On May 20, 17:00, Mr. Liu Changyong, founder of Freecash and founder of Zhi Mi University, was invited to a flash mob event in the PlatON Chinese Telegram group to share his knowledge about the cryptographic economy with the community members, the full content is as follows.
I would like to talk about the cryptography economy that has been and practised in the past few years today.
1. What is the Cryptographic Economy?
Cryptographic economy refers to the economic form of asymmetric cryptography used in various areas of the economy, is the third economic form of the information economy, following the digital economy brought about by computer technology and the Internet economy brought about by network technology.
Digital economy–>Internet economy–>Cryptographic economy
In general, in the last hundred years, human society is shifting from material economy to information economy, i.e. the core of people’s life is shifting from material products to information products.
The beginning of the information economy is computer technology, which standardized all kinds of information into binary numbers and opened the era of the “digital economy”, from the invention of the computer in 1940 to the heyday of the computer industry in 2000.
Network technology has brought the " Internet economy" by connecting digitized information on a global scale. Network technology began in 1960 and will reach its peak by about 2020. The Internet economy currently faces two major bottlenecks: information security and information monopoly. Almost all of the negative news about the Internet economy can be attributed to these two major problems.
You can pay attention to this negative news.
The cryptographic economy is a new economic form based on asymmetric cryptographic technology, which fundamentally solves the problem of information security and the information monopoly of the Internet.
So the cryptographic economy is the evolution of the Internet economy.
The basic solution to the information security problem lies in the popularization of asymmetric cryptography technology. When everyone can control their own information security with private keys, the information security problem of the whole society can be solved.
To solve the problem of information monopoly, on the basis of asymmetric cryptography to achieve information security, important data and rules of the social economy should be further put into a distributed consensus system that is not monopolized by any centre with the help of peer-to-peer network technology.
After solving the problems of information security and information monopoly with asymmetric cryptography and distributed consensus, the Internet economy has fully shifted to the cryptographic economy.
From the 1980s, when asymmetric cryptography began to be used for civilian purposes, the cryptographic economy began to sprout and is expected to be fully realized by about 2040.
This process will continue to be accompanied by innovative breakthroughs in stages, bringing multiple bull markets.
By understanding the logic of the cryptographic economy, we can better grasp the pace and seize the bull market opportunities.
2. The two main functions of asymmetric cryptography
asymmetric cryptography has two main functions, one is encryption and decryption of information, and the other is signature verification of information.
Encryption and decryption are mainly used to prevent information leakage.
The basic method is that the sender encrypts the message with the recipient’s public key, and then transmits the ciphertext to the recipient, and only the recipient can decrypt it with the corresponding private key. It does not matter if the ciphertext is leaked during transmission because only the recipient has the corresponding decryption private key.
Signature verification is mainly used to prevent message forgery.
The basic method is that the message publisher signs the message with his own private key, and then publishes the message, signature and his own public key. The message recipient can use the publisher’s public key to verify that the message is signed by the publisher’s private key. Anyone who forges the content of the message, the verification will not pass.
3. There are two phases of the cryptographic economy
Asymmetric cryptography was invented in 1970 and pushed to civilian use by cryptopunks in the 1980s, and has roughly gone through two phases since then.
1) Network security phase
From the 1980s to 2009, asymmetric cryptography was mainly used by commercial enterprises in the digital and Internet economies to improve the security of devices and network transmissions.
With the support of asymmetric cryptography, online payment, e-commerce, https, etc. were popularized, contributing to the prosperity of the Internet economy.
At this stage, asymmetric cryptography are hidden behind the scenes, used by businesses and platforms, and not in the hands of ordinary people.
2) Cryptographic Consensus Stage
Starting from 2009, when Satoshi Nakamoto launched the Bitcoin system, asymmetric cryptography was combined with distributed consensus mechanisms to build an independent decentralized economic system, which is often referred to as blockchain, and I call it “cryptographic consensus”.
In the cryptographic consensus system, ordinary users hold their own private keys, thus gaining greater economic freedom. The resulting decentralized economic system can reconfigure various global economic infrastructures and become a new engine of global economic growth.
In the first stage, asymmetric cryptography is used mainly for encryption and decryption functions to secure information transmission.
In the second stage, signature verification is used to establish verifiable trust relationships between people on the network.
Many people do not realize that all data in the Bitcoin system is completely public and no data is encrypted.
3) What is Distributed Consensus
Distributed consensus is a natural solution to information monopoly and has existed since the beginning of time.
Information monopoly means that all-important data and institutional rules of an economic organization are controlled by one central control, that is, data monopoly and rule monopoly.
Distributed consensus means that each member of the economic organization can have the important data and rules, i.e., data consensus and rule consensus.
The most typical scenario of distributed consensus is playing mahjong: everyone records important data, everyone knows, abides by, and monitors others’ compliance with the rules, and no one person needs to or can call the shots.
Distributed consensus systems have been feasible since ancient times, but are constrained by the level of information technology development and can only be adopted for very small economic activities.
As the size of economic organizations increases, the efficiency decreases dramatically.
So, since ancient times, all large economic activities have been centralized.
Now the situation has changed.
Computer technology and Internet technology have dramatically increased the ability to store, analyze, and disseminate information, and asymmetric cryptography provides remote authentication capabilities, so distributed consensus can be achieved on a large scale.
Satoshi Nakamoto put together the distributed ledger, peer-to-peer network, blockchain, and proof-of-work mechanism that had been gradually discovered by his predecessors to achieve the first distributed consensus system to operate effectively on a global scale, Bitcoin, which climaxed the cryptographic economy.
4) Cryptographic consensus is the cornerstone of the cryptographic economy
Two fundamental features of cryptographic consensus are individual mastery of private keys and decentralization.
Individual mastery of private keys is not only a prerequisite for achieving information and asset security but also a fundamental safeguard for the basic rights and interests of individuals, which is the foundation of the cryptographic economy.
A blockchain in which individuals cannot hold private keys is not fundamentally different from the traditional Internet.
Decentralization is the source of efficiency of the cryptographic economy beyond the Internet economy, which can eliminate huge central operating costs and prevent the ecological hazards of central self-interest, and promote high-speed knowledge sharing and free collaboration on a global scale.
Cryptographic consensus is suitable for building the most important infrastructures 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 cryptographic economy, various centralized business activities can share the decentralized infrastructure, and the operation cost will drop dramatically, the market space will expand significantly, and the efficiency will improve rapidly, which will form a descending blow relative to the traditional Internet business.
Now to 2025 is a critical period for building a global cryptographic consensus infrastructure, and both PlatON and Freecash are working in this direction.
If this phase progresses well, a worldwide cryptographic economy will be largely realized by 2040.