China Forex (English)

Digital Currencies

- The author is a former consultant to the State Administra­tion of Foreign Exchange

Internet, traceable uniqueness and enhanced security, among other benefits.

Digital technologi­es represent the transforma­tion and applicatio­n of digital principles (commonly manifested as mathematic­al formulas and deductions) in the physical world. This refers to artificial intelligen­ce and digital communicat­ion, such as CDMA, while digital currency is a practice of mathematic­al logic cryptograp­hy in the financial field. From the profession­al perspectiv­e of cryptograp­hy, the foundation of this passcode is a sequence of numbers generated from one or several mathematic­al formulas. The solution of this sequence is non-repeating and infinite. Digital currency takes this sequence as the denominato­r and monetary transactio­n is as the numerator. When a transactio­n is executed and changes the numerator, the denominato­r changes along with it. As long as the solution of the denominato­r is non-repeating and infinite, the numerator can never grow as large as the denominato­r.

Based on this mathematic­al foundation, a system comes into existence. But it is worth noting that only a sovereign digital currency is backed by national credit. Without any wealth of service support behind them, digital currencies -regardless of their name or concept -- are only digital cryptograp­hic games. Thus, they do not have any practical circulatio­n value. Blockchain takes digital technology as the medium and can only be defined as narrow digital form of money. We will consider it as broad money only when it gets linked to a sovereign currency, including sovereign digital currency.

Is there a risk in digital currency? The answer is yes, if we discuss this question from an objective perspectiv­e of the logical relationsh­ip between encryption and decryption.

Strictly speaking, all technologi­es are decodable; the difference lies only in the difficulty and timeliness of decoding. For instance, we now commonly believe that "pi" (the ratio of the circumfere­nce of a circle to its diameter) is an infinite nonrepeati­ng decimal. But since the calculatio­n speed has been greatly improved with the emergence of quantum computing technology, if someday in the future, we find out that pi is actually a constant, it will not be very surprising. But of course, for an instantly generated digital currency, if its encryption technology is being worked out some 50 or 100 years later, guarding against its replicatio­n will be completely unnecessar­y.

 ??  ?? Mu Zhiqian, a former consultant to the State Administra­tion of Foreign Exchange.
Mu Zhiqian, a former consultant to the State Administra­tion of Foreign Exchange.
 ??  ??

Newspapers in English

Newspapers from China