Editor | Wu Talks about Blockchain
This podcast features Hong Shuning, who has worked at the Nanjing Branch of the People's Bank of China for a long time. He graduated from Tsinghua University's Department of Computer Science in 1992. When Bitcoin broke through $1 in 2011, he wrote a paper calling for the use of national computing power for mining and the establishment of a Bitcoin bank to fight against the hegemony of the US dollar. Today, Mr. Hong mainly recognizes the RGB direction and is starting a business in this area. However, due to contracts and ICO investments, he lost some of the bitcoins he bought early.
Audio to text conversion uses GPT, there may be errors. Listen to the full podcast:
Microcosm:
https://www.xiaoyuzhoufm.com/episodes/6659a3caad5aa5d8c2b9b8a8
YouTube：
https://youtu.be/p6Lw4J6VUlc
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First exposure to Bitcoin when it broke $1
I first came into contact with computers when I was in middle school. Later, I was admitted to the Department of Computer Science at Tsinghua University. At that time, I mainly studied mainframe-related content. There were no personal computers or the Internet. The languages we learned were Pascal and C. The course content was not much different from now, mainly knowledge related to computer science and technology, including software, hardware and networks.
After graduation, I started as a programmer and later joined the People's Bank of China, where I worked in computer software development, system management, and network management for nearly 20 years. During this period, I was also responsible for payment settlement and payment system-related work.
I first came into contact with Bitcoin in 2011 when I was working at the People's Bank of China. At that time, Governor Zhou Xiaochuan proposed the goal of internationalizing the RMB to counter the hegemony of the US dollar. I learned about Bitcoin through some technical blogs and then read its white paper. After reading it, I felt that this was the new currency to counter the hegemony of the US dollar. I also carefully studied the source code of Bitcoin and found that it fully realized the ideas in the white paper and was a truly effective currency. I introduced Bitcoin to people around me, but most people were not interested.
To this end, I wrote a paper and put forward three suggestions from the perspective of the country and the central bank:
First, it is recommended that the state participate in mining;
Second, establish a Bitcoin bank to transfer Bitcoin to the people;
Third, using Bitcoin as a reserve to issue RMB can counter the hegemony of the US dollar.
Although the paper caused some response in the Bitcoin circle, it was not taken seriously by the country at the time.
What attracted me initially was the technology and economic theory behind Bitcoin. In his white paper, Satoshi Nakamoto proposed a completely new monetary system that mimicked the properties of gold, which was very effective in the early monetary system. I firmly believe that Bitcoin is a viable currency and has the potential to solve the problems of current credit currencies.
I have been studying Bitcoin, focusing on whether it is truly a currency and whether it can continue to exist in the long run. Although my initial paper used Marxist economics to prove the value of Bitcoin, I still have doubts in my mind, so I continue to study economic theory in depth to verify the long-term value of Bitcoin.
In 2011, Bitcoin broke through $1, and many technical blogs began to pay attention. In order to study Bitcoin, I built the Bitcoin code base and mined with a laptop. At that time, the CPU mining speed was already very slow, and I only mined a few tenths of a Bitcoin. I also tried to buy Bitcoin, but gave up because there was no purchase channel in China at that time. It was not until a few years later that there were exchanges like BDCC in China that I started to officially buy Bitcoin, around 2014 when the price was a few hundred yuan. After that, I basically did not sell Bitcoin, nor did I sell Bitcoin for fiat currency, but I did lose some Bitcoin when the contract was blown up and invested in innovations on Ethereum. I always remind everyone not to speculate in contracts and not to invest in altcoins. These are all bloody lessons. I hope everyone can learn from experience and hold Bitcoin and don't throw it away.
Bitcoin was once predicted to reach $100,000, but its development is slower than expected
First, the long-term rise of Bitcoin is an inevitable trend that cannot be changed artificially. Although there was no clear prediction of its price in the early days, I publicly predicted that Bitcoin would reach $100,000 in the next few years after leaving the People's Bank of China in 2017. The prediction at the time was based on the comparison between Bitcoin and gold. If Bitcoin completely replaced gold, its value should be around $400,000. Therefore, the prediction of $100,000 is actually a conservative estimate. Although it has not yet reached $100,000, I believe it is only a matter of time.
After further research, I found that Bitcoin has the potential to be much more than just a gold replacement. With the development of the Lightning Network and Bitcoin Layer 2, Bitcoin is fully capable of replacing the US dollar and becoming the base currency of the world economy. Once achieved, the value of Bitcoin will far exceed 100,000, 400,000, or even 100 million US dollars. At this stage, the price of Bitcoin is still far undervalued, mainly because people's awareness and acceptance of Bitcoin are slower than expected.
The slow development of Bitcoin is mainly due to the performance limitations of its blockchain. In the early days, Bitcoin had weak scalability and programming capabilities, and the speed of 7 TPS was far from supporting large-scale circulation. Therefore, many people, including leaders in the economic, financial and technological circles, believed that Bitcoin could only be used as digital gold and could not become a circulating currency.
However, the emergence of the Lightning Network has changed all this. The Lightning Network has unlimited performance and extremely low handling fees, and its speed is even faster than Alipay, making Bitcoin completely viable as a circulating currency. Technically, Bitcoin payments have reached the level of modern electronic payments, and the remaining obstacles are people's acceptance and the development of application scenarios.
In order to make Bitcoin a highly accepted currency in circulation, a large number of application scenarios need to be developed on the Lightning Network to encourage more people to use Bitcoin. Once this is achieved, the previously envisioned goal of large-scale use and high value of Bitcoin can be achieved. At present, the technical problems have been solved, and the key lies in the promotion of applications and people's acceptance.
Support for Classic expansion solutions
I have been paying close attention to the Bitcoin hard fork and expansion controversy in 2017. The discussion on Bitcoin expansion actually started in 2015. The mainstream opinion is that it needs to be expanded, but there are different opinions on the specific expansion size. Some people think that 2 megabytes or 4 megabytes is enough, some think it needs 8 megabytes, 16 megabytes, or even 32 megabytes, and some think it should be expanded to infinity. Corresponding codes have been developed for these technical paths.
At that time, I was more in favor of the Classic solution, which was the 4-Megabyte expansion solution. I also participated in some development work, but unfortunately this solution was not recognized by miners due to bugs and security vulnerabilities, and was eventually abandoned. Since then, various solutions have emerged, including SegWit and other 2-Megabyte solutions, and I have carefully studied the code. However, I am not very satisfied with these solutions, including the BCH solution, which I think is also a step backward.
My favorite is the Classic solution, which is the most concise and clear solution, and only requires changing one line of code. I believe that Bitcoin will still expand in the future, but I hope to adopt the simplest and most concise solution like Classic instead of a complicated solution.
I totally don’t approve of Ethereum and think that ETH will eventually return to zero.
When Ethereum launched its ICO, I had the opportunity to participate, but I was not optimistic about Ethereum’s solution, and I still am not optimistic about it now. Ethereum wants to solve the problem of Bitcoin script function expansion, but I think if Bitcoin restores the previously deleted instructions and uses some workarounds, it can achieve more complex functions without the need for Turing-complete Ethereum.
The enthusiasm for technological innovation in the early days of the Bitcoin community was very high, and various technical paths were constantly proposed. I believe that in this environment, Bitcoin can achieve the functions of Ethereum. Therefore, I think Ethereum is unnecessary and is equivalent to reinventing the wheel. Unfortunately, due to the hard fork dispute in the Bitcoin community, especially after the conservatives won, Bitcoin gave up the expansion of script functions, causing Bitcoin to miss the opportunity, while Ethereum developed rapidly and attracted a large number of application developers.
Despite this, I still firmly believe that Bitcoin can achieve all the functions of Ethereum through innovations like Taproot. Recently, some new protocols on Bitcoin, such as RGB, have also verified this. With the realization of these functions, Ethereum will become unnecessary, so I have always believed that ETH will eventually return to zero.
What is RGB and why is RGB a promising direction?
Bitcoin has always had a serious problem, which I call Bitcoin's Achilles' heel. With the halving every four years, miners' rewards will become less and less, making it difficult for miners to get enough incentives from block rewards to maintain high computing costs, which will threaten the security of Bitcoin. Eventually, Bitcoin may face the risk of a 51% attack, making it impossible to become a reliable currency, and may even return to zero, which is what I think is the biggest risk of Bitcoin.
To address this problem, Bitcoin requires a large amount of transactions, which can be achieved through commercial and financial applications. However, the performance limitations of the Bitcoin blockchain itself make it difficult to support large-scale circulation currency applications. Therefore, despite attempts to promote Bitcoin payments over the past decade, almost no mainstream commercial institutions accept Bitcoin as a means of payment.
Ethereum has attracted a large number of transactions through DeFi (decentralized finance). If Bitcoin can also implement similar DeFi applications, it can bring a large number of financial transactions and eventually promote Bitcoin to become the base currency of the global economy. To achieve this goal, we need to implement smart contracts and other complex applications on the Bitcoin blockchain.
The RGB protocol is a solution for implementing Turing-complete smart contracts on the Bitcoin chain. Unlike other solutions, RGB places the execution of smart contracts off-chain, with transactions between users and only recording proofs on the Bitcoin chain. This approach not only solves performance issues, but also achieves almost unlimited scalability.
The basic principle of RGB is to record accounts off-chain and prove them on-chain. This method makes the transaction performance on the Bitcoin chain far better than Ethereum, while also having Turing-complete functions. Therefore, RGB can realize various applications such as DeFi, GameFi, NFT, etc., bring a large amount of transaction volume, and then provide miners with sufficient fee income to ensure the security of Bitcoin.
At present, the development of the RGB protocol is relatively slow, but it is close to the prelude to its official release. Once released, it will be possible to implement asset issuance and various Turing-complete applications on it. I personally believe that within one to two years after the official release of the RGB protocol, it can reproduce all the developments of Ethereum in the past few years, bringing huge technological innovations and ecological applications.
In order to promote the commercialization and engineering of RGB, we are developing some auxiliary tools and infrastructure to help users use the RGB protocol more easily. These tools include node management, smart contract management, and data management, making it easier for users to access wallets and use various decentralized applications (dApps).
The centralization risk brought by BlackRock is not a big deal
The centralization risk of Bitcoin, including the problem of being controlled by Wall Street, is actually not serious. As early as 2011, I wrote a paper hoping that Bitcoin would be controlled by the state, because the concentration of social wealth is an inevitable trend, whether it is gold, US dollars or Bitcoin.
The worry of being controlled by Wall Street actually has two meanings. First, Wall Street bankers do not have that much wealth personally, they just help everyone manage wealth. Bitcoin ETFs are similar. Although it seems that ETFs have hundreds of thousands of Bitcoins, these Bitcoins do not belong to Wall Street, but to the thousands of institutions and retail investors behind them. Therefore, although wealth is concentrated, it is still dispersed.
Historically, gold was concentrated in the hands of the Federal Reserve during the Bretton Woods system, but now gold is beginning to flow back. Bitcoin may also enter a similar state, depending on which country first recognizes the advantages of Bitcoin. The United States is actively seizing this advantage. If history repeats itself and Bitcoin is concentrated in the hands of the US government or the Federal Reserve, then the United States may use these Bitcoins to issue new dollars.
Even if this happens, it is an improvement over the current unanchored printing of money, and it is a better thing for ordinary people. This step is still a victory for Bitcoin. As for whether it will deviate from the standard again in the future, this is beyond our ability to predict.
As for China, if some suggestions had been adopted back then, the situation might have been different, but we cannot assume that. However, many countries are now beginning to realize this, so the future may not necessarily be monopolized by the United States. The best case scenario is that governments of various countries are scrambling for Bitcoin resources, forming healthy competition.
