This article is a transcript of the keynote speech given by Dr. Xiao Feng of Wanxiang and HashKey Group at the DBAC Forum of Xinyue University of Social Sciences. It was compiled by @Jesse_meta and reprinted with permission from PANews.
Dear friends, hello everyone, thank you very much for the invitation from Professor Li Guoquan, and I am honored to have the opportunity to share at our Singapore University of Social Sciences. The topic of my sharing today is called "Digital Economy Era and Digital Asset Center".
I want to point out that, just as the industrial economy created the stock market, the digital economy will also create a market system for virtual assets or digital assets. Moreover, in the next 20 or 30 years, the market system of digital assets and virtual assets may have the same scale and value as the current stock market. To illustrate this point, we must first look at the value law that is unique to the digital economy. It is this value law that determines that the digital economy era will definitely adapt to a digital asset market. As we all know, digital products and services have a value law of high fixed costs and low marginal costs, which is not available in the industrial economy. The manufacturing economy has high fixed costs, and at the same time, the marginal costs must be increasing. The marginal costs of building one car and building 100 cars must increase gradually, but the fixed costs of digital products and services are very high, but the marginal costs are close to zero, or even equal to zero. For example, when we develop a software, it requires a lot of investment. But once the software is developed, the marginal cost of one person using the software and 100 million people using the software is almost zero.
The value law of digital products and digital services leads to two major characteristics of the digital economy. First, because of its low marginal cost, or even zero marginal cost, the digital economy and the digital products and digital services in the digital economy will never have the problem of diseconomies of scale. At the same time, it is easy to lead to the phenomenon that the global Internet platform can often win all and cause monopoly. This is also why regulators in various countries have introduced different laws to regulate Internet platforms to eliminate the disadvantages brought about by the monopoly of Internet platforms. In addition to this feature, high fixed costs and low marginal costs are such a value law. It makes the way to maximize the value of digital products and services, that is, the product is widely used. The more widely used, the better, and the greater the value. In such a path to maximize value, the right to use is more important than ownership. You hope that more people will use it. The right to use is more important than ownership. What do we do? Through software. When software engineering began to appear decades ago, we began to see a new phenomenon, that is, open source software organizations. The reason why open source software organizations give up ownership and allow everyone to open all source codes to all developers, and allow everyone to continue secondary, tertiary, or even countless processing and development based on the source code, is based on the new characteristics of digital products and digital services. After the emergence of high fixed costs, low marginal costs, and the right of use being more important than ownership, in the blockchain era, it can be said that the new value law of the right of use has been brought to the extreme.
All blockchain protocols must be open source and must be used without permission. You do not need to get anyone's consent to join the Bitcoin network or the Ethereum network, or even join other blockchain networks or systems. You can come and go freely. The codes you use are also completely open source, free to come and go without permission, open source sharing, which makes this a high fixed cost, low marginal cost, and the best way to maximize the value of products that are fully adapted to the digital economy and follow such a law of value. There is a huge difference between the right to use and the ownership, that is, there is a huge difference in its value. The law of value of the right to use can form a kind of fax effect. What is the fax effect? This is a value effect unique to the right to use. This morning, I spent 2,000 yuan to buy a fax machine, which is the cost of using this fax machine. But the fax machine I bought for 2,000 yuan actually allowed me to join a fax machine network consisting of 10 million fax machines. The value of this fax machine network consisting of 10 million fax machines is 10 billion US dollars. I spent 2,000 yuan to join a fax network worth 10 billion US dollars. I do not own this fax network, which is worth 10 billion US dollars. I just said that by buying a fax machine, I was able to join this network and have the tools, rights, or license to use this network. At the same time, if one of our friends here this afternoon also bought a fax machine and joined the fax network we jointly own, you also have the tools and license to use this fax network. Your joining will increase my value to me because I have one more possibility to send faxes. This is the value benefit of the right to use, which we call the fax machine effect. The term fax machine effect was not created by me. It was invented by Kevin Kelly 20 years ago when he mentioned the economic laws of these digital products and digital services. So based on the value law of such digital products and digital services, we find that the importance of the right to use exceeds the ownership. The right to use and the ownership are two different things. Although they both belong to a kind of rights and interests, they are two different things. The ownership is indivisible and has exclusivity. If you hold shares of a listed company, you cannot say that you can also hold them. 100% of the shares of a listed company cannot be infinitely divided, and the ownership of equity is exclusive. Moreover, under the capital system of ownership, it pursues the maximization of shareholder interests, which are also the two characteristics of ownership.
The right of use is different. The right of use can be granted indefinitely and cyclically. If you use it once, I can authorize you to use it twice. The fax machine effect we talked about earlier, when one person joins to use this system or this product or this service, it often has a fax machine effect for another user, which increases the value of the other user and gives him more possibilities. Therefore, on the one hand, the right of use can be granted indefinitely, and at the same time, the right of use can be mutually beneficial. Your joining will increase my value, and my joining will also increase your value, because it is shared. And because the right of use is not exclusive, it is an incentive compatibility between stakeholders. We know that incentive compatibility is a very hot topic in economic research. How to achieve incentive compatibility so that all participants can get what they want and their interests can be balanced and everyone gets what they want is a topic that is constantly studied and discussed. It is an eternal topic, and it is also an economic topic to get better solutions in the digital economy.
The distinction between the right to use and the right to own, the digital assets and virtual assets on the blockchain or distributed ledger, we often call it token. Whether it is a homogeneous token or a non-homogeneous token, it is a token. How can the word token be used in the digital economy to represent the right to use? In my opinion, when computer systems began to appear in the 1960s, whether you had the right to log in to a computer system depended on whether you had a token. In the computer program at that time, a token was a license for you to use the computer system. Then the computer system usage license token in the 1960s gradually went through the Internet stage and reached the blockchain stage. The usage license was standardized, shared, and financialized, and the so-called token appeared. We can turn it into a standard financial product for trading. This is the subject of the virtual asset center, or the digital asset center. It must be based on the blockchain distributed ledger. There are many interpretations of the blockchain distributed ledger, and there are various explanations and descriptions of it. If we look at the blockchain distributed ledger from the perspective of tokens, from the perspective of standardization, share and financialization of usage rights, we can draw the following conclusion: the distributed ledger of blockchain is used to help us extract the usage rights from digital products and digital services. How to extract? It depends on such a distributed ledger. After extracting it, we standardize and share it, and then form a digital asset or virtual asset market, a digital asset market. Then there is a digression. We all know that governments of various countries are formulating different systems and rules to oppose the monopoly of Internet platforms, or to dismantle the economic monopoly of Internet platforms. I think Oken may be the best solution to oppose the monopoly of Internet platforms, that is, to hide the ownership and extract the usage rights. As we have said before, the ownership is exclusive, while the usage rights are shared. Extracting the shared things makes it more important and makes it a system for capturing the value of products and services. In this case, the monopoly of Internet platforms is naturally solved.
We have said that transactions in the digital asset market or virtual asset market are standardized share-based usage rights, a usage right represented by a token, which has real value. It is not a Ponzi scheme, nor is it a so-called market hype that is completely worthless. Such a standardized token that represents the right to use digital products and services has very real value. In other words, these virtual assets have real value. The real value is reflected in the following aspects.
First, the issuance of tokens relies on a set of algorithmic models, which are very clear in advance. The number and speed of issuance are much stricter than the discipline of the finance ministries or central banks of most sovereign countries. The number and speed of issuance are agreed in advance, and everyone can trust it by relying on a set of algorithms. This limit on quantity and the algorithmic regulations on issuance discipline have established a consensus and trust among us.
Second, we say that a token represents a permission to use. Only if you have a token of a certain system or network can you use it. For example, if you want to use the Bitcoin network, you must first have Bitcoin in your hand. If you want to use a network like Ethereum, you must first have ETH. Because you can only use this system network if you have a token, it naturally creates a demand for tokens. If a system like Ethereum, such a network, has more and more applications and more and more users, the demand for ether will naturally increase. This is a real demand. When you use this network, you must have a permission to use it.
The third part is that when you use such a network or system, you will consume a little bit of tokens every time you use it, so its overall supply is deflationary, and it is designed to be a deflationary model. We know the value of currency, and one of the important reasons is that if you want to make the currency strong, then the supply of the currency should be designed with a deflationary model, which is a solid foundation for the value of the currency. So for a network like Ethereum, the gas fee consumed by the token every day is basically greater than the new ETH added to the network every day. This is a solid value support for Ethereum, called a deflationary model.
In some application layers, we just mentioned that Ethereum is a basic protocol of blockchain. It has only one token, ETH, which is a functional token. When some application layer protocols of blockchain, it often has a founding team, a shareholding, and a functional token. After these functional tokens are issued, these founding teams and equity owners often make a promise that they will use part of the cash flow or income of the project to buy back the tokens they issued. In essence, this is a transfer of part of the rights and interests of shareholders to users. For example, under normal circumstances, for all these application layer projects, the founding teams and shareholders will buy back the tokens they issued with no less than 20% of the project's income or profits. This means that shareholders and founding teams have transferred 20% of their equity to more users. This is also a solid foundation for the value of a token, making the token have real value.
Fifth, in such blockchain systems and networks, there are often some communities or decentralized organizations that give them some rights of community autonomy. But if you want to govern it or vote in the community, you need to have a token, which is a proof of your voting rights. Therefore, if you have a token, you have the right to partially govern the project, which is also the real value of the token.
Therefore, virtual tokens actually have real value. This real value comes not only from its issuance discipline, but also from the fact that if you want to use this system, you must purchase such a token. At the same time, the supply of the entire token is a deflationary model. And when it comes to the application layer, the founding team and shareholders of these application layers will use part of the revenue of their own projects to repurchase these functional tokens they have issued, which in itself also provides real value support. Another thing is that if you own a token, you have the right to govern part of the project and the right to vote. These five points together constitute the real value of a token.
Therefore, the tokens traded in our virtual asset market and digital asset market are not Ponzi schemes, nor are they speculation. What we trade is its real value, which represents the real value of virtualized products and virtualized services. Through these five aspects, this value is reflected in the price of tokens. At the beginning of the previous article, I mentioned that the digital economy era is like the industrial economy era. The industrial economy era nurtured a stock market, and the digital economy era will nurture a virtual asset or digital asset market in the future. The two markets are not mutually exclusive. We are now entering the digital economy era. We need grains, which are already available in agricultural civilization, and we still need them. These two markets, the stock market and the digital asset market, the virtual asset market, trade different things, so they are not mutually exclusive. The stock market nurtured by the industrial economy is an ownership market. It trades ownership and equity. Its institutional foundation is shareholder capitalism. On the basis of the shareholder capitalism system, we use a corporate equity structure to solidify the rights and interests of shareholders. On the basis of the company system, we share the rights of all shareholders and then list them on the stock exchange for trading. This is a capital market system formed based on ownership in the industrial economy era. In the digital economy era, as we said before, the right to use is more important than the ownership in the digital economy era, and the right to use is more valuable than the ownership. The right to use is based on a new capital market system, a new capital system. What is this new capital system called? It is called stakeholder-related capitalism. What has become of the legal structure of fixed right to use that is based on stakeholder-related capitalism? It has become an open source organization or a non-profit organization, or a decentralized autonomous organization. In some legal structures such as open source organizations, non-profit organizations, and decentralized autonomous organizations, ownership has disappeared or has become insignificant. In these three types of organizations, the right to use is the most important and valuable part. So the right to use is obviously impossible to be shared. What is it? It is tokenized. The tokenized right to use is a standardized and share-based right to use. Then we come to the digital asset market, which is fundamentally different from the stock market, or we call it the virtual asset market.
Therefore, we predict that in the next 20 or 30 years, this virtual asset market or digital asset market, this market for issuing and trading usage rights, may grow to the same size as the existing stock market. If we accept this assumption, for Singapore, as an international financial center with an important position, the digital asset market after the tokenization of the usage rights market is the core content of our creation of the Singapore International Financial Center 2.0 version. This is indispensable for Singapore, or as an international financial center, we cannot miss a link, which is very important. We know that the digital economy formed by blockchain and digital technology is originally a virtual economic system across judicial regions and geographical constraints. There are no national boundaries in the digital world, and there is no restriction on a certain judicial region. This is a huge opportunity for Singapore. We can circumvent such a constraint in Singapore's geographical environment and population base, and establish a digital product and service based on usage rights and a digital asset market after tokenization for global users, global markets, and global developers. We can look at two cases. One case is Coinbase. Coinbase itself is a licensed and compliant digital asset trading platform in the United States. It has 120 million registered users, and 80% of these 120 million registered users are non-US users. Because the United States has a total population of only 300 million, it is impossible for one-third of them to become registered users of Coinbase. Then why is it that about 80% of Coinbase's registered users are outside the United States? Do 80% of the investors and customers of the New York Stock Exchange come from outside the United States? Not so many, especially the New York Stock Exchange NASDAQ, which is almost impossible to open registration to individual investors outside the United States. But Coinbase did it. Why can Coinbase do it? Because Coinbase serves a digital asset market that uses a token for the right to use the digital economy in such a digital world. It is not constrained by the geographical environment or the judicial region. It can serve the world. According to different local compliances, different compliances are carried out in different regions. On the premise of meeting the compliance, you can let these individual users directly register as Coinbase users, without having to go through securities brokers like NASDAQ or the New York Stock Exchange. The biggest difference between Coinbase and NASDAQ is that Coinbase can directly accept individuals to register as users of its exchange. NASDAQ must expand its retail market through its members and securities brokers. Such a new system, such a new capital market system of the digital market, is conceivably crucial to the 2.0 version of Singapore's international financial center. Well, due to time constraints, I will share so much today. If there are any shortcomings, please criticize and correct me. Thank you.
