Article/Li Honghan, columnist of Sina Financial Opinion Leader (WeChat official account kopleader)
1、 Definition of blockchain investment
Blockchain is known as the "next generation Internet" because it solves the problem of dissemination and decentralization of valuable information. According to statistics, from 2012 to 2015, the venture capital attracted by the global blockchain sector increased by more than 200 times, from $2 million in 2012 to $469 million in 2015, with a cumulative investment of about $1 billion. As the underlying technical support of Bitcoin, the blockchain is a decentralized distributed database. The database is composed of a series of data blocks generated using cryptographic methods. The blocks contain data record information that cannot be tampered with within a certain period of time. Because of its decentralized, transparent, open, autonomous, tamper proof and anonymous characteristics, blockchain can be widely used in many fields, such as payment and exchange, registration and settlement, intellectual property protection, identity authentication, anti-counterfeiting and supply chain, Internet of Things, and other fields, except for digital currency.
In the field of financial investment, the specific application scope of blockchain includes point-to-point transactions, cross-border payment, final settlement and settlement of P2P, as well as recording various information, such as customer identity data and transaction records, verification and transfer of land ownership and equity authenticity, and smart contract management. Sharing finance is possible because blockchain technology has greatly reduced the operating costs of financial institutions.
Although blockchain is a technology and protocol pioneered and applied by Bitcoin, blockchain is not equivalent to Bitcoin, and its application is not limited to Bitcoin. As a virtual currency case of blockchain investment, Bitcoin's development and characteristics mark the trend of blockchain investment. The issuance of Bitcoin does not depend on specific monetary institutions, but relies on a large number of algorithms. The legal tender such as RMB is issued by the state's sovereign endorsement and is subject to strict financial supervision. In addition, because of the extreme scarcity of Bitcoin, which is different from other virtual currencies, it has attracted many Bitcoin players. From the issuance of Bitcoin to the peak of the Bitcoin bubble, the growth of Bitcoin was up to 20 million times, far higher than that of other virtual currencies, which attracted a large number of ordinary investors to participate in the market. However, the good times did not last long. In 2013, the price of Bitcoin soared to $1000. In the following two years, Bitcoin investors were suffering from "one day in the currency circle, one year in the world", and the price fell below $160 in early 2015. The sharp rise and fall of the price of Bitcoin also reflects the huge risks and opportunities implied in blockchain investment.
2、 Wealth creation effect of blockchain
Although blockchain is not an advanced technology, the attributes of distributed accounting, decentralized trust, and data openness, transparency and immutability are all supporting this huge liquidity bubble. More than 6000 digital token exchanges in the world that are not subject to strict regulation or even zero regulation provide huge liquidity for these digital assets. The global daily value of Bitcoin transactions has exceeded 20 billion dollars. Is this a revolution? Or subversion, or tulip 2.0? Or is it just an ordinary financial speculation? Unqualified investors should not have entered the high-risk investment stage, but there is no limit to human greed. The more deeply we study blockchain technology, the more we can feel human greed and fear. It seems that the two always appear together.
Everyone wants to get rich overnight. Bitcoin is considered by the currency circle as a dark horse in the investment financial world. "Digging money" has become a belief. It seems that as long as the computer works day and night, it is the accumulation of wealth. Bitcoin's crazy influence comes from its crazy ability to create wealth. How many losers turn over to be rich and handsome overnight. Bitcoin soared by nearly $20000 in just six years with the initial $0.3, and some people's sudden wealth constantly provoked investors' nerves. This short-term market prosperity is a sharp market in a way that does not rely on any real economy and the rise and fall are not subject to any physical control. The virtual currency, which cannot be used as a stabilizer and barometer, actually creates opportunities for speculation and arbitrage.
Bitcoin began its new journey of ups and downs since it first traded at $0.3 in early 2011; In April 2012, Bitcoin reached $1 for the first time; In 2012, Bitcoin ushered in its first bubble, which peaked at $30. A week later, it plummeted. Since then, the downturn has continued; In 2013, the concept of Bitcoin was gradually accepted, and the price also showed an explosive trend of rising to $1000. The good times are not long. In the next two years, Bitcoin investors are experiencing the suffering of "one day in the currency circle, one year in the world"; At the beginning of 2015, the price fell below $160; The price increase in 2016 exceeded 200%, far exceeding that of real estate and other industries; 2017 is the year when Bitcoin broke out, constantly breaking new records. If you buy Bitcoin with 2000 dollars in May, you will get nearly 1000% of the income on December 17, and Bitcoin will reach the peak of 19194.03 dollars; As of January 25, 2018, it closed at $11058.06. Such crazy price rises and falls are called "the largest speculative bubble in history".
Reviewing the wealth creation effect of Bitcoin and the blockchain market, we found that the wealth creation effect not only brought innovation, but also brought speculation, crazy speculation. Speculators in these short months have experienced a mixture of joy and sorrow. Investment is all in a flash, one side is heaven, the other side is hell.
3、 Risks of blockchain investment
At present, China has become an important bitcoin trading market in the world. From ordinary investors to entrepreneurs worth more than 100 million yuan, from individual investors to institutional investors, there are a large number of participants and a large scale of assets. The direction of bitcoin has far-reaching implications.
1. Subversion of investment philosophy
A truly subversive concept or technology must be difficult to understand, unacceptable, or even abhorrent. Any concept that can easily be accepted by us is not subversive. The subversion of blockchain investment means upside down. Just like the recent token investment scene, investment is not called investment but "asking for quota". The original investor is Party A who faces south, but now is Party B who asks for quota everywhere. This is called subversion. The so-called token investment was first subverted by these VC who claimed to love disruptive innovation and disruptive innovation. This is not just a regional event, but a great game between private entrepreneurs and investors on a global scale; It may also be said that it is indeed the biggest financial speculation in this century, and it can meet all the craziest definitions of speculation. The most ingenious and hard to refuse is the bottom chain (protocol layer) such as Ethereum, NEO, Qtum and SmartMesh. They will build a digital kingdom in the virtual world. When entering this kingdom, they will naturally exchange their local currency for the tickets that are popular in the kingdom - tokens, tokens or passes. The token is the universal "Currency" in the blockchain based digital world, and it is an encrypted digital token. The establishment of this virtual digital kingdom successfully bypassed the legal network of financial supervision.
2. Avoid tax supervision
Buying the pass to be passed in the future in a blockchain ecosystem to future community members (users) in advance is called 1C0: first digital pass issuance! Although this token does not represent securities, its total amount is constant. With the growth of the ecosystem, more and more "digital citizens" who "migrate" to the ecosystem need to "exchange" through an entrance. This growing demand will lead to the soaring price of the ecosystem's token. With speculation from speculators, the price of the entire blockchain token will be pushed to the sky. With the early profit effect stimulation, investors around increased their investment in digital tokens, and the amplification effect grew exponentially. Is the book income of digital token subject to tax? Which department pays tax on this item? How to pay taxes? When should I pay taxes? How often do you pay taxes? There is no answer. Because we have not recognized the asset value of digital token in China, the tax bureau will not tax the virtual props in our game account.
3. Pay for "leeks"
The currency circle is a group with a huge difference in temperament and aura from the previous TMT technology entrepreneurship group. It is not because the Bitcoin in their wallet is worth money and becomes a local tyrant. It is because there are many people who do things without integrity, ignore laws and rules, ignore the bottom line of morality and conscience, and fear that the world will not be chaotic. Scatter such high-risk digital tokens to thousands of "little leeks" with extremely low risk bearing capacity, cutting wave after wave. These leeks, blinded by speculation, suddenly entered the investment circle and lined up to grab the "investment quota" of a blockchain enterprise whose value was being assessed by some old investors at a high premium. Finally, those non professional investors, commonly known as "leeks" ordinary people , was carried in by the wave of speculation. Of course, it is also possible that they were brainwashed by some "pyramid marketing organizations" and forced to come in to help gold mining. The emergence of irrational investors swarming into the market and token project teams running away greatly increased the risk of market collapse.
4. Deviating from the real economy
If the economic aggregate is close to the token circulation market value, the blockchain can really change our lives, make social efficiency higher, make data islands linked, and make the transaction and circulation of all products, services and assets more convenient and fast. Based on the blockchain, if it is a national sovereign digital currency, it will also have the advantages of low anti-counterfeiting costs, traceable data, and difficult to counterfeit. But does blockchain investment really serve the real economy? Taking Bitcoin as an example, the price inflation of Bitcoin does not indicate its intrinsic value, and the price fluctuation is not determined by its value. Media attention, investor sentiment, regulatory policy guidance, and increasingly fierce mining competition will cause Bitcoin to rise and fall repeatedly. The fundamental reason for the turbulence is that Bitcoin is completely independent of the real economy, the price change is not controlled by physical assets, and there is no docking entity. At present, Bitcoin is almost meaningless to entities. Blockchain investment is separated from the real economy, making it difficult to become the best choice for rational investors.
4、 Suggestions on blockchain investment
Blockchain is a neutral technology, but the digital token on the blockchain is both good and evil. With good use, it can enable a small country to win the next three decades, collect taxes from digital asset transactions around the world, and change the world political and economic pattern in a very short time. If it is not used well, it may destroy the domestic financial control system and stimulate group events. Based on the risks of the above blockchain investment, this paper puts forward the following suggestions
1. Investors need to polish their eyes
Investors need to identify blockchain investments that are conducive to the development of the real economy and can guarantee their own profits from the mixed investment of blockchain. We should not be swallowed up by the speculative wave and blindly follow the trend, so as to preserve ourselves in the investment bubble and reduce the turbulence of the overall market. Do not participate in high-risk investment activities. In order to ensure the stability and continuity of family life, the income sought by personal investment and financing should be of a high stability type. Individual investors are required to pay close attention to the risks of investment at all times and avoid participating in futures and financial derivatives investment with high volatility and risk rate. High risk often means high return, and high risk also means high return and high loss. Don't dream of getting rich overnight. Personal finance is a way of life that runs through life. It is neither gambling nor speculation. When making financial investment, individual investors should first ensure that the assets do not deteriorate, and then obtain income. Therefore, when making financial investment, we must reasonably assess the risk, take the investment time as a long-term thing, have a long-term vision and plan, and do not be like a bird in a panic when there is a disturbance in the capital market. Frequent buying and selling are short-sighted behaviors. In personal financial investment, we should adhere to the concept of long-term value investment.
2. Regulators strengthen digital currency supervision
The attitude of the financial supervision department towards Bitcoin should not be suppressed, but should guide the standardized development. Specific measures should focus on strengthening the supervision of Bitcoin, issuing normative documents, promoting the deep integration of blockchain and digital currency, guiding the cooperation between Bitcoin and legal digital currency, and truly making Bitcoin a reality. Specifically, the first is to strive to guide all kinds of "alliances" to prevent the recurrence of the business form of "bad money drives out good money". It is necessary to guard against possible negative factors, such as pyramid schemes, unplanned industrial layout, blind introduction of incentive policies, etc; Secondly, to guide the development of technology, establish necessary standards to guide the open and collaborative public trust technology environment; Thirdly, it plans and guides the industry demand for public trust, layout innovative research and industrial planning of blockchain infrastructure in public trust services such as audit, integrity, notarization, property rights, etc., standardize market behavior, and prevent repeated construction; Finally, we should attach importance to and strengthen international cooperation, guide national talent exchange and open competition and cooperation, make full use of China's advantages in the international economic field, and seize the opportunities in this round of transformation of the world economic pattern.
3. Strengthen financial knowledge education for investors
The rapid development of the financial market has put forward higher requirements for the financial knowledge that family investment should have. Strengthening the education of investors' financial knowledge is not only conducive to the rational allocation of family assets, promoting the appreciation of family assets, but also conducive to regulating investment behavior and promoting the sustainable and stable development of the financial market. In order to better mobilize the enthusiasm of family investment and make families make more reasonable investment decisions, the state should increase the education of family financial knowledge. The state can introduce corresponding policies to better advocate families to participate in the financial market. At the same time, it can regularly invite professionals to hold lectures. For families who have the desire to invest but do not know enough about the financial market, strengthen the education of financial knowledge to make better investment decisions.
4. Diversified financial product innovation
Financial institutions should provide diversified low-risk products. Financial institutions should fully understand the situation of investors and provide more financial products according to national policies, economic development requirements and investors' needs. Although our people's living standards have improved, they are still not particularly rich, so their risk tolerance is weak. At the same time, China's financial market started late, families did not have a special understanding of the financial market, and family investment participation awareness was not strong. Therefore, when facing family investors, financial institutions should focus on low-risk financial products.
(The author of this article is a researcher from the Institute of International Currency, Renmin University of China.)
