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After Bitcoin, there are thousands of digital virtual currencies around the world, many of which are fraudulent in the cloak of “digital currency”. Not long ago, Haikou public security cracked down on a pyramid marketing organization called Eurasian Currency, which operated on the Internet pyramid marketing platform and fooled more than 40,000 investors, involving a sum of 4.06 billion yuan.
This article will take you to clarify the concepts of digital money in order to prevent cheating.
Bitcoin was born in 2009, and the highest transaction price in 2017 was more than 20,000 yuan. There must be some reason why a widely and publicly traded currency can rise to such a high price.
Bitcoin is so popular because it is considered a “digital gold”.
Why is gold valuable? There are two reasons:
1) Gold is recognized as a general equivalent, i.e. a recognized currency. Money itself is worthless, and its value comes from the unified recognition of the public.
2) The amount of gold is limited and will not exceed the total reserves of the earth at most. If the amount of money is too large, it will cause hyperinflation and the value of money will decrease sharply. Once the value of the currency is below the cost of preservation, it will be completely abolished.
Bitcoin was the first digital currency, and many people recognized the value of its transactions. In addition, according to the algorithm design, the number of bitcoins is controlled at no more than 21 million. Specifically, 10.5 million bitcoins were generated in the first four years (50 bitcoins per 10 minutes), 5.25 million in the second four years and half in the next four years. According to the sum of infinite equal ratio series, the total number of bitcoins is 1050/(1-1/2)=21 million.
It can be seen that the design principle of Bitcoin is based on gold. To be exact, Bitcoin is “digital gold”, not “digital money”.
Although Bitcoin can be described as “digital gold”, it is very different from real gold because there are other digital currencies.
2. Other digital currencies
Before the great voyage, people were blocked by the vast ocean. However, regardless of Europe, America, Asia, Africa, religion or culture, gold has been chosen as currency.
How does gold defeat other metals and become a recognized currency in different places?
Simply put, it’s exclusion, the rest don’t meet the requirements, and finally there’s gold left.
Although the earth seems to have a variety of ever-changing substances, these substances eventually consist of 118 elements, that is, the periodic table of elements that everyone recited in high school (recall together: helium, lithium, beryllium, boron, carbon, nitrogen, oxygen, fluorine, neon, etc.).
Among the 118 elements, gaseous hydrogen, oxygen, liquid mercury (mercury), bromine and so on are difficult to preserve and carry, so they can not be used as currency. In solid elements, toxic radioactive elements can not be used as money naturally. Elements such as zirconium and titanium, which are difficult to smelt, are prone to rust or too much iron, copper and lead can not be used as money. After subtracting, there are only eight elements left: gold, silver, platinum, palladium, rhodium, iridium, ruthenium and osmium. Among the remaining eight elements, except gold and silver, the other six are too few to meet the demand for quantity as money. So in the end, only gold and silver are left. Gold is scarcer than silver, so it is more valuable.
To put it bluntly, other elements do not compete with gold or silver at all. If there is competition, it is impossible for continents that are not connected to each other to choose gold and silver as their currencies.
The next question is, if the periodic table of elements is not 118 elements, but thousands of elements with properties and reserves similar to gold, can the value of gold be as high as it is now? Certainly not.
Other “digital gold” like Bitcoin can be created indefinitely. So Bitcoin can’t really be regarded as gold.
Although newly created coins can have an impact on the value of the Bitcoin, the newly created coins will be even less valuable. Because the newly created currency has no first-mover advantage, it will be less popular than Bitcoin. If only a few people are willing to treat it as the general equivalent of a transaction, its value will be very low.
3. Block Chain
In the current monetary system, if you receive last month’s salary or a loan, the bank will record the income in your account. But if someone passes you a bitcoin, who adds it to your account?
The answer is that everyone adds this bitcoin to your account in their books.
In Bitcoin’s network, everyone has an account, which contains all account information and transaction information. This method of accounting is called distributed accounting (correspondingly, the bank’s method of accounting is centralized accounting). If the information in someone’s account is too old, you have to copy the new information from someone else’s account.
Bitcoin produces a block every 10 minutes, which records a lot of transaction information. Then each person compares the transaction information in the block, confirms the correct transaction, and rejects the wrong transaction. If a transaction is confirmed by more than 51% of the people, then the transaction is established.
An endless stream of blocks every 10 minutes forms a block chain. With each block, the algorithm generates a certain number of bitcoins. Now it generates 25 bitcoins every 10 minutes, and it will halve in the next four years. The newly generated bitcoins will be allocated to those involved in bookkeeping. The allocation algorithm is random, but the more work involved in bookkeeping, the greater the chance of obtaining Bitcoin. Getting bitcoins by participating in bookkeeping is called mining.
True digital gold, whether it is valuable or not, must contain three core mechanisms: distributed accounting, block chain, and the generation of a certain number of digital currencies per block. Lack of any one is not real digital gold.
As mentioned earlier, the value of newly created digital gold can hardly rise. It’s very difficult to create a Bitcoin-like coin, dig up more coins in the early days, and then sit back and appreciate.
We must break through the obstacle of “mining”.
That leaves only distributed books and block chains. Money is not generated by mining, but is distributed at one time when the system is created. For example, when the system was created, it generated 1 billion yuan, part of which was left to the founding team and part of which was sold to investors. Of course, in order for investors to be willing to pay for such empty money, they need to have practical business to support the value of the currency.
In 2014, Ethereum sold 60,108,506 ether coins in this mode, accounting for 83.47% of the initial allocation. 11,901,484 ET coins were reserved for themselves, accounting for 16.53% of the initial allocation.
ETF is a low-level technology platform on which developers can create distributed applications. With the application, there will be transactions. With a transaction, money is needed to complete the transaction. In this way, money will be valuable and investors’investment will be rewarded. If the trading volume on the platform becomes larger and larger, the demand for money will be higher and higher, and the money will be more and more valuable.
Image to understand, Bitcoin is to create a digital gold, and the Ethernet square is to create a country, in which the Ethernet coin is the credit currency of the country. Human imagination is really infinite.
However, there is a fatal flaw in this model: what needs can not be met in real life, so that we have to run to your platform? Even if you have unique products and services on this platform, why don’t the providers of this product and service provide it in real life to make more money?
At present, such platforms, including Taifang, provide products and services that need to be completed through “distributed technology”. Although imagination can be infinite, the development space provided by objective reality is limited.
This way of selling money at the beginning of the system is called ICO (Initial Coin Offering), which is short for ICO (Initial Public Offering), and its full name is only one word different from that of IPO (Initial Public Offering). Although both Ethercoin and Bitcoin are coins, their principles and value support are completely different. Bitcoin is equivalent to “digital gold” and Ethernet is equivalent to “digital credit currency or digital stock”.
Etaifang’s efforts to achieve real success are no different from those of an ordinary start-up. Investing in ICO is equivalent to investing in seed rounds for start-ups, which is a completely different concept from IPO. The enterprises of IPO all have certain scale and competitive advantage, and have achieved a certain degree of victory in the competition, while most of the enterprises of seed wheel still have only one idea. The risk of ICO is quite high, especially when the total selling price is too high.
Recently, a well-known big V in China launched a sale of $200 million.
If we build a system, which has neither distributed accounts nor block chains nor mining mechanism, but generates a certain number of counterfeit coins, and then compiles a story to sell the coins to investors, it will become a popular form of financial fraud.
Financial scams are mostly made up of two parts: giving early people something to eat and letting early people go offline. These two parts are actually Ponzi fraud + pyramid selling.
6. Concluding remarks
In the world of digital money and block chains, there is only speculation and no investment.
Financial fraud dressed in digital currency and block chain is a Ponzi fraud + pyramid selling, which is more harmful than ordinary pyramid selling.