Interpretation of DW20 Decentralized Standard Currency Design Features

Decryption White Paper Series

As the airdrop approaches, we have begun to publish DW20 white papers, chainless white papers, and comments from experts. The knowledge span of cryptocurrency is enormous. Based on our learning experience, we have launched a white paper series with various authors and perspectives. There will always be one that suits you. There are five versions of the DW20 white paper; there are two versions of the chainless white paper, suitable for different readers. We will publish them starting with the most readable version. Interspersed with commentaries.

Written in front: Wan Chuan is my good friend; he is one of the bosses of Xinjiang Delong Company and a man of the hour in China’s capital market. He also has a deep understanding of cryptocurrencies. Both success and failure have accidental factors, the most important being the spirit of struggle and learning. He has read all my articles, and I am very grateful for his comments. His comments also show the skill of China’s first generation of capitalists after the reform. DW20 was initially called a distributed stable currency. Wan Chuan showed the article to his friends and found that everyone had already concluded stable currency. It is easy to confuse DW20 with a stable currency, which makes it difficult to understand. At that time, I considered that no one understood the standard currency, and the other was that I took advantage of Bitcoin because DW20 alone could not constitute a standard currency. From the perspective that the market is easy to understand, I adopted Wan Chuan’s suggestion and revised the articles accordingly. DW20 is positioned as a decentralized standard currency.

The knowledge span of cryptocurrency is too large. Wan Chuan’s article is an in-depth analysis. His understanding of the problem may inspire industry experts.

Zhu Weisha July 22, 2023

Tang Wanchuan commented:

The essence of Weisha’s articles is all in the first chapter. There are many innovations, some of which are easy to understand, and some of the content cannot be understood without reading it several times. Analyze as far as I know:

1. The first feasible way to create a Bitcoin standard

What is the standard currency? The U.S. dollar and the euro are. The coin circle believes that the Bitcoin standard is to replace the U.S. dollar with Bitcoin. The Bitcoin standard is the greatest value of Bitcoin, but no one in the coin circle has proposed a visible path. The most popular view is that when bitcoin reaches 20 trillion to 30 trillion U.S. dollars, it will be almost the same as the U.S. dollar issued by the Federal Reserve, and the bitcoin standard will be automatically realized. At this time, the volatility of bitcoin will be less than that of fiat currency, and people will naturally price it in bitcoin.

The question is why Bitcoin is smaller volatile. Stocks have the pricing logic of stocks, and fiat currencies have the pricing logic of fiat currencies. Who is pricing Bitcoin? What is the logic behind the pricing of Bitcoin? Gold has reached 12 trillion U.S. dollars but does not show the characteristics that may become a standard currency. The financial market abandoned gold as the standard currency in the last century, and the logic of Bitcoin adopting gold as digital gold will not become the standard currency. This theory of natural evolution is not supported by financial theory or practice. It Is a pure coin circle cheat leek’s view.

Money has three basic financial properties: store of value, medium of exchange, and ruler. Not all fiat currencies have these three capabilities. For example, RMB and Ruble are the trading medium in Sino-Russian trade, the price is still in U.S. dollars, and the dollar is the pricing yardstick now. The same is true for Bitcoin, which cannot be measured. If it is not a ruler, it is not a standard currency. Without a ruler, the Bitcoin standard cannot be realized. In this way, the value of Bitcoin is only reflected in the stored value currency.

Stored value is not equal to stored value currency, and the stored value of antiques, real estate, and even stocks may be better than legal currency. As a store of value currency, gold is officially recognized by the central bank’s reserve; Bitcoin is a reserve currency, but it is only recognized by the people.

In addition to the U.S. dollar and other standard currencies, the reserve currency, gold, is the boss, and the current scale is 11 trillion to 12 trillion. Bitcoin is the second largest. Generally speaking, the second largest can reach 30% of the market value of the largest. Therefore, Bitcoin may have an increase of 7-8 times. How long it will take is impossible to judge. The current 4-year halving cycle effect is getting weaker and weaker. If it cannot surpass the previous high point, Bitcoin will face a market collapse. The short seller will reap a big harvest. In this way, the normal growth of computing power will be affected. Once it enters the downward spiral, it is easy to enter the death spiral because the bears will be even crazier.

Seeing the problem of Bitcoin, Weisha introduced how to use the U.S. dollar as a Bitcoin currency in the article “A Solution to Realize the Bitcoin Dollar Standard” (https://www.bitpush.news/articles/3398219) on December 6, 2022. Realize the method of a standard ruler. The logic of this article is rigorous, and it is a theoretically feasible solution. At that time, he asked for my opinion. The plan is poorly enforced, and the biggest problem is that it requires the cooperation of Satoshi Nakamoto and the government. Based on the above ideas, the “DW20 Decentralized Standard Currency” proposed by him in June this year has solved this problem very well, and the Bitcoin standard can be realized without Satoshi Nakamoto and the government. It’s a genius solution that fuses the finance and spirit of cryptocurrency, and it has many amazing designs.

2. The Bitcoin standard is divided into three steps

The realization of the Bitcoin standard is divided into three stages. The first stage is the distribution of DW20 tokens. The POW algorithm distributes Bitcoin, while the airdrop algorithm distributes DW20. Focus on solving the problems of basic users and rising currency prices. The way to go up to $1 is lovely; I will specifically analyze its feasibility.

The second stage is the stable currency stage; at this stage, DW20 will be successful, and the price fluctuation of DW20 will gradually be smaller than that of the U.S. dollar;

The third stage: the standard currency stage, DW20, will become a commodity ruler that replaces or competes with the U.S. dollar. The stored value of Bitcoin is combined with the ruler value of DW20 to realize the Bitcoin standard together.

From the point of view of the syllogism, Bitcoin is always in the first stage now. Could Bitcoin Be a Stablecoin? It won’t be seen in the short term, at least not in another 20 years. That may be the original intention of Satoshi Nakamoto to design the 132-year mining cycle.

100 years is a long time, and the fiat currency crisis is less than 100 years. At that time, if human beings are not prepared, they will fall into chaos. With the bursting of the vast asset bubble and the decline of all industries, human beings will go back decades and pay for the luxury of a few of us today. The periodic economic crisis of legal currency has destroyed many healthy industries. This kind of chaos makes people see no hope.

There are mature cases in the first and second stages, which is logical. There is no ripe case for the third step, and Weisha did not give a plan. I asked him, and he said this is the forward-looking consideration that economists like Mises and Hayek should have; it seems that no new economic theory has surpassed them and can be verified. He is not an economist, and his vision and imagination are not enough, just enough to start a small business. In fact, Weisha’s three-step walk allowed me to see the thinking of a mature entrepreneur.

3. Use transparent centralization to realize the characteristics of distributed systems

In the first stage, DW20 also uses consensus to form a rise in currency prices; if DW20 is regarded as an independent system, it has no central body control; it is a decentralized system;  DW20 does not require a maintenance team; Its transaction book is also open and transparent, and users can download and view it at will. The hash value of the ledger is stored in the Bitcoin system; the most significant feature of the cryptocurrency is that it does not need to be supervised.

Using transparent centralization to realize the distributed nature of cryptocurrency has both the speed of centralization and the convenience of upgrading, as well as the characteristics of cryptocurrency. The core secret is that it relies on the index ledger and Bitcoin address design ideas. Since there is no need for “mining,” there is no need for multi-party bookkeeping, and it is really ingenious to use the Bitcoin system to increase the credit of one-party bookkeeping.

As an issued currency, Bitcoin’s bookkeeping is not expensive, and its computing power is the value source and conversion object of Bitcoin. But as an application platform project, using Bitcoin to keep accounts is sky-high, and only a fool would keep accounts like this. Many projects in cryptocurrency are copying Bitcoin regardless of the occasion. The reason why most public chain projects are unsuccessful is that they do not understand Bitcoin. More people understand technology in cryptocurrency, but not many people understand products. As one of the best product managers in China, Weisha’s chainless system will bring new ideas to the dull cryptocurrency field because of the popularity of DW20 and become the object of emulation.

4. Resilience and vulnerability issues

This issue is mentioned in the laying of the bottom funds. The airdrop of DW20 tokens is as high as 168 billion, and the funds generated are all basic funds. When it comes to laying the bottom, the first thing that comes to mind is the liquidity problem, which is used to prevent runs. For peer-to-peer, there is no capital amplification and no run. I don’t quite understand. Weisha uses Soros and the Hong Kong Monetary Authority to explain elasticity. Both are centralized, and DW20 does not have such a centralized scenario. There is only one use, and it can be provided fast when funds are needed. In fact, in the second stage, it is not a problem to be able to mortgage unlimited bitcoins to issue coins. I asked Weisha, and he said: “There is no uniform action in distributed, and the efficiency of funds will be very low. For example, if someone raises funds on the platform without a smart notification function, it may not be easy to raise. When there are many people, someone will always see it, which may be faster than the bank. To compete with the bank, the lending speed must not be slower than the bank, otherwise, no one will use it. The basic fund has no profit indicator, which is the biggest advantage.” The biggest advantage of flexibility is that the price fluctuation of buying and selling is small, which is also the need to solve the vulnerability. Vulnerability and resilience are two sides of the same coin.

Weisha believes that he has not delved into the financial principles and has never seen this distributed financial phenomenon. Insufficient elasticity is indeed a phenomenon that occurs in centralized systems. Soros and the Hong Kong Monetary Authority is a joint battle between the stock, futures, and foreign exchange markets. The chainless platform is a peer-to-peer platform like the Bitcoin system. Since it is a unified platform, it seems easier to link up. In the fierce battle between the HKMA and Soros, stock investors, foreign exchange peoples, and futures investors are undoubtedly the winners. The article also ignored one factor that Soros did not account for, and that is that the great Hong Kong people supported the Hong Kong government back then. Satoshi Nakamoto has a judgment: the system is stable when the evil nodes are smaller than the honest nodes. Distributing reflects the power of the market. If you choose to believe in the master’s Mises and Hayek, if you choose to believe in the market, you choose to believe in the people and give power to the people, which embodies the basic funds.

General finance is an individual battle, and the one with the largest amount of funds wins. The amount of money a team has is limited. The underlying funds are lethal to the short sellers because the cost of the underlying chips is extremely low, and the holders clearly understand the price judgment. There will be a Gamestop phenomenon when the short sellers make great efforts to kill. It is the community’s war against predators. When a foreign crocodile breaks in, he will face the choice of doing evil or good deeds described by Satoshi Nakamoto. The community has a common will, and defeating it is not easy. The US$200 billion market-making funds include shorts and longs. There is no unified will of the community for USD. The underlying funds have the effect of strengthening the community. The community fights against intruders, and 210 billion is enough to compete with all financial institutions or Predators; maybe Weisha feels the resilience.

5. Stocks and bitcoin rise logic

Market-making funds are a complex innovation for Weisha. The white paper is too deep, and I have often communicated with Weisha on this issue. To understand market-making funds, start with the basic concepts.

Bitcoin has the common properties of stocks and some properties that stocks do not have. Why is Bitcoin going up? And why don’t many small coins rise?

The rising stock must continue to set new highs so that there is no immobilization with a lasso in this stock. Even if it is stuck, it will be untied. Everyone makes money and loves this stock from the bottom of their hearts, so there will be new highs when they appear high. The price-earnings ratios of several leading companies in the United States are more than 30 times. Based on the past view of the stock market, it should have collapsed long ago. It did not collapse because of the mass base brought by the money-making effect.

If a stock cannot make a new high, it will enter a downward spiral without exception, and in the end, the transaction will be sparse and not move at the bottom. Generally speaking, everyone buying this stock will lose money and mass base. In other words, the stocks that make most people lose money are basically dead. Resurrecting from the dead requires a new concept, like New Oriental’s Dongfang Selection. After cracking down on education and training, it has been hovering sideways at 2 yuan. It starts from 2.8 yuan in June 2022 and will rise to 73 yuan in half a year. New concepts are introduced to attract new funds to enter the market. Very regular callback to 50% position around 30 yuan to stop. The next wave of upswing requires new funds and new performance. Otherwise, it will just be sideways.

The above analysis for stocks also applies to Bitcoin. That is a commonality between Bitcoin and stocks.

Judging from the four-year halving cycle of Bitcoin, there is no immobilization with a lasso, so the logic of rising is still there. The biggest problem is that if the halving cycle in 2024 fails to break through the previous highs, the logic of the market will change. It shows that the effect of the halving cycle no longer exists. Bitcoin has lost its fundamental assumption of a sustained rise. That is, the downward spiral I mentioned earlier.

The difference between Bitcoin and stocks is that the valuation logic is different. The stock market is the valuation of mature companies. Starting from the stock market, Buffett believes that Bitcoin cannot be valued. The reason is that Bitcoin does not represent the value of the Bitcoin system, so it is not a productive asset in Buffett’s eyes. Buffett’s investment is something that can be calculated return. From the investment perspective, it is a late-stage investment, that is, an investment in a company at a mature stage. Enterprises in the early and high-growth stages are out of Buffett’s sight. Weisha told me to find a way to get Buffett to invest in Bitcoin, and Bitcoin entered the room. He is whimsical. Reading his market maker idea made me clap my hands.

6. Bitcoin is a Demand Valuation

When it comes to valuation, there are different valuation methods at different stages. Buffett is the valuation of the latter stage. Regardless of the previous stage or the latter stage, the logic of valuation is the same, and it is an estimate of future value. The difference is that the calculability of the latter section is strong, and the front section is poor. The seed round, angel round, A round, and B round each round has a different valuation method. The seed round relied on storytelling, and an additional experimental system was added to the A round. Looking at cryptocurrency projects using traditional valuation logic, most of them are in the A round or late A round. Ethereum has found a valued mortgage for its currency to earn interest, which is still a serious business, and Bitcoin does not even have such a business. Because Bitcoin has no application ecology at all.

Bitcoin has no ecology, and its value depends on demand and supply. It is a very important concept, which is more straightforward than any enterprise so that it can be calculated based on mathematics; in other words, it has high certainty.

Bitcoin, like gold, is used as a store of value currency, and fighting inflation is its only use. Gold is the official fight against inflation. Both gold and U.S. stocks are at historical highs. The central banks are successful. Retail investors choose Bitcoin to fight inflation, but Bitcoin is still at half its high point, just like the Hong Kong stock market, which fell from more than 30,000 points to 18,000 points, has been lying at the bottom. The central bank cannot choose stocks, while retail investors have many choices. The logic of retail investors chases ups and downs. If you don’t rise, there will be no retail investors to chase. That is the head sheep and herd effect.

Luna’s subsequent FTX explosion and the SEC’s chilling greatly reduced its demand, and it is in a perfect position today. The secret is that Bitcoin has a firm price bottom: the bottom of computing power. That is the cost line of computing power. Every rise in Bitcoin brings a vast price difference, which leads to a rapid increase in computing power, thereby raising the bottom of the price. Just imagine if gold has this price bottom? Does this bottom happen to stocks? The price of a stock depends on the fundamentals, the fundamentals constitute its bottom, and the top is the imagination of the future. Bitcoin does not have this fundamental, and what is equivalent to the fundamentals of stocks is the bottom of computing power. Bitcoin tops are as much a vision of the future as stocks are. The bottom of computing power is a very important concept that will be used later.

7. Match Bitcoin with ecology

The biggest application of Bitcoin is the Bitcoin standard, which means that in addition to the stored value, Bitcoin standard brings ruler value. Assuming that Bitcoin is the only measurement tool, according to the Fisher principle formula: the total money supply is equal to the entire industrial demand. Simply put, this is a market cap of hundreds of trillions. It is the logic behind Hal Finney’s Bitcoin price conjecture released on January 12, 2009, which is believed to be $10 million for one Bitcoin. When DW20 is paired with Bitcoin, the Bitcoin standard is established, and the Hal Finney conjecture is confirmed. DW20 is not tied to any national economy. Therefore, corresponding to the measurement of economic value, DW20 is objective. The reason why the ruler exists is that it has nothing to do with the measured object. Gold has nothing to do with the economy; fiat money does. So fiat currency is not a good ruler. Under the Bitcoin standard, Bitcoin is used to measure the total wealth of society, while DW20 measures specific commodities, both have objectivity. With the cooperation of Bitcoin and DW20 with the chainless platform, the ecological value of Bitcoin appears, thus forming a Bitcoin-based financial system.

8. The role of market-making fund

Market making is generally the concept of the primary market. USDT and the Hong Kong dollar have a primary market making, thus maintaining the anchor with the U.S. dollar. Applying this method to the secondary market is the essence of the article. I have discussed this with Weisha many times.

• Both Bitcoin and DW20 have no enterprise value as support, which is the same as USDT and Hong Kong dollar. The adjustment of USDT and HKD is close to the adjustment of pure mathematics. The USDT is much more purely mathematical.

• Bitcoin mining takes 10 minutes as the central axis to produce a block. The average time of 2016 blocks is calculated. If it is less than 10 minutes, the difficulty will be increased, and if it is more than 10 minutes, the difficulty will be reduced. Through an automatic adjustment mechanism, the random entry of computing power becomes a linear block production. Note that this is also a purely mathematical adjustment.

• Earlier, we introduced a concept: computing power bottom. When Bitcoin falls below the computing power bottom, funds will enter to support the price. It is a purely mathematical calculation. The USDT is much more purely mathematical.

• The price increase of Bitcoin is random, which can be regarded as the same random problem in mathematics as the random entry of computing power into the Bitcoin system. The uniformity of block production corresponds to the uniformity of price increases is also the same issue. Bitcoin’s most significant difference with stocks is that there are no fundamentals. The stabilization methods of USDT and the Hong Kong dollar have been proven, and the adjustment is effective.

With the above-known conditions, it is possible to design how to turn DW20 random user enter into an orderly rise.

The valuation of DW20 as a system is supported by user value. As discussed in the white paper, this bottom is generally not the market price. It is true for Bitcoin and Dogecoin. The market price is higher than the user value. For trading systems, Bollinger Bands are generally used to predict the price fluctuation range, and the reason for falling below is generally a change in the fundamentals. Since DW20 has no fundamentals, it will be pulled up as quickly as Bitcoin after it breaks, so the Bollinger Band as a test line is equivalent to Bitcoin’s 2016 block detection of whether the average deviates from the 10-minute.

Bitcoin’s solution is to adjust the difficulty value, while DW20’s solution is to set up a market-making fund to specify the location for receiving sell the coin. That is equivalent to Bitcoin’s computing power bottom, and falling below is an opportunity.

The value calculation of DW20 is straightforward; the number of people and transaction volume, these data are transparent. Due to the protection of the market-making fund, retail investors will choose to receive the coin before the fund and sell before the fund, and the market-making fund may not receive the coin. It is reasonable for the stable fund to reparation for the market-making fund.

Market-making funds will also be immobilized with a lasso. The risk comes from the problem of the chainless platform. If there is no problem, just randomly smashing the market is an opportunity to make money. Because with the growth of the number of people and trading volume, the increase in the valuation of DW20 will eventually solve the problem, so Market-making funds are not afraid of falling but are afraid of not falling. If they don’t fall, the stable fund will bleed.

This idea is very similar to Luna, but the Luna team doesn’t understand finance, and the design is wrong.

9. Conclusion

The DW20 decentralized standard currency is the best project in the cryptocurrency circle after Bitcoin that I have seen, and it has the qualification to challenge second place. Mr. Zhu said that calling DW20 a standard currency is “taking advantage of Bitcoin,” which is a modest statement. When DW20 enters the stablecoin stage, it has stored value, transaction medium, and ruler. There are three characteristics of currency is real cryptocurrency. But Bitcoin is just a crypto asset. Many bright spots in the white paper are far from my knowledge background. Readers can read the original text of the white paper.

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