, it will take a longer time for Bitcoin to reach this price. The report predicts that under the conditions of the Bitcoin standard, it will take 84 years for the market value of Bitcoin to get 400 trillion in the 25th cycle.

There are three questions about whether Satoshi can be used as a yardstick:

1. Can modern legal currency get rid of the law of the demise of historical banknotes? The banknotes issued in ancient China, such as the “Jiaozi” in the Northern Song Dynasty, the “Huizi” in the Southern Song Dynasty, the “Zhongtong Banknote” in the Yuan Dynasty, and the “Daming Treasure Banknote” in the Ming Dynasty, all perished in about 100 years. The reason is excessive currency issuance and hyperinflation. Has human nature changed over the centuries? Today’s U.S. dollar has only 3% of the purchasing power of 100 years ago; can it last another 84 years? If it can’t stand it, Who knows what the situation is? Satoshi Nakamoto’s 132-year coin issuance assumes it is legal currency and can still stand, thus completing a natural transition. If the preconditions are not there, there will be great uncertainty in using Satoshi as a ruler.

2. If Bitcoin is not widely used, it will not be possible to realize the transaction payment for the purchase of goods in the actual scene, but only realize the stored value. Gold is the leader of the stored-value currency, and it is difficult for Bitcoin to exceed the market value of gold. Therefore, there must be a currency with a stable currency linked to Bitcoin, which can be widely used, and the Bitcoin standard can be realized. When the market value of Bitcoin reaches 400 trillion, Satoshi may become the ruler because the fluctuation of Bitcoin becomes smaller, but this is only theoretically established, and it is not feasible in practice.

3. From a practical analysis point of view, even if Bitcoin reaches a market value of 400 trillion, Satoshi is not suitable as a yardstick because the speed and transaction fees of the Bitcoin network are not suitable for small payments. Satoshi is Bitcoin, and it will also Have the disadvantages mentioned above of payment. Moreover, the price of Satoshi fluctuates with the price of Bitcoin, and there is no fluctuation stabilization mechanism of USDT. It is impossible to establish a stable mechanism for Bitcoin because its function is to measure the total transaction wealth, and the price must continue to rise while the stable currency needs to be stable since stablecoins are used to price specific commodities. Satoshi is not a substitute for stablecoins. Bitcoin is the same as gold; with them alone, it is impossible to simultaneously measure the total amount and the specific commodity.

Bitcoin dead coin is a godsend

As a bubble-free financial system, since the bubble cannot be eliminated, it requires a final rescue measure for the economy. It is impossible to over-issue currency. One way is to mortgage Bitcoin to raise stablecoin, and you can get interest income. If the collateral is insufficient or enters a long-term depression cycle (maybe), the repayment cycle will be very long, and big countries often cancel the debts of poor countries. Obviously, mortgages are not fully able to achieve rescue. Millions of bitcoins have lost their private keys, and this part can be revitalized according to the rules and used to rescue the economy. Generally speaking, the possibility of a crisis in a linear system is minimal, but small probability events must be estimated in advance.

To realize Zhou Xiaochuan’s ideal, what kind of ruler does Bitcoin need now?

Zhou Xiaochuan believes that “creating an international reserve currency that is decoupled from sovereign countries and can maintain long-term stability in currency value, thereby avoiding the inherent defects of sovereign credit currencies as reserve currencies, is the ideal of the reform of the international monetary system.” Zhou Xiaochuan’s words There is a position to imply using RMB as a ruler. Apart from this, it is very professional. In fact, we need a currency that is not only a super-sovereign reserve currency but also a settlement currency that can replace the RMB as a super-sovereign currency and has three complete characteristics of currency: stored value currency, trading medium, and pricing scale.

This scale should have the following characteristics:

Bitcoin is decoupled from the sovereign state, and the Bitcoin ruler also needs to be decoupled from the sovereign state, and there is no centralized institutional control. Mortgage Bitcoin can issue this stablecoin in unlimited quantities and keep the scale stable. At the same time, like the U.S. dollar, the stability of the Bitcoin ruler is regulated by secondary market pricing.

It is required to go beyond the issuance means and adjustment means of the U.S. dollar so that the fluctuation is smaller than that of the U.S. dollar.

Response to the economy should be more sensitive.

Relying on its own competitive advantages to surpass the U.S. dollar and become a globally recognized pricing unit. End dollar hegemony.

DW20 decentralized standard currency meets all the above conditions and can realize Bitcoin standard together with Bitcoin.

DW20 will be released soon, and the white paper will be released simultaneously. Satoshi Nakamoto issued Bitcoin using the method of value pooling, bringing together idle computer computing power, power consumption, and users. DW20 also takes medicine according to the prescription, gathers global users and user value, and jointly builds the Babel Tower. It will be released on the website at that time.

Bubble-Free Financial System

The bubble-free financial system is based on the practice of cryptocurrencies. All important elements are Bitcoin’s peer-to-peer technology, cross-chain technology, stablecoin technology, and the Ethereum platform. The bubble-free financial system is a single-payer system that conforms to the principles of the Internet. The Ethereum platform shows the prototype of a bubble-free system.

All nodes of a bubble-free financial system are equal on Ethereum. There is no central bank. If global finance is a bubble-free financial system and connected with cross-chains, a global bubble-free financial system can be formed. The Internet has connected the earth into a global village, but finance has never been integrated. Once integrated, the bubble-free financial system still needs international supervision and unified action based on transparency.

This article supplements the article “The Advantages of the Bitcoin System with Self-Control over the Current Financial System,” and some concepts can be referred to in this article. The website brings together all relevant basic information.

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