As the central bank's digital currency and encrypted currency move towards mainstream society, the use value of cash has been greatly weakened. In this article, encryption development engineer and futurist Daniel Jeffries believes that the demise of cash is inevitable, and that the West has fallen far behind China in the competition of digital currencies, and has strongly criticized the conservative strategies of Western countries, while also criticizing the future. The public’s privacy situation is extremely worried.
In the future, we will have a private, anonymous alternative to cash. But in the future described in the TV series "Black Mirror", the money in your pocket knows everything about you.
Cash is dying.
But with the demise of cash, the future of privacy has become extremely uncertain. In a previous article, I said that the government will make cash disappear within twenty years. But now, I don't think it will take that long.
China's unremitting efforts to promote and establish a digital currency endorsed by the state, the economic disaster sweeping the world and the amazing rise of decentralized cryptocurrencies such as Bitcoin and Ethereum have accelerated the time course of the demise of cash.
The only question now is what to replace it with? Is it a decentralized cryptocurrency or a country-driven digital currency that has more advantages?
The early open source community was very powerful. Before the centralized force knew who was impacted, it released Bitcoin and privacy-based cash alternatives, such as Zcash and Monero. Various countries and localities are paying close attention to it and have already Quickly learn and adapt, almost every central bank in the world is rapidly formulating its own digital currency plan.
This means that there may be two very different visions for the future. One is the elimination of cash. National digital currency has become the main form of currency. Currency will be related to your identity verification and location data. Everything you do is recorded by powerful government computers, and even what these computers know about you. More than you know about yourself, decentralized currencies will become illegal.
The second is that the country's currency system excludes cash, but we can see a parallel, open, and privacy-based digital currency system. This openness enables it to have the same anonymous attributes as cash.
Note that in both cases, physical cash will no longer exist. But this will create two completely different futures. In one situation, you can better control your money; in the other situation, you will be controlled by your money.
01
Future war
There is no doubt that fighting for the future of currency is a battle for control. Who has control right now? Who will lose control? Who can gain more control?
Whenever the social structure changes, power will change accordingly. When control changes hands, some will gain more power, and some will lose power. We have seen this power swing back and forth again and again throughout the arc of history.
Roman coins are engraved with the face of a permanent ruler
In the ancient Greek era, the decentralized state was replaced by the centralization of the Roman Empire, but then the empire disintegrated and was replaced by some loosely combined and ever-changing nation-states from Christianity and ancient Greek ideals of art, architecture, and mathematics. Aggregate. Power goes from centralization to decentralization, and this cycle goes back and forth, running through the entire human history.
The evolution of currency reflects the course of human history. When people want to find a way to exchange goods with this alternative, money evolves into credit over time and can be used to trade anything, from horses to cheese.
When the state power is unstable, the currency is more local. The development of universal currency allows people who conduct international transactions to exchange them back to local currency later.
The rise of nation states reflects the rise of currencies. As small tribes gradually reduced to feudal territory, surprises and wars pushed the borders to a more stable state, and currency evolved into a more generally accepted standard. We are increasingly seeing precious metals such as gold and silver dominate what people think of as currencies. The precious medals are then pressed into coins of fixed value.
After using coins, we started using small pieces of paper backed by precious metals. In the end, as countries break away from the gold standard, we have severed the connection with precious metals. At this time, the evolution of physical currency has reached its peak.
02
Battle for cash
Just as we saw chemical film developed for more than a hundred years and suddenly replaced by digital cameras, banknotes will suffer the same fate. It will be replaced by a highly liquid, easily transferable digital currency.
The transition to a cashless society began a few years ago. Now China is a society with basically no cash. This is a huge change. When I visited China in 2014, cash was still the mainstream. In just 7 years, 86% of people in China used mobile payment instead of cash, skipping the old Visa and MasterCard POS systems.
At the end of 2016, Indian Prime Minister Narendra Modi issued a document banning the circulation of most of the country’s currency in order to reduce corruption and allow people to pay taxes, but was stopped a year later; Australia tried to ban the use of cash to purchase more than 10,000 yuan. The measures also ended in failure. These early failures do not mean cash victory, but an attempt.
These examples clearly show that the government sees cash as a threat.
Because cash can hardly be controlled by the state, the government cannot easily monitor the flow of cash, including who owns it and what it buys.
As nation-states became the ultimate power on the planet, they seized the right to print money and banned anyone else's right to use law and force to create currency. The state has become accustomed to this control.
Initially, the physical currency printed with the symbol of the nation-state was the ultimate source of prestige, and owning currency meant having independent power.
But all this began to change as currencies became more and more virtual. As the degree of virtualization increases, currencies lose their anonymity and become easier to track. With the rise of credit cards in the 1950s and 1960s, money and its flow became more and more transparent, and physical distributed ledgers held by private companies such as Diner's Club and Visa recorded this action in detail. As computers and networks swept the world in the 1980s and 1990s, all these distributed ledgers became digitized and became more transparent, and controlling the flow of this money became more important than printing the money itself.
Now that the government is accustomed to checking every transaction and its whereabouts, they don't want to lose control. Eliminating cash will eliminate anonymity forever.
There is only one problem now: they still have trouble getting rid of cash.
As we have seen in India, people refuse to hand in cash and use them. A year later, India had to put these banknotes back into circulation because their digital system was not ready to process them. In Australia, the epidemic shattered any illusion that Australia already has a digital payment system powerful enough to replace cash.
Ultimately, to ban cash, the country needs more than just laws. When a new technology has almost all the characteristics of the old technology and a bunch of new irreplaceable functions, the old technology that was dominant will disappear. This is where the digital currency comes in. The real digital currency does not come from one country. Innovation starts with Bitcoin.
03
Nation-state counterattack
Most nation-states are afraid of the international and decentralized nature of Bitcoin. Governments have enjoyed control over the money supply for so long that they can no longer imagine international currencies like silk or salt.
Nation states are afraid and angry about cryptocurrencies. When Facebook tried to launch Libra, Congress and other governments around the world followed them; when Telegram tried to build a fully scalable digital currency, the U.S. government shattered them, even though they raised money from accredited investors All funds.
However, when the United States and other governments reacted in fear, China is paying close attention to the blockchain, and they know their power better than any other country in the world. When other superpowers are not optimistic about blockchain and Bitcoin, or are in blind fear, China has begun to vigorously build blockchain.
China's digital renminbi ignited the fuse of "strangling cash" and accelerated the demise of global cash. China's digital payment system shocked the world. They are many years ahead of the Western powers.
China has begun to test the digital renminbi and conduct airdrops to allow citizens to buy things with free money. Judging from the videos and comments I have watched, this is a good platform. It allows users to redeem cash by touching their phones whether they are offline or not, and then synchronize transactions.
China is very smart. Instead of a stupid Western economist like Dr. Doom attacking the huge price volatility of Bitcoin, they saw a way to distort the original liberal design of Bitcoin—the establishment of a centrally controlled digital management center.
They believe that this is a way to establish a national support system that can easily cross national boundaries, easily break through international sanctions, and eventually even crush the US-led international monetary system. They used the underlying technology of the blockchain and then left it behind and replaced those idealistic features with centralized control tools. A "consensus" model based on permission and dictation puts those primitive utopian ideals in a state of fire and water.
The Chinese have also seen that a decentralized currency controlled by algorithmic rules that are difficult to change, which means that the government can no longer devalue or inflate currency by canceling part of the currency circulation or printing more currency, and they will lose the implementation of currency control. The ability to tell people how much they can take out or send to others. Privacy-centric cryptocurrencies are even worse, because it means everyone has a hard-wired encryption protocol behind them, but investigators want to take shortcuts instead of doing real surveillance.
China has seen everything and hopes to take the lead before cryptocurrency takes over the world. Therefore, China acted quickly and banned domestic Bitcoin transactions. Then, they established a centralized digital cash system to quickly crush the decentralized currency.
They will use the "Belt and Road" initiative to allow Chinese people to invest heavily in developing economies, build roads, bridges and infrastructure, or provide loans, so as to sow the seeds for the renminbi. Soon, they will expect developing countries to repay these loans with digital renminbi.
At first they may face some resistance, but eventually those small countries that do not have large-scale payment and banking infrastructure will see how simple, easy and harmless it is, and they will begin to use digital renminbi more and more. They will also see the backward, outdated, and absurd banking systems still in use in the United States and Europe and ignore them completely.
Want to send money through the Western system? Write a note, sign, scan, and fax it to others. Maybe someone received it a day later. If you want to do business with Americans, unless a person in a third world country can get a bank account from the beginning, or a company in a small country can comply with all FACTA requirements.
Therefore, when they are fighting against the old-fashioned international banking system, they may choose to activate their digital renminbi wallet on their smartphone, or use a beautiful digital dashboard on the desktop, and then use the Chinese system in a few seconds. You can get benefits all over the world from within.
Which one did they choose after guessing?
When the United States gave up its leadership and investment in other countries and turned to look inward with a ridiculous "I am the first" national populist world view, the Chinese are investing in the future. When the Americans were fighting a meaningless and destructive cultural war, the Chinese invested in more than 70 countries around the world. The governments of these countries were unstable and the infrastructure was backward. China used roads and bridges to buy the future. The United States is building walls.
Of course, the Western world does not want to see a Chinese currency dominating the third world. Central banks in other countries in the world are racing to build their own digital currencies to deal with this threat, but the West is already far behind. Italy wants to be completely cashless, and so does Europe. It has strengthened its research on the digital euro. But Western powers are facing the dilemma of being too far apart from China.
However, the Western powers will eventually catch up, and soon we will launch an all-out national digital currency arms race for hegemony. Some of them will be hindered by terrible IT and programmers, some will have dark designs, some will break security protocols and be hacked, but some of them will have good results and fail. Countries will simply replicate successful countries.
With the new central bank digital currency, the country has the right to fully monitor your wallet, every transaction you make, every place you have been...all of which can get your identity and historical records And geographic location data.
After ten years, you will no longer file taxes, and every time you buy a second-hand toaster at a second-hand goods auction, they will be automatically deducted. If something goes wrong, you can call to fight, or ask the accountant to refund you. The government will lend you a free loan for one year. The money will not even be transferred from the central bank to private banking institutions. It will go directly into your pocket. Your money knows everything you have done.
The arrival of central bank digital currency will accelerate. Although there are original regulations to the contrary in the crypto community, people will definitely use these central bank digital currencies. Even they will be proud of it.
04
The characteristics of trust and the lack of decentralized currencies
Of course, people will feel proud and happy only when the government is functioning well.
When things go well, the shortcomings in the system will not affect enough people and enter the public eye. Only the "bad guys" will pay the price, but it may not be anyone that ordinary citizens come into contact with. So this system will mainly apply to most people who don't care about privacy because they just buy diapers for their children, buy books on Amazon or buy coffee in local stores.
But when the government has problems, as we saw in the US Capitol uprising, their thinking will change quickly. The currency endorsed by a country is the same as the government that controls it. You must trust it. In order to trust it, you must trust the people behind it.
You cannot treat the system as a fixed concept.
The United States is not fixed. Behind every government agency is a group of people who are always running. IBM is a company, but the company is always changing because the people behind it are changing. Trust is based on who is in power and how they use that power.
Trust is constantly changing. Trust is often broken, and it can be shattered forever by a single failure of trust. A man may be loyal to his wife for ten years, but the moment he betrays him, trust is gone.
"The crux of traditional currencies is all the trust needed to make them work. The central bank must be trusted to not devalue the currency, but the history of legal currency is full of trust destruction." Satoshi Nakamoto wrote in 2009.
When the government goes mad, they now have the right to spread this madness to you. Want to move your hard-earned money to another country where less crazy people are in power? But you can’t. Your money will be frozen because of currency control. Spend your money at home or elsewhere.
Maybe you think this is a good thing. Shouldn't a nation-state have the power to control the flow of funds into and out of the country? They are just trying to protect their citizens and the economy from being affected.
If you live in Iceland, your experience may be different. Iceland implemented strict currency controls after the 2008 financial crisis, which did not end until 2017. This means that everyone who lives there just has their own money in fantasy, and they never really have it.
You can’t buy a house overseas, you can’t invest in Tesla stocks, you can only invest your money in local companies, but these companies are suffering, with little or even negative returns.
Of course, many people in the encryption field believe that no right-minded person would choose a currency that is endorsed by the country and is under surveillance, rather than a decentralized privacy protection system.
Most people don't care about privacy, they don't know what privacy means. They have not thought about it, perhaps living in a world completely exposed to the government.
They have never lived in East Berlin, and the password police will show up at your house at any time and take you away for any reason; they have never lived in Venezuela, suddenly the economy collapsed, and it takes a year's salary to buy bread.
This is why they will quickly adopt any centralized digital currency imposed by their country. If the government simplifies it or enforces its use, or both, it will speed up the digitization process.
In "Five Keys to the Development of Encryption Technology", I wrote that for decentralized cryptocurrency to take off, not only funds are needed, but also a complete ecosystem needs to be formed. The system needs to distribute currencies, automatically exchange currencies and use the Currency provides goods and services without re-conversion to legal tender. No one can create a super trading system that can prevent all currency transactions like a centralized trading system.
But on the contrary, what the crypto community is doing now is to do some small iterations on Satoshi Nakamoto's vision, using newer and faster blockchains to make cryptocurrencies go faster. They created privacy-level currencies Zcash and Monero. They proposed new ways to upgrade the blockchain without the need for forks.
But other than that, they are still the same.
There is currently no killer app that can only be purchased with cryptocurrency. Except for airdrops, miners, and centralized exchanges, there is still no better way to distribute tokens. These are just transplanting the centralized distribution mechanism of the old world to the new world. Although there are already decentralized trading platforms, you need to have cryptocurrencies to use them, and you cannot exchange fiat currencies there. The distribution mechanism of cryptocurrency reflects the top-down currency distribution mechanism of the central bank, with miners and exchanges replacing central banks and commercial banks.
We need a revolution in distribution, economics, and commerce to make decentralized currencies really take off. Currently, cryptocurrency is a speculative asset at best, it makes some people rich, nothing more. The experience is still frightening and confusing. There is almost nothing to use, just a test of the future of money.
Centralized digital currency has become a reality. If we want to see a decentralized currency that protects privacy, then we must speed up the pace and increase creativity. CBDC is coming faster and faster, and our time is tight.
05
This is the end of everything
A good friend of mine passed away this year, which reminds me of the crypto user experience and what it means to all of us.
We entered the cryptocurrency field together many years ago. It is one of the foundations of our long-standing friendship. We have reached an agreement that if one of us dies, the other will help his family find and sell all his cryptocurrencies.
When I sit down and use the two keys associated with his dying smartphone to authenticate, I think "Who can do this for me? My money will disappear with me."
My friend and I trust each other completely. I will make sure that his family gets every cryptocurrency, and he will do the same for me. But it is not difficult to imagine that someone is not cautious about owning cryptocurrency. Fortunately, my friend made a wise choice, and others may not be so lucky. The terrible user experience is here. The development of cryptocurrency is not fast enough to keep up with ordinary people.
To make cryptocurrency truly popular, it must be easy to use and easy to get started. I'm talking about "three clicks", you can set up a wallet for three weeks of remittance with just three clicks, and then perform KYC on the exchange, and make sure you remember the password firmly. This way you will never lose all your money and never have customer service to help deal with it. For example, someone may lose 7002 bitcoins worth 220 million in total, just because he doesn't remember where he put the password paper.
When the decentralized currency is difficult to get out of its infancy, China is conducting a shocking test of the central bank's digital currency platform. As Western countries are one step behind, they have begun to attack decentralized currencies, which makes it more difficult for currencies that insist on privacy to gain appeal.
The US financial crime sanctions department tried to quickly pass a new set of rules before handing over the government to the new leadership. The regulations force the exchange to retain the name, phone number and address every time someone makes a remittance of more than $3,000. Therefore, if a mother sends money to her daughter, the exchange needs to store their names in a highly secure government database, which will never be hacked.
Even if Western countries lag behind China, they will catch up. They have to catch up, because money is power, and it is not just the power of the power holder. A millionaire or billionaire holds a lot of power, but their Economic power pales in comparison to a large economy.
People who print money have real power in the world, and the power of coinage is equal to the power of gods. The nation-state knows this better than anyone.
They now have this power and do not want to lose it. In order to maintain this state, they have to eliminate cash and eliminate the threat of decentralized currencies.
Unfortunately, Satoshi Nakamoto may have given them the weapons needed to do so. Satoshi Nakamoto dreams of creating an uncontrolled, decentralized, and trustless system, but when creating a blockchain, he/she may inadvertently give a chain to the centralized power, binding us all forever together.