BY Gu Yanxi 2020–09–23
Article from 8btc
Translated by Yang(Milian)
In Brief:
Blockchain and cryptocurrencies have developed like the pursuit of sugar during the UK’s Industrial Revolution, using innovative models to give ordinary users access to financial services that were previously inaccessible.
Recently I found an interesting article on the internet. It analyzes the impact of sugar on the development of the British Industrial Revolution. Before the rise of the British Empire, the Spanish Empire dominated the world. And it plundered gold and silver all around the world to strengthen its global dominance. Gold and silver were considered the most valuable items of the time, so holding more of them is a natural choice. At that time, sugar was just beginning to appear, and there was a huge demand for it among the general public in Britain. In order to meet this market demand, various developments in the British market led to its development in the Industrial Revolution.
“British society has a top-down obsession with sugar, which was regarded as decadent and addictive by Spanish. As a result, the Spanish were careless about the overseas expansion of British sugar industry. They continued to seek gold and silver from the colonies, even at the expense of inflation due to excessive gold inflows into Spain. At the same time as the Spanish were addicted to gold, the British zeal of sugar led them to pursue larger plantations, more efficient sugar manglers, safer sea transport, a wider market for sugar consumption and easier distribution. Thus, these all led to Britain’s Industrial Revolution and the development of infrastructure and navy. At the end of the day, it needs to free up more people to be consumers of sugar at the bottom of the scale for this to be profitable.”
If we compare this history with today’s cryptocurrencies, it is easy to conclude that the development of blockchain and cryptocurrencies is changing the existing global market base as fundamentally as sugar did. Such changes are making more assets more liquid, more trading patterns in the market, more innovation in organizational mechanisms and incentives, and more access to financial services that were previously inaccessible to ordinary users.
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Current financial, economic and social activities are all based on a centralized computing system, and keeping accounts is done electronically. Transactions in the market are also recorded electronically and then implemented by currency transfer. Blockchain technology is a distributed accounting technology. On the basis of its support, it can use a distributed way to record the assets in the entity. Money can also be circulated in the form of cryptocurrency; Transactions may be completed in the form of transactions and settlement. As costs fall, more assets would begin to circulate. All of these features are superior to the existing centralized accounting system. Currently, various innovations based on blockchain technology are still in development, such as DeFi, which has been very hot recently. There are also promising improvements in organizational and incentive mechanisms.
Innovation in cryptocurrency is continuing. There have been attempts to gradually apply these innovations to the field of physical assets. In previous years, blockchain technology has been used mainly to change existing processes in order to improve efficiency and reduce costs. Such as clearing between institutions and clearing after securities trading. These applications are implemented within the existing framework and do not fundamentally change the existing business processes. But recent applications have begun to bring fundamental changes to the existing market structure. In the case of digital currencies, for example, the original design of digital currencies (such as PAX and USDC) was based on a single fiat currency. But Libra’s first attempt is to create a digitally stablecoin that compares to a basket of fiat currency. This would bring fundamental changes to the existing currency market. However, bowed to the pressure and Libra later changed to issue it based on a single one. But the market has seen what technological innovation can do to the existing currency market.
For another example, in terms of tradable assets, the main trading category at present is the equity of a company, which is traded by means of matchmaking on a centralized exchange. But the innovation based on blockchain can make more assets traded and circulated in the secondary market. Unlike the equity, this type of asset does not need to reach a certain size to be made into a standard small unit for trading. This means that individual assets as well as small volume assets can be traded and circulated too. Individual assets could be such as the ownership of an artwork and a building. And as for small assets, it can be partial ownership of a piece of real property, or the right to use certain goods. This type of asset also includes private equity before a company goes public. And the way of trading does not need centralized matchmaking transaction, it can be completed directly between users. Such an application would bring fundamental changes to the existing financial and securities markets.
In this respect, I think Switzerland is at the forefront of other countries. Swiss Digital Asset Exchange is building a new digital finance ecosystem on top of the financial market infrastructure based on distributed accounting technology. It supports the generation, validation, trading and settlement of new types of digital assets. It also uses digital currency to trade digital assets. Members of the exchange will provide innovative types of digital assets to be traded on the exchange. Since the exchange is based on distributed accounting technology, many innovative applications such as DeFi are applied to it. Such an application is completed on the premise of meeting the Swiss financial regulation, so the development will have a solid technical basis and legal guarantee. The ambition of the Swiss Digital Asset Exchange is also global, as it can provide services globally based on the same financial market infrastructure. And this growing trend is very similar to the rise of Britain during the Industrial Revolution.