How Can China Win this New Digital Economy Competition?
X-Order is an innovative research institute that attempts to combine cross-disciplinary fields such as distributed computing, computational game theory, artificial intelligence and cryptography to discover future extended orders. It was founded by Tony Tao, who is also a partner at NGC Ventures.
The news that Facebook issued cryptocurrency two weeks ago represents the traditional Internet giant’s formal entry into the blockchain industry. It further proves that the cryptocurrency’s trend is irreversible. This is without doubt as the emergence of Bitcoin and the fact that it has survived the past ten years shows that there is no external force that could stop such a trend.
At the same time, however, on the day Facebook released the white paper, there were also many domestic Internet giants, such as BATJ, being tagged by those who were either cynical or worried about them falling behind. Ma Huateng’s (Founder & CEO of Tencent) answer at that time was that “the technology is matured, and nothing too difficult (to implement). It depends on whether it is approved by the authority.”
However, in the new digital economy, even if China releases the regulatory policy of digital currency, can domestic Internet giants have a first-mover advantage?
If we aggregate all the countries in the world and look upon them as separate individuals, then each individual will have its own corresponding currency. With the continuous evolution of these individuals’ strengths and weaknesses, stronger currencies will inevitably appear in certain periods. It used to be the Dutch Guilders, Pound Sterling, and now the US Dollar.
These currencies are relatively fragmented, hence, when individuals intend to trade, they need not only determine the exchange rate of their respective currencies according to their strength but also establish a strong currency to unify standards.
However, the ever-changing strong currencies expose a problem, which leads to them never being able to be used as the Global Currency. This is due to two reasons:
1. A strong currency cannot truly achieve globalization. It can only use its individual’s strength to pressurize other individuals to use itself as collateral and support for issuing their own currencies during a certain period of time. However, according to historical laws, such coercion is not sustainable.
2. Unless there is no choice, or an individual’s economy (in the case of Venezuela) is the first to collapse, every individual is unwilling to give up its right to issue currency. Once it gives up, its economy will be easily intervened by other individuals.
Hence, the situation has become very interesting:
Every individual is reluctant to give up its right to issue currency, yet, the most powerful individual has no way to make its currency become the Global Currency.
Therefore, the process of currency globalization is bound to be hindered to some extent.
Nevertheless, it is not entirely impossible to achieve. In the past, the state could adopt coercive means to get its people to use its own currency. With the advancement of the Internet, the boundary set by a currency will be broken. It will be difficult for the country to forcibly close the many doors in the Internet world. Even if it has the ability to do so, the ultimate consequences are tantamount to suicide.
Therefore, in the future, the currency globalisation initiative must be in the hands of global Internet companies.
A country will not be able to do this well, it must be done by big companies, particularly those in the Internet or Blockchain industry. The focus of people’s lives in the future will shift more towards the virtual world, which can be seen from the changes in people’s lives in recent decades. Further, the purpose of a country and a company is different. While a country’s primary goal is to seek stability, followed by prosperity; a company’s primary goal is to make profits, followed by more profits.
In the future, once companies have the ability to break the boundaries imposed by a country, it will not only form a more open and world-class financial ecosystem, but also a new set of politics and laws based on the Internet, which is now still far away.
Therefore, the author would speculate that even if supporting cryptocurrency is beneficial to the development of the country; until the middle and late stages, the country will still choose to curb it, even for an open economy like the US.
This is because eventually, a clear “competition + threat” relationship between the nation and global Internet companies will be formed.
The relationship will be as such unless there is some kind of agreement between these Internet companies and the country, which is unlikely. Mainly because the foundation of a country’s formation is the trust of its citizens, which is similar to the foundation of the growth of global Internet companies — the trust of its people. This is contrary to the foundation of a currency’s existence, which is to gain people’s trust.
In the past, the state could force people to trust the value of its currency. Now, however, people’s trust can stem from these global Internet giants.
With trust in place, Internet giants will find themselves being able to do a lot of things in conjunction with decentralized blockchains, such as issuing tokens. Therefore, in the future, in order to maximize profits and gain more freedom, these companies naturally will not want their development to be constrained by the state, which will inevitably lead to conflicts of interests.
However, before a full-blown conflict, the old and new forces will still “live in peace” for a long time. There will continue to be interactions between the horizontally developing Internet/blockchain giants and the vertical traditional states. Until the conflict becomes irreconcilable and breaks out, the party in the direction of advanced productive forces will prevail.
From this point of view, we will find that China’s advantage in this digital economy is not obvious. This is not only a matter of policy regulation but more importantly, China lacks an Internet company with global characteristics that is able to gain the trust of people elsewhere in the world.
Although we have giants such as Tencent and Alibaba, the reason why they are able to win the trust of the Chinese people (rather than Facebook, Amazon and so on) is largely because the Chinese government does not allow foreign Internet giants to intervene excessively in the Chinese market.
With Amazon and Facebook’s world-class ecosystem, Tencent and Alibaba still have a long way to go. This is despite Tencent and Alibaba being highly ranked in market value and having formed their extensive ecosystem in China. Once China opens up in the future, the weaknesses of these Internet giants may be instantly exposed.
Facebook, for example, may have 2.7 billion people in every corner of the world who are willing to trust and use Libra. But what if Tencent issues tokens? They will still only gain the trust of the Chinese people.
With such a comparison, we will find that it is very difficult for BATJ’s tokens to eventually become global currencies.
Without gaining global trust on a large scale, China’s Internet giants will not succeed no matter how open China’s regulatory policy is and how early they issue their digital currencies.
How long more to go to currency globalization?
There’s no way for us to know. The Internet has brought about the globalization of information, breaking the barrier of information circulation to a certain extent. Hence, can blockchains, or other technologies in the future, break down the barriers of currency flow and truly achieve a more free, equal and open financial world, as Facebook describes in its white paper?
The author hopes that we are not too far from that day.
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