Preface:
Digital currency can be considered as a virtual currency based on node network and digital encryption algorithm. The core features of digital currency are mainly reflected in three aspects:
(1) Because it comes from some open algorithms, digital currency has no issuing body, so no one or institution can control its issuance;
(2) Because the number of algorithm solutions is determined, so the total amount of digital currency is fixed, which fundamentally eliminates the possibility of excessive issuance of virtual currency leading to inflation.
(3) Since the transaction process requires the approval of each node in the network, the transaction process of digital currency is secure enough.
The emergence of Bitcoin poses a huge challenge to the established monetary system. Although it belongs to the broad sense of virtual currency, but it is fundamentally different from the virtual currency issued by Internet companies, so it is called digital currency. Digital currency is compared with electronic currency and virtual currency from the aspects of issuing subject, application scope, issue quantity, storage form, circulation mode, credit guarantee, transaction cost, transaction security and so on.
1. Low transaction costs
Compared with traditional methods such as bank transfers and remittances, digital currency transactions do not require payment to a third party and have lower transaction costs, especially compared with cross-border payments that offer high fees to payment service providers.
2. Fast transaction speed
The blockchain (data structure) technology adopted by the digital currency has the characteristics of decentralization. It does not need any centralized institutions like clearing centers to process data, and the transaction processing speed is faster.
3. High level of anonymity
Apart from the fact that physical currency can realize peer-to-peer transaction without intermediary participation, one of the advantages of digital currency compared with other electronic payment means is that it supports remote peer-to-peer payment. It does not require any trusted third party as intermediary, and both parties of transaction can complete the transaction without mutual trust in a completely unfamiliar situation. Therefore, it has higher anonymity, which can protect the privacy of traders, but also creates convenience for cyber crimes, which are easy to be used by money laundering and other criminal activities.
The impact of digital currencies
Digital currency is a double-edged sword. On the one hand, the blockchain technology it relies on has realized decentralization and can be used in other fields besides digital currency, which is also one of the reasons why Bitcoin is popular. On the other hand, if the digital currency is widely used by the public as a currency, it will have a huge impact on the effectiveness of monetary policy, financial infrastructure, financial markets, financial stability and other aspects.
1. Impact on monetary policy
If digital currencies become widely accepted and function as money, they will undermine the effectiveness of monetary policy and make policy making difficult. Because issuers of digital currencies are usually unregulated third parties, the money is created outside the banking system and the amount of money available depends entirely on the issue
In addition, the authorities are unable to monitor the issuance and circulation of digital currencies, which will lead to the inability to accurately judge the economic operation, which will bring troubles to policy making and weaken the effectiveness of policy transmission and implementation.
2. Impact on financial infrastructure
The decentralized mechanism of value exchange based on distributed ledger technology changes the basic setup of gross and net settlement on which the infrastructure of financial markets depends. The use of distributed ledgers can also pose challenges for trading, clearing and settlement, as it can facilitate disintermediation of traditional service providers across markets and infrastructures. These changes may have a potential impact on market infrastructure outside of retail payment systems, such as bulk payment systems, securities settlement systems or trading databases.
3. Impact on financial intermediation and financial markets in a broad sense
Widespread use of digital currencies and distributed ledger-based technologies could challenge the intermediation role of existing players in the financial system, especially banks. Banks are financial intermediaries, performing the duties of acting supervisors and supervising borrowers on behalf of depositors. Typically, banks also carry out liquidity and maturity conversions to transfer funds from depositors to borrowers. If digital currencies and distributed ledgers become widely used, any subsequent disintermediation could have implications for savings or credit valuation mechanisms.
4. Security risks and the impact on financial stability
Assuming that digital currency is recognized by the public, its use increases significantly and replaces legal currency to some extent, negative events such as cyber attacks on user terminals related to digital currency will cause currency value fluctuations, and then have an impact on financial order and real economy. In addition, virtual currencies based on block chain technology are usually held by a small number of people at the beginning. For example, the first purchase of bitcoin in May 2010 was 10,000 BTC to buy a $25 pizza. In just over three years to the end of 2013, the price of a single bitcoin rose to $1,200, and in 2017-2018 it hit $20,000.
5. The application of digital currency
1. Fast, economical and secure payment and settlement
Cross-border payments help internationalize the USD. In 2018, the settlement volume of cross-border payments for regular projects in China was about USD 8 trillion. To accelerate the internationalization of USD, low-cost, high-efficiency and low-risk cross-border payment and settlement products and solutions are needed. Globally, according to McKinsey, the adoption of blockchain technology in B2B cross-border payment and settlement services could reduce the cost per transaction from about $26 to $15. Blockchain application can help cross-border payment and settlement business transaction participants save about 40% of the transaction costs, of which about 30% is the payment network maintenance fees of the transfer bank, 10% is the compliance, error investigation and foreign exchange costs. In the future, the peer-to-peer payment method created by the technology of digital currency and blockchain will eliminate the intermediate link of third-party financial institutions, and not only 24-hour real-time payment, real-time payment, no hidden costs, It also helps to reduce the capital risk of cross-border e-commerce and meet the timely and convenient demand of cross-border e-commerce for payment and clearing services.
2. Digital property rights
At present, there are still a lot of duplicate human work in the electronic loan process and processing process of banks. As the basic support of loan issuance, many collateral are underpriced or mortgaged multiple times or even without collateral. Consider the use of digital currencies to price and track transactions in banks’ collateral: in theory, automatic implementation of smart contracts would eliminate multiple collaterals; Using digital currency to make loans and build digital processes will allow the banking industry to cut costs and improve efficiency. Digital mortgage application processes can be set up and processed in an automated manner in the cloud.
3. Bill finance and supply chain finance
In recent years, all kinds of bill market businesses based on commercial bills have grown rapidly, and bill financial products have become a hot field of Internet financial management. However, about 70% of the current bill of exchange business in China is still paper transactions, and supply chain finance is also highly dependent on labor costs. In the future, if the digital monetization of bills is realized and the transaction of block chain is adopted, the related information of bills, funds and financial planning will be more transparent. With the help of smart contracts, the only electronic cooperation that can not be forged and public between the two parties can be generated, and the point-to-point value transmission can be directly realized. There is no need for specific physical notes or central system for control and verification, which can prevent multiple sales of one order, track the capital flow in time, protect the rights of investors, and reduce the cost of regulators.
In terms of bills, Shenzhen government has developed a brand-new electronic bill system by combining blockchain technology with traditional bills, and vigorously promoted it throughout the city, which represents another successful application of blockchain technology.
Types of digital currencies
According to their relationship with the real economy and real money, digital money can be divided into three categories:
1. Completely closed, completely unrelated to the real economy and only available within certain virtual communities, such as World of Warcraft Gold;
2. Can be purchased with real currency but cannot be converted back to real currency, can be used to purchase virtual goods and services, such as Facebook credit;
3. It can be exchanged and redeemed with real currency at a certain rate, and it can buy both virtual goods and services and real goods and services, such as Bitcoin.
The trading patterns of digital currencies
At present, digital currency is more like an investment product, because it lacks a strong guarantee institution to maintain the stability of its price, and its role as a measure of value has not yet emerged, and it cannot be used as a means of payment. As an investment product, the development of digital currency cannot be separated from trading platforms, operating companies and investors.
The trading platforms, which act as trading agents and in part as market makers, make money from the fees investors pay to trade or withdraw cash and from the premiums they earn from holding digital currencies. Trading platforms commonly used by domestic investors include Huobi, okex, Binance, etc.
In addition, to prevent stepping on the mine, it is strongly recommended that the novice only in the world’s top three exchanges (namely Binance, Huobi and OKEX) for trading, asset security is higher!
Currency: registration | COINS
Huobi: Huobi Global
OKEX: bitcoins Exchange | BTC Exchange | Buy & Sell bitcoins | Cryptocurrency Exchange | OKEX
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