If the digital currency based on the algorithm is to win in currency competition, it must have reasonableness in three aspects: the cost of use, the stability of currency, and consistency.

(1) The wider the use, the higher the transaction cost

At present, most digital currencies are still in the form of mining to achieve consensus certification and incentive distribution. The transaction cost of using digital currency is equal to the operating income of the miner.

On the one hand, miners are managers of blockchain books; on the other hand, miners may also become traitors of blockchain books.

Proper implementation of the incentives for miners can eliminate the incentives for miners to actively attack cheating. Therefore, the return that the miner receives when certifying the transaction (that is, the cost of the digital currency user transaction) must be greater than the potential gain from the launch of the "double flower attack" (ie, the nominal amount of the digital currency transaction). Taking Bitcoin as an example, it shows how its transaction costs change as the average daily transaction size changes. Bitcoin's average daily trading volume in the real economy is much lower than that of electronic payment (such as credit cards), and more in medium and small online transactions, which is determined by the characteristics of its incentives and costs. If Bitcoin or a similar mining-based digital currency wants to become a mainstream real-world payment instrument, its cost of use will rise dramatically to an unacceptable level.

(2) "Double Flower Attack" and the exchange of gains and losses

In addition to giving miners enough incentives to guard against "double flower attacks," because the difficulty of double-flower attacks in different digital currencies is different, it is also required to adapt to the volatility to further reduce the "double flower attack" or " The probability of a 51% attack".

The "double flower attack" mainly uses the block transaction to confirm the time difference caused by the advantage of computing power. The proposal of Bitcoin founder Nakamoto Satoshi is to deliver the transaction after the generation of multiple new blocks. But this has greatly slowed down the efficiency of the transaction in practice.

If the digital currency is to become a reliable and efficient mainstream transaction intermediary, it will ultimately need to rely on its price fluctuations to maintain its anti-attack capability. The lower the cost of a 51% attack, the higher the volatility of the currency needs to be, to ensure that the price fluctuations that the attacker may cause after the attack is sufficient to allow the existing positions to feel enough price drops. So I dare not launch a 51% attack.

Figure 3 shows the cost of a one-hour 51% attack on the main digital currency based on the workload-certified mining mechanism and its linear relationship with the volatility of the currency. It can be seen that the negative correlation is very significant. At present, several digital currency attacks that are well known in the mainstream are relatively expensive and have fewer fluctuations.

(3) Technical forks and values bifurcation

The trust of digital currency lies in algorithms, and as an achievement of technology, algorithms themselves are faster to update their iterations than other forms of trust (such as trust in gold). The trust algorithm means that the algorithm must be continuously optimized and upgraded to form a “technical fork”. Despite technical improvements, the fact that digital currencies can be forked makes the claims that their circulation is limited by strict algorithms no longer exists.

In the past year, Bitcoin has experienced three forks and split into four currencies: Bitcoin, Bitcoin Gold, Bitcoin Cash, Bitcoin Diamond, etc. Most currencies have experienced price declines and market capitalization after the fork. The process of reduction.

If "technical fork" is just a shortcoming of digital currency that has been perceived by the market, "values fork" has not yet received enough attention.

The emergence of a new generation of digital currency, such as “rights proof” and “importance proof” as a consensus mechanism, indicates that the key value orientations such as cyber democracy, CPU equal voting, and decentralization emphasized by Bitcoin are being challenged. More and more people seem to realize that a large amount of meaningless calculations of the “workload proof” mechanism has outweighed the benefits of maintaining equal values.

The “old technology” of the linear blockchain has become hesitant in the face of higher and higher costs after finding “new trends” such as libertarianism, technical utopia and cyber anarchism, and has to win from the higher costs. In the “old thoughts” such as general eating and grading system, we have found a solution, and have produced new consensus algorithms such as “rights proof” and “importance proof”. Not only that, digital currency is likely to need to abandon the "old technology" of the linear blockchain, and solve various shortcomings through the "new technology" of nonlinear blockchains such as directed acyclic graphs (DAG).

If the values ​​themselves can have so many forks, then it is even more difficult for digital currencies to maintain consistency.

Combining the above three aspects, we believe that there is still a long way to go before the digital currency generates a trusted algorithm and wins in the currency competition.