CR Press is translating and publishing the transcript of the third livestream given by Feng on the topic, “Wealth of Nations with Blockchain”. The Chinese transcript was originally published here. Please remember to vote for the CR Press supernode if you appreciate materials like this from our community-run team.
This was originally intended to be a discussion on wealth consensus, however, the global economy has undergone great changes and this livestream will discuss both elements.
“I was concerned about the sharp decline in stocks and securities in the New York Stock Exchange, with Wall Street in the US and the epidemic there. The data provided by Zhao Xiao, Ph.D. in economics from Peking University, shows the rapid decline in the markets due to the coronavirus. The total asset value of 195 countries has fallen by 140 trillion U.S. dollars in a month, from 370 trillion, which is a shocking number. Let me clarify that wealth, in my opinion, is not a tangible thing, but a global credit consensus. This is what the book, “Blockchain Wealth” proposes. I think Dr. Zhao Xiao is still standing from the starting perspective that wealth is a tangible thing.
“If global assets have fallen by 140 trillion US dollars, that is about half the accumulated wealth of a thousand years. The current wealth consensus is mainly held by the US dollar, or more specifically, the world’s innovations in Silicon Valley together with Wall Street stocks and securities. The entire US securities market, according to Professor Chen Zhiwu, has basically accounted for more than 100 trillion US dollars, which is the basis of the world’s wealth consensus. It has been developed by Wall Street for more than 200 years. Through the protection of private assets in the United States, we have worked hard in accordance with what Adam Smith proposed for a free market economy. Of course, throughout the process, it has also experienced big collapses such as the Great Depression. Thus, Silicon Valley–including China’s big tech companies listed in the United States–contribute to wealth consensus. The foundation of global wealth consensus is high-tech innovation, which happens primarily in the United States.
“So, the 140 trillion US dollar collapse is because people became pessimistic for the future, caused by the epidemic. If it is just a bubble, it is a good thing to burst. However, to be honest, what is wealth consensus for? As I spoke in the first two lectures, consensus is credit in global trading. Without sufficient credit, global trading cannot be prosperous, and modern civilization cannot be established. From this perspective, what is the impact of such a large-scale collapses on wealth consensus in the global economy?
“Many economists, including the famous economist Zhu Jiaming, are discussing the possibility of black swans. A depression may be coming. In fact, such a thing has happened in history many times. For example, the Great Depression in the United States signified the collapse of Wall Street and the collapse of the stock market. It hit the American economy very hard. Note that if Wall Street has collapsed, it is definitely not just whales and tycoons who lose money. On the contrary, due to the collapse of the stock market and the collapse of the wealth consensus, the credit of the entire market shrank sharply. The whole market economy could not be maintained as many transactions could not be completed.
“The economic system is actually what might be considered a computing system. It is a decentralized, complex, computing system. This was expressed by Blair Arthur using complicated economics. It is very reasonable and depicts the future economy. If we look at the wealth consensus and credit based on this understanding, we can fully expect that if the stock and securities markets of all of society collapses, large-scale wealth consensus will be torn apart and the strike to the entire free market economy could be fatal. This absolutely will not only affect a few whales, but the entire economic system could be fatally affected. The Great Depression was caused in this way.
“In the 1920s, the United States was already a developed capitalist country. The deaths of so many people shows what an economic collapse can cause. Correspondingly, for example, what impressed us most in Japan is the real estate boom that was once prosperous in the 1980s and 1990s. There was saying, at that time, that Japan could buy the entire United States. Of course, many people called it a real estate bubble, but it was the consensus of wealth created by Japan at that time. And then real estate collapsed. It is not as simple as just real estate tycoons or real estate owners affected. The collapse of Japan’s real estate caused a great collapse of its wealth consensus. In fact, it directly caused the contraction of the Japanese economy. Some people even said that after 20 years, the entire Japanese economy did not recover. I went to Japan several times last year. Japan is undoubtedly a developed free market. It is still the third in the world. This is a remarkable achievement. However, the level of activity of the Japanese economy is apparently inferior to that of China and the United States. That is to say, the collapse of the wealth consensus has been affecting the country for more than 20 years.
“Now, Japan has neither a particularly prosperous economy, nor a great deal of transactions. Therefore, we should understand what the collapse of a wealth consensus, the shrinking of global wealth, and the impact on the global economy will have. If you think that the collapse of New York stock market won’t affect individuals, you are wrong. This shows that you have not realized the essence of global wealth, nor the essence of wealth consensus. If the global wealth consensus shrinks like this, the consequence will be the scarcity of credit for the global market and trade. Many transactions will not proceed. Many reports have reflected that China’s domestic factories have resumed work, but there are no orders. This kind of thing is likely to become the norm which will directly hit many Chinese companies.
It is very difficult for SMEs to survive, because the liquidity for transactions directly affects them. The current situation once again verifies what I emphasized in the book, “Blockchain Wealth of Nations”: “Wealth is not a tangible thing, but a global credit consensus.”
“If you believe that wealth is a tangible thing, the world’s economy would only pause for a month or two because of the epidemic. The factories would quickly pick up after the delay. The collapse of the stock market wouldn’t matter too much.
“I believe that the influence of this recession is definitely not so shallow. The wealth consensus will be damaged, and global transactions will be greatly affected. There are already many knowledgeable economists discussing this matter. Therefore, I think that first of all, we must correctly understand the impact before we can draw conclusions. Otherwise, you [the Chinese people] may think that the collapse of the US stocks, including the collapse of the European stock market, has nothing to do with us–that the financial crisis is just a matter for the rich, the capitalists, and the stockholders. You’ll believe that we can still produce, eat, drink, and live a normal life. It is absolutely impossible. Everyone will soon realize the effect of the economic downturn. No one can survive the collapse of this global wealth consensus. Therefore, I think the only way out is to build a new consensus of wealth by global cooperation.
“In the current context, I think today’s topic is even more important because we originally wanted to discuss the digital economy, especially with blockchain technology. Are we likely to have a new form of wealth consensus? I want to say that there will be, especially in this situation. But the more important thing is if any new wealth consensus can be agreed on. Where will the hope in the future be placed?
“To a large extent, it is the digital economy. Especially in China, the Internet economy or, some people call it, the digital economy brings us prosperity, such as Alipay. Many services are now digital. For example we order meals online especially during the epidemic. There are endless online orders and the continuous delivery of food. This is the result of the digital economy. So, what is the nature of the digital economy? Many people have written monographs, including Don Tapscott, the father of the digital economy. I am more in favor of his views on the blockchain. The blockchain allows us to confirm the power of the digital goods and let data become wealth. However, most of his book on the digital economy is talking about a phenomena. Indeed, the digital economy has brought us many phenomena. Large Internet companies in the United States and China such as Google, Facebook, Alibaba and Tencent are examples. No doubt they have changed many aspects of our lives, but what is the essence. I think that Zhou Ziheng, an economist in China, a member of the Ali Committee, and a researcher at the Institute of Finance of the Chinese Academy of Social Sciences, has given in-depth insight. He has studied digital currency as early as in 2013, and his point of view is different from the traditional academics.
“I started holding forums early, so we have been communicating and giving lectures in Singapore together. He wrote a book, “Account”, which I mentioned in the first two lectures. It is the first systematic discussion I have ever seen about the essence of the digital economy. His basic point of view is that the most fundamental thing in the digital economy stemmed from the British industrial revolution, i.e. explosion of production, which has finally led to the explosion of transactions. Without the industrial revolution in Britain, large-scale industrial automation production, and continuous output of products from factories, global trade prosperity and modern civilization, cannot be established.
“I once said that a free market promotes human civilization through transactions. Only in this way can there be large-scale human cooperation, and thus, only continuous high-level division of labor, including innovation and technological innovation. Without large-scale global transactions, it is impossible for our technological development, living standards, and civilization to be reached today, as evidenced by humanity’s history over hundreds of years. Therefore, the importance of the British Industrial Revolution in the history of modern human civilization is undoubtedly very great.
“The most fundamental thing is that the Industrial Revolution continues to produce output from Britain. There is no longer scarcity. This leads to large-scale and frequent transactions around the world. Otherwise, if there are no products, there are no transactions. Therefore, the Industrial Revolution should undoubtedly be the starting point of modern civilization. However, Zhou Ziheng clearly saw that after the explosion of production, there has been a lagging of trading means. Before the Internet economy, transactions were not automated; this is a major problem that Zhou Ziheng believes has affected the global economy for hundreds of years. He even believes that the Great Depression in the United States is also because of this. He did an in-depth investigation of why milk was dumped during the Great Depression in the United States. The simple explanation was overproduction, but Zhou Ziheng analyzed this problem further. He points out that it is actually due to production leading in the economy. Almost all economic resources are tied to production, and funds and technology are jammed by the production end of the economy.
“Dumpin milk is not to say that no one needs to drink milk. It was that the production and sales side were completely mismatched, so milk was dumped. Production is constantly developing, continuously improving in efficiency, and constantly becoming more automated and high-tech, but the sales end is no different from medieval times. After the Industrial Revolution, production efficiency vastly improved, but trading was severely constrained. You could not trade anytime and anywhere in the world. I was very impressed that when I was a child, I lived in Deyang, Sichuan for a long time. At that time, my father had a chance to travel to Shanghai and buy things from Shanghai. At that time, our family felt joy like it was New Years. In fact, it was not that there was no money, but you just couldn’t buy many things. At that time, products sold in third- and fourth-tier cities were completely incomparable with Shanghai’s products. So someone went to Shanghai and the things they brought back were dazzling to us, which shows how poor trade was at that time.
“The entire world economy is still trapped by this. Transactions do not match production. Zhou Ziheng pointed out that until the Internet economy, trading exceed production. When Jack Ma started Alibaba, he proposed a slogan called, “Let there be no difficult business.” I didn’t feel much at first when I saw it. It now appears that it is not a coincidence that Alibaba has become a leader in the Internet economy. In fact, the 20-year history of Alibaba has changed people’s entire trading history.
“According to Zhou Ziheng’s theory, it means that after the explosion of human production, the explosion of transaction capacity finally appeared. Products can be traded for 24 hours, anytime and anywhere. It is completely immune to location. Transaction volume continues to hit new highs. China and the United States are the world’s most developed places for Internet transactions, and China is particularly successful. I have run back and forth between China and the United States a lot, and I feel very deeply that China is fully developed into the Internet economy on the payment side, including logistics. The entire society has changed Internet trade and the way everyone behaves. Clothing, food, housing and transportation have all changed.
“For example, Didi taxi, shared cars, shared bicycles, some people even say that the high-speed rail is related because only high-speed logistics can keep up with such large-scale transactions. So I think Zhou Ziheng’s “Account” is very well written.
“I recommended him to some professors at Tsinghua University, and they all said it was very rewarding. I think it is the first in the world to really sort out the development of economics. China’s Internet economy, of course, also includes the United States. Amazon, which first originated in the United States, actually developed e-commerce for the United States. However, the scale of China ’s online trade and online transactions is indeed at the forefront of the world. This is fact. And it is very thorough, almost into all aspects of the entire society. I think Zhou Ziheng pointed out that this is a true sign of the world economy moving towards a new era after the British Industrial Revolution, so I think Zhou Ziheng is an economist who makes it clear that the world has entered the digital economy era.
“After all, this is the trend, and transactions are becoming more and more automated. Zhou Ziheng pointed out that the core of the economy has begun to shift from corporate accounts to individual accounts. Because aggregation of large-scale transactions is being done with personal accounts. In the past, banks mainly served enterprises. When we were young, we did not have the concept of having our own account in the bank. Salary was paid in cash, and no one needed a bank account. You simply could not afford a bank account as it was very costly. That is to say, before the rise of the Internet economy, banks mainly revolved around corporate services–mainly corporate accounts. We have already said in the last lecture, the era of banking after the Industrial Revolution was mainly bookkeeping technology.
“Banks anchored industrial profits, created wealth consensus, and issued paper money. Later, the issuance of fiat currency by the state was also a national credit endorsement, but the state also needed to be anchored. Without a developed industry, the national legal currency couldn’t be supported. We can think that the achievement of the wealth consensus in the industrial era is mainly done around enterprises, and bank accounts also mainly serve enterprises, including loans, issuance of currency notes, transfers between banks, and even Wall Street. In our country’s economic crisis in 2008, the central bank said that 4 trillion yuan would save the market; to whom did the 4 trillion yuan go? It was given to large enterprises, mainly central enterprises and state-owned enterprises, and now the epidemic has emerged and it is said that a lot more infrastructure should be built. This kind of thinking is to cooperate with enterprises to form a wealth consensus. If we only print more than 4 trillion yuan of money, the social economy will soon be inflationary, prices will skyrocket, and food, clothing, and clothing will all rise. If all prices increase, people’s lives will collapse. But why didn’t it happen? It has been invested in those companies, and the companies have generated benefits. To a certain extent, they have used future earnings to support the wealth consensus.
“As I just said, the economic crisis is basically a liquidity crisis. What if the wealth consensus collapses? If China wants to stay away from the crisis, the first thing is to continue the entire market operation. On the surface, it seems that the central bank only relies on issuing more currencies, but it is not really the central bank. Many people don’t understand this. If the central bank only prints more currencies, it is easy to cause inflation. The most fundamental thing is to rely on the prosperity of industrial production enterprises, and then supported by the profits of the enterprises. The economy continues to develop, the new wealth consensus can be reached, and the company can support the newly issued banknotes. The newly issued banknotes have a value anchor, so the entire credit will not collapse.
“The reason I admire Zhou Ziheng’s insight given in “Account” is that he analysed after the explosion of the Internet economic transaction the most essential difference from the industrial era. In addition to transaction automation, the most fundamental thing is the economy. The original focus was on corporate accounts, but now it has begun to shift to personal accounts. Now, even if you say that rural areas have accounts in banks, not to mention that everyone has WeChat and Alipay, online accounts are endless. Everyone has an account. All the economy starts to run around individual accounts. According to the information I gathered, there are more than 100 trillion yuan transactions paid via mobile devices, and this is a figure that cannot be ignored.
“We naturally have to ask a very critical question. If the era of the so-called Internet economy should continue to develop like this, especially as deduced by Zhou Ziheng’s “Account” book, can the future wealth consensus be around individuals? Not too many dare ask this question because the current entire financial system and logic, including the country’s currency issuance, evolves around states and enterprises and contradicts any transition to individuals. In fact, Ali and Tencent have been fully aware of the new wealth consensus, and it may be carried out around personal accounts. They already have explosive personal accounts. Ali and Tencent definitely have more than one billion personal accounts. Note that personal accounts not only contain money, but also personal data. That’s why data accumulated on WeChat and Alipay, and they collected data in this epidemic, e.g. Ali ’s overwhelming publicity on its health tracking app.
“When I edited China’s first blockchain book in 2016, I discussed it with Alibaba’s deputy general manager Gao Hongbing. He was very excited and said the data they get from users per day was 100 trillion. Likewise, Google, Facebook, etc, with big data, knows you better than yourself.
“Gao Hongbing was also very excited to tell me that Alibaba is no longer an IT company, but a DT company. What is DT company? Data Technology. Ali especially wants to see a new wealth consensus by relying on personal accounts and personal data. So, there was Yu’ebao later. Of course, Ali is very excited, including the subsequent merger and acquisition of the Tianhong Fund. To be honest, this is not going smoothly; there are subjective factors and objective factors. Objectively, this terrifies the central bank, as the central bank feels that issuing currency is a right of national sovereignty. This could not proceed too fast and Ali has survived anyway because they have taken such a large amount of data and there are so many individual users. According to Zhou Ziheng’s theoretical analysis, the creation of a new consensus of wealth is completely possible under these conditions.
“The subjective factor is that the personal data is owned by an individual privately. As I said before, in order to truly engage in a free market economy, the first step is to protect personal assets. Without the personal data privatization, it is impossible to develop a free market economy and to reach financial consensus. But the business logic of big Internet platforms such as Ali and Tencent is simply opposite of this. Of course, they cannot be blamed. In the traditional Internet, the TCP/IP protocol itself does not protect any user’s data. Mr. Rong Chen realised that more than 20 years ago. When he was still at Microsoft Research, he discovered that the Windows operating system was actually a stand-alone version and did not govern the Internet activities at all, and did not manage any applications to go online. All apps are now online, and every app takes away user data as long as you use it.
“In 2018, I met Jeffrey Wernick, a well-known doctor of economics at the University of Chicago, in New York. He told me that the business logic and business model of major global Internet companies are the same. They are thieves who steal user data to make a fortune. This brings us back to the starting point of our last two lectures. That is to say, if you want to reach a new consensus on wealth, the first point must be to keep personal assets private, personal assets protected and confirmed, sacred, and inviolable. If there is no such thing, A new wealth consensus cannot be reached.
“Now the financial empire, so developed on Wall Street, has been created and dominates the consensus on the world’s major wealth. The starting point was constitutional amendments in Washington that protected the freedom of personal assets and was sacred and inviolable. This is the basis for the development of a free market economy. Why does Wall Street prosper in the end but not elsewhere? The most fundamental reason is the legal system protects personal assets. Well, to some extent, China’s 40 years of reform and opening up, although it started late, has also been catching up. In particular, as I mentioned earlier, Chinese real estate has not issued a real estate certificate in 1998, and it is difficult to form a wealth consensus of $65 trillion US. Even Professor Xiangshuai of Peking University said that the Internet economy has prospered because China has such a large real estate wealth consensus. If there are not so many credit resources injected into the market, how can there be an explosion of transactions? We finally have the Property Law in 2008, which clearly protects personal assets. These are credit resources and indispensable for the development of the market economy.
“According to Professor Zhou Ziheng’s analysis, big internet companies originally represented a future digital economy. After the explosion of production, there was finally a big explosion of transactions and big data, but unfortunately the revolution is far from being completed. It’s not just China, it’s the same in the United States. For example, Facebook also owns personal data of users. In this case, if you want to count on which Internet platform can really generate a new wealth consensus on a large scale based on the data and transactions generated by everyone, this is basically impossible. However, blockchain and Bitcoin appeared in 2008 and created the first digital confirmation. Digital data now belongs to individuals. Bitcoin has been developed for more than 10 years so far, creating a market value of more than 200 billion US dollars, and I personally predict that it is likely to surpass trillions of dollars next year. This is a new era, and privatized data can create a new wealth consensus. If anyone can not easily understand this point, he will completely miss the future and the opportunities therein. How can a global wealth consensus be formed in the future? I will talk about it in the next lecture.”