Popular Science: What is the crypto economy?

At 17:00 on May 20th, Mr. Chang Yong, the founder of Zhimi University and the founder of Freecash, was invited to share knowledge about crypto economy with community members in Telegram. The full text is as follows:

Today I will talk about the crypto economy that has been and practiced over the past few years. The logic is very clear.

What is the crypto economy

The crypto economy refers to the economic form of asymmetric cryptography used in various fields of the economy. It is the third economic form of the information economy after the digital economy brought about by computer technology and the Internet economy brought about by network technology.

Digital Economy -> Internet Economy -> Crypto Economy

In general, in the past 100 years, human society is shifting from material economy to information economy, that is, the core of people’s lives is shifting from material products to information products.

The starting point of the information economy is that computer technology standardizes various information into binary numbers composed of 01, opening the era of “digital economy”, from the invention of the computer in 1940 to the peak of the computer industry in 2000.

Network technology has further connected digital information on a global scale, bringing about the “Internet economy”. Network technology started in 1960 and will reach its peak in 2020. The Internet economy is currently facing two major bottlenecks, one is information security, and the other is information monopoly. Almost all negative news on the Internet economy can be attributed to these two major issues.

You can pay attention to these negative news.

The crypto economy is a new economic form based on asymmetric cryptography, which fundamentally solves the problems of information security and information monopoly on the Internet.

Therefore, the crypto economy is the evolution of the Internet economy.

The basic solution to the problem of information security lies in the popularization of asymmetric cryptography. When everyone can control their own information security with a private key, the information security problem of the entire society can be solved.

To solve the problem of information monopoly, it is necessary to further integrate important social and economic data and rules on the basis of asymmetric cryptography to achieve information security with the help of peer-to-peer network technology to form a distributed consensus system that is not monopolized by any center.

After solving the problems of information security and information monopoly with asymmetric cryptography and distributed consensus, the Internet economy has fully transferred to the crypto economy.

From the beginning of the civilian use of asymmetric cryptography in the 1980s, the crypto economy began to sprout, and it is expected that it will be fully realized around 2040.

In this process, there will continue to be staged innovations and breakthroughs, which will bring about multiple bull markets.

Understanding the logic of the crypto economy can better grasp the rhythm and seize the opportunity of the bull market.

Two functions of asymmetric cryptography

Asymmetric cryptography has two main functions, one is information encryption and decryption, and the other is information signature verification.

Encryption and decryption are mainly used to prevent information leakage.

The basic method is that the sender encrypts with the recipient’s public key, and then transmits the cipher text to the recipient, and only the recipient can decrypt it with the corresponding private key. During the transmission process, it does not matter if the ciphertext is leaked, because only the recipient has the corresponding decryption private key.

Signature verification is mainly used to prevent information forgery.

The basic method is that the information publisher signs the information with his own private key, and then publishes the information, signature, and his own public key. The recipient of the information can use the issuer’s public key to verify whether the information is signed by the issuer’s private key. Anyone who forges information content will not pass the verification.

Since asymmetric cryptography was originally invented for the military to encrypt information, Chinese was translated into asymmetric encryption technology when the introduction of “Asymmetric cryptography” (asymmetric cryptography).

This led to the later cryptocurrency and crypto economy being also called “encrypted currency” and “encrypted economy”. In fact, this is wrong.

Encryption, decryption, signature, and verification are just application methods of asymmetric cryptography.

I also made this mistake at the beginning. It was Lilin Sun of PlatON who reminded me that it was in 2018.

A correct understanding of this can reduce detours in the process of building a crypto economy.

The crypto economy has two stages

Asymmetric cryptography was invented in 1970, and was promoted to civilian use by cypherpunks in the 1980s. It has roughly gone through two stages so far.

1) Network security stage

From the 1980s to 2009, asymmetric cryptography was mainly used by commercial enterprises in the digital economy and the Internet economy to improve the security of equipment and network transmission.

With the support of asymmetric cryptography, online payment, e-commerce, https, etc. have been popularized, contributing to the prosperity of the Internet economy.

At this stage, asymmetric passwords are hidden behind the scenes, used by enterprises and platforms, and are not controlled by ordinary people.

2) Cryptographic consensus phase

Since Satoshi Nakamoto launched the Bitcoin system in 2009, the combination of asymmetric cryptography technology and distributed consensus mechanism has begun to build an independent decentralized economic system, which is also known as the blockchain, which I call “crypto consensus”.

In the cryptographic consensus system, ordinary users own the private key, thereby gaining stronger economic freedom. The decentralized economic system thus established can reconstruct various global economic infrastructures and become a new engine of global economic growth.

In the first stage, the asymmetric cryptographic technology mainly uses encryption and decryption functions to ensure the security of information transmission.

In the second stage, the signature verification function is mainly used to establish a verifiable trust relationship between people on the network.

Many people don’t know that all data in the Bitcoin system is completely public, and no data is encrypted.

What is distributed consensus

Distributed consensus is a natural solution to information monopoly and has existed since ancient times.

Information monopoly means that all important data and system rules of economic organizations are controlled by one center, namely data monopoly and rule monopoly.

Distributed consensus means that every member of an economic organization can master important data and rules, that is, data consensus and rule consensus.

The most typical scenario of distributed consensus is playing mahjong: everyone records important data, everyone understands, abides by, and supervises others to follow the rules, no need and no one can have the final say.

Distributed consensus systems have been feasible since ancient times, but restricted by the level of information technology development, they can only be used in small economic activities.

As the scale of economic organization expands, efficiency drops drastically.

Therefore, since ancient times, all large-scale economic activities have been centralized.

Now the situation has changed.

Computer technology and Internet technology have greatly improved the capacity of information storage, analysis, and dissemination. Asymmetric cryptography provides remote identity verification functions. Therefore, distributed consensus can be achieved on a large scale.

Satoshi Nakamoto combined the distributed ledgers, peer-to-peer networks, blockchains, and workload proof mechanisms that were gradually discovered by predecessors to realize the first distributed consensus system that works effectively on a global scale-Bitcoin. Push the crypto economy to a climax.

Cryptographic consensus is the cornerstone of the crypto economy

There are two fundamental characteristics of cryptographic consensus, one is that individuals have private keys, and the other is decentralization.

An individual’s possession of the private key is not only a prerequisite for the realization of information and asset security, but also a fundamental guarantee for the basic rights and interests of individuals and the foundation of the crypto economy.

The blockchain, in which individuals cannot control the private key, is not essentially different from the traditional Internet.

Decentralization is the source of efficiency for the crypto economy to surpass the Internet economy. It can eliminate huge operating costs of the center, prevent the center’s private interests from harming the ecology, and promote the high-speed sharing of knowledge and free collaboration on a global scale.

Cryptographic consensus is suitable for building the most important infrastructure of the global economy, such as currency, network, storage, etc. The infrastructure reconstructed based on cryptographic consensus cannot be stopped and divided by any individual, organization or country, and can achieve true global economic integration.

In the crypto economy, various centralized business activities can share decentralized infrastructure, operating costs will be greatly reduced, the market space will be greatly expanded, and efficiency will be rapidly improved. Compared with traditional Internet commerce, it will be a dimensionality reduction blow.

If this stage goes well, the global crypto economy will be basically realized before 2040.