Special edition – correctly understand the origin of currency and the nature of digital currency

——Reading “Money: The Unauthorised Biography” and answering Peter Pan

The following is the exchange between Peter Pan and me about the DW20 decentralized currency. He was the first reader to comment on my article on the chainless.hk website. The world makes friends through literature. He is a lawyer with a wide-ranging vision as a career need. He recommended a book, “Money: The Unauthorised Biography,” and attached his opinion on “a correct understanding of the origin and essence of currency.” Our discussion helps readers understand the DW20 currency.

Hello, teacher Zhu:

I especially want to share this alternative economic book with you – “Money: The Unauthorised Biography” (Felix Martin, CITIC Press), because this book has subverted my views on the origin and nature of money. Congratulations, teacher, for your recent creation and promotion of the DW20 project. This book will also be of great help to the people’s correct understanding of DW20.

The title of “Money: The Unauthorised Biography” is a bit informal, but the arguments are all quoted from classics, corroborated by facts, and logically supported. It is not a random unofficial history. In terms of argumentation quality, it is even better than official history. This book is fascinating and worth reading because it changed my view of currency. The monetary theory of the mainstream economy believes that money originates from commodities. Generally speaking, in primitive economies, everyone barters. This method is inconvenient and has low transaction efficiency. Slowly, shells, furs, etc., served as general equivalents instead of bartering. Commodities that serve as available equivalents need to be small in quantity and rare and be able to be stored for a long time and easily divided. Later, rare metals such as gold, silver, and copper won the competition among many commodities that served as general equivalents and became currencies. As Marx said: “Gold and silver are naturally not money, but money is naturally gold and silver.”

The book “Money: The Unauthorised Biography” tells us there has never been a barter society, and even the backward Yap Island has a developed monetary system. It did not slowly develop from commodities into currency. After reading this book, my understanding of currency changed, greatly impacting my original concepts. This is what currency is like, not what textbooks or mainstream economics discuss. The Austrian school of economics has also criticized the labor theory of value. I studied Marxist political economics in middle school and university. One concept I often take exams for is the definition of value. I can still recite it by heart – “Value is the undifferentiated human labor condensed in commodities.” The Austrian school of economics says that value is not like this. Value is very subjective. If you like a painting by a third-rate painter and are willing to pay $1 million, then the picture is worth $1 million. A bottle of water in the desert is the same as an everyday bottle of water, but its value is definitely not necessarily the same. In addition, labor values cannot explain interest and investment returns.

Money is not a commodity as a medium of exchange! Some people say that the source of the value of DW20 is wrong. DW20 does not require electricity to become a commodity like Bitcoin. Because money does not need to be a commodity, it does not need to have a source of value. The stone “Fee” of Yap Island, the English Tally, and the checks from Ireland when the banks were shut down in 1970 all illustrate that the essence of currency is transferable credit. Where does the value of the above currencies come from? None have original value, but that does not affect them becoming currencies.

Felix Martin explained and defined currency in “Money: The Unauthorised Biography.” Currency is a system composed of credit records and clearing mechanisms. Currency has three elements:

1. An abstract unit of value that measures monetary value;

2. Credit record and clearing and settlement mechanism;

3. Free transfer.

These can be used as theories to explain why DW20 is a currency. The DW20 currency serves as a unit to measure abstract value; the DW20 currency is recorded in the chainless system, and the ledger is uploaded to the Bitcoin system, serving as a credit record and clearing reconciliation; the DW20 currency can be transferred freely without restriction.

In short, the DW20 coin does not need to have an original value. It is a unit of monetary value, which perfectly answers the question of the value of DW20.

Of course, the overall value of the DW20 coin is reflected in the number of users and the receiving area. As a bystander, I hope the DW20 created by Teacher Zhu will touch every corner of the world and help everyone who loves freedom and justice.

By the way, I read the article “Zhou Xiaochuan: Payment System and Digital Currency” you recommended. From aspects such as digital currency classification and payment system evolution, Governor Zhou Xiaochuan keeps up with the trends of the times. He has a profound understanding and learned a lot. But position determines the point of view, and Zhou Xing supports the broad digital currency. The digitization of payment systems is a digital currency. The ones that are highly competitive and widely used under market conditions are probably WeChat Pay and Alipay. Why do you rate Zhou Xiaochuan’s article so highly?

Peter Pan

Written on 2023.8.2, edited on 2023.10.30

Zhu reply:

The content of “Money: The Unauthorised Biography” is vibrant and exceeds our knowledge background, so it is difficult to understand its connotation. As for Martin’s description of history, I can’t comment on it because I don’t have enough background. From my knowledge of monetary history, it cannot be assumed that money did not begin with barter. The Yap Island he mentioned is just an example and cannot be generalized because both situations exist. Still, the Yap Island method aligns more with the current digital currency ecology.

Currency has evolved. Although both are called currencies, their connotations are different. Currency as a commodity exists. For example, gold and silver coins are asset currencies, while legal tender is credit currency. Neither distinction is made in Martin’s book.

The book’s description of the discovery of economic value says that currency measures economic value, which is correct. Economic value is an abstract object, and the method of measuring it differs from physical measurement. It is somewhat inexplicable that the book uses the way of measuring physical objects to require currency. Currency as a yardstick must be objective. It is correct. None of the current legal currencies have this objectivity because there are issuing entities and regulatory mechanisms. The extensive airdrop of DW20 is to solve the problem of objectivity. Satoshi Nakamoto’s Bitcoin issuance adopts a method without an issuance subject, which is to meet the requirements of objectivity and to generate consensus easily. DW20 is also ownerless and does not even have a separate account.

The ruler needs to be stable, and the ruler’s scale cannot be changed. Currency cannot be as stable as a ruler. The negative feedback mechanism of DW20 determines that it will be more stable than the U.S. dollar. The U.S. dollar is market-oriented, but a few people still price it, while the majority price DW20. Because the U.S. dollar is priced on a dedicated Exchange and the number of participants is limited, the randomness is insufficient, so there are loopholes in the fairness of the value. However, we are priced directly by platform users with complete randomness.

Physical objects are unchanging and can be measured with a stable ruler. But a ruler is not a medium of exchange. A medium of exchange must measure all things exchanged and remain constant with growth. For the problem that the growth of money and measures remains unchanged, there is the famous Fisher’s formula: the medium of exchange needs to be equal to the development of the economic aggregate. The gold standard cannot do this.

If the stored value of money is good, inflation cannot occur. The issuance of legal tender cannot accurately correspond to economic development. Inflation is a chronic disease of fiat currency, which damages the stored value of fiat currency. The gold reserved by the central bank is not a medium of exchange. How is it different from the reserve of antiques? Very confusing.

Pure credit and consensus do not exist; both depend on the value behind them. The public consensus on Bitcoin is that its value is converted from energy. There is no energy conversion in DW20, but the conversion of customer value. Customer value is limited. The financial value of 7 billion people is only 7 trillion U.S. dollars, but the actual economic aggregate exceeds 400 trillion U.S. dollars. DW20 alone is not enough to measure global wealth. Therefore, only when the price of Bitcoin rises, and the price of DW20 remains unchanged can it solve the problem of fiat currency inflation. In order to increase liquidity, DW20’s first airdrop issuance is limited to US$210 billion, which is far less than the total value of users of US$7 trillion. DW20 is also supported by user value and has original value.

Using Bitcoin to measure the total amount and DW20 as a ruler to form a Bitcoin-standard solution is a new idea to solve the problem of economic value measurement.

The recording and clearing mechanism is a ledger mechanism that Satoshi Nakamoto solved. Just because a clearing mechanism is added, it cannot be considered that currency is not a commodity. It has transaction characteristics and is a commodity. The uniqueness of digital currency is that it cannot exist without a recording and clearing mechanism.

“Money: The Unauthorised Biography” is not a rigorous academic work. The author is unconventional and has some sharp views. The overall writing style is very different from the Chinese style, which makes it uncomfortable to read. Chinese books are relatively condensed, but this book can cut off more than half of the nonsense.

Zhou Xiaochuan’s article “Payment Systems and Digital Currency” demonstrates the academic level of a technocrat. I noticed that Zhou Xiaochuan did not use the medium of transaction but used the word payment to participate in the definition of digital currency. What is the difference between the medium of exchange and payment? The medium of exchange is about attributes, and payment is about behavior. Shells can be used as a medium of exchange for payment, while numbers are invisible. It doesn’t make sense to say that numbers are a medium of exchange. Zhou Xiaochuan’s statement that he does not use a transaction medium when defining digital currency reflects his level. In this regard, I have not previously considered the difference between these two concepts in depth. Zhou’s meticulousness and professionalism far exceeded mine, so he accurately defined that the “digits” that meet the requirements of payment, scale, and stored value are digits currency. In other words, digital currency is closely related to the operating system and cannot exist independently.

Zhou Xiaochuan believes that the payment characteristics of Bitcoin are incomplete. Based on this definition, denying that Bitcoin is a currency is also tenable. The monolith Fee of Yap plays a role in a system of credit, just like the numbers in a digital currency. Bitcoin is different from gold. Gold can exist independently, but Bitcoin cannot. Bitcoin cannot solve the scale problem, and its status is not as good as gold, which explains why the central bank will not store Bitcoin. The situation would be very different if Bitcoin had DW20 as a benchmark and could automatically liquidate using chainless. Therefore, our set of ideas based on Satoshi Nakamoto meets the needs of future social development.

Zhou Xiaochuan has a complete theoretical logic, so it cannot be said that they do not understand cryptocurrency. I admire Zhou Xiaochuan’s learning ability very much. There are few financial masters like Zhou Xiaochuan in the cryptocurrency field because he has theory and practical ability. Although the technology of cryptocurrency experts is not bad, their understanding of counterparty theory is not as good as counterparty understanding of cryptocurrency. It is what prompted me to write a series of cryptocurrency theory articles. My article “From Peer-to-Peer Cash System to Bubble-Free Financial System” (chain less.hk) is a theoretical attempt to use the Bitcoin standard to replace the current legal currency system in the future.

After all, Zhou Xiaochuan is not a product expert. He can only evaluate Bitcoin from a financial perspective and is not responsible for improving Bitcoin. It is our only advantage over them. In a broad sense, they are our users. If you cannot convince them with this approach, users will not use your product. If you don’t enter the mainstream market, you enjoy yourself in a niche market.

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