Yesterday afternoon Facebook released the white paper for its own Libra token. According to the official content, the emergence of Libra stable currency will serve as a simple global currency and financial infrastructure, benefiting billions of people. In other words, the goal of the Libra stablecoin is to do inclusive finance.
Because there are currently 1.7 billion people in the world without bank accounts. However, the efficiency of traditional cross-border transfers is very low, and it takes several working days to complete. At the same time, people without bank accounts in the United States have to pay a monthly fee of more than $4 in order to participate in social finance. Improving the lives of these people with the blockchain is the vision expressed by the Libra stablecoin.
This made me suddenly realize that at this time last year, the General Data Protection Regulation (GDPR), considered to be the most stringent data privacy law in history, came into force in the European Union. According to foreign media CNET, on the first day the law came into effect, giants such as Google, Facebook, WhatsApp, and Instagram received complaints, allowing them to receive a total of up to $9.3 billion in fines.
Until two days ago, Helen Dixon, head of the Irish Data Protection Commission (DPC), the EU watchdog, also said that it remained to be seen whether Facebook was taking privacy seriously. The DPC is currently conducting more than a dozen investigations into Facebook. Some follow complaints from individuals or businesses, while others are initiated by the DPC. The most common issues include the legal basis for processing personal data, lack of transparency about how companies collect personal data, and people's right to access their data.
Zuckerberg, the founder of Facebook, was questioned about user data in the U.S. hearing. Facing the judge, his expression showed that he had undergone professional training.
Regarding data, there is only one core question, which is who should own the ownership of data privacy?
Have you ever thought about whether you, as a user, would be willing to sell your privacy to a platform company? Two years ago, Facebook launched such an activity, that is, you can pay to become a member, but your privacy is preserved, and it will not be used by Facebook. When this activity was launched, it immediately met with huge resistance. What? So you used my data to do things I don't know? Public outrage rose immediately. As a result, this matter was urgently stopped less than a month after it was launched.
So here comes the question, if you really choose to sell, at what price will you feel willing to sell it? Is it 10 bucks or 100 bucks or 1000 bucks? This data puts any ordinary person in a state of confusion and cannot be calculated. And it also depends on how the platform uses the user's data after the sale. Can the platform company guarantee that your information will not be misused? This is a very difficult question to answer.
In the end, such data transactions are difficult to achieve. So in many cases, platform companies do not buy from you at all, but directly occupy your data, and you have no chance to choose at all.
This leads to a solution called Pareto optimal solution. It is also called Pareto efficiency (Pareto efficiency), which refers to an ideal state of resource allocation. Assuming an inherent group of people and allocatable resources, a change from one state of allocation to another makes at least one person better off without making anyone worse off. The Pareto optimal state is that there is no room for more Pareto improvement; in other words, Pareto improvement is the path and method to achieve Pareto optimality. Pareto optimality is the "ideal kingdom" of fairness and efficiency.
In layman's terms, resources will eventually be allocated to those who are really suitable for using them.
For example, roads, thousands of years ago, when humans could not control animals, were mainly driven by various animals. By the 11th century BC, horse-drawn carriages appeared, and the roads gave way to horse-drawn carriages, and people had to stand aside. In the early 19th century, after the appearance of bicycles, the roads were occupied by bicycles. When the world's first mechanical car landed in 1886, the roads were gradually occupied by mechanical cars. Today, we will find that there are more and more Teslas on the road, and there are more and more electric vehicles, which shows that the future of the road is electric vehicles with higher efficiency and lower cost, until completely unmanned driving appears.
As a social public resource, the road is constantly being allocated to more efficient and lower-cost travel tools. This means that regardless of the initial arrangement of rights, the market mechanism will automatically make resource allocation reach Pareto optimality.
So back to the issue of Facebook's data privacy, we said that the problem that will eventually arise is that it will have the ownership of our personal private data, which is determined by the mechanism of the Internet. We still go back to the Pareto optimal solution. Before the development of the entire Internet 30 years ago, each single user actually had its own data ownership.
What does this mean? In the traditional offline business 30 years ago, I wanted to go to a certain restaurant for dinner. This was very random, and the possible situations mainly depended on whether the restaurant was close to where I lived. , or is this restaurant a place that I decide to go to when I have dinner with my friends. Then the behavior data of me going to eat can neither be effectively used by the restaurant nor by me. Because although I want to eat, I don't know that there is a restaurant nearby that is suitable for me and is doing marketing activities. I may have chosen a poor value restaurant and not enjoyed it accordingly.
At this time, although my personal privacy data is owned by me personally and perceived by the restaurant at the same time, neither party can effectively get higher benefits.
In the Internet age, this matter has become simpler, and the centralized organization has assumed the responsibility of the data central control platform. For example, Dianping and Meituan Waimai have the privacy of our behavioral data.
Internet companies will use our private data to improve their own algorithms, and finally hope to achieve the result of maximizing the efficiency of social resources.
This means that when a user surrenders his or her right to privacy, Internet agencies can use algorithms to recommend restaurants he may like to the user or give the user more effective choices. Users not only know more discount information, but also promote their advertisements to more applicable people.
What is the actual situation? Internet companies, as enterprises, help shareholders earn higher profits is their primary goal, so the capital market will eventually allow Internet companies to use users' private data to make more profitable products. At this time, there is a problem of resource allocation imbalance. And finally it leads to the beginning of this article, the ownership of user data.
Why do companies need to use user data to optimize social resources? Is there a way for the market to solve this problem?
Here we have to derive the source of the Pareto optimal solution, Coase's law. The Coase theorem is a point of view put forward by Ronald Coase, which holds that under certain conditions, economic externalities or inefficiencies can be corrected through negotiations between the parties, thereby maximizing social benefits. A more straightforward explanation is:
In the case of clear property rights, if the transaction cost is zero or very small, then no matter who grants the property rights at the beginning, the market will eventually lead to higher efficiency and realize the Pareto optimal solution of resource allocation.
Before Coase, it was often believed that in the case of information asymmetry and externalities, the market fails, and at this time the market must be intervened to achieve the Pareto optimal solution, but the Coase theorem believes that even if the information is asymmetric, the root cause of market failure is property rights The definition of is not clear. Once the property rights are clearly defined, both parties can also achieve efficiency through the market mechanism, that is, Pareto optimality.
Therefore, the real meaning of the Coase Theorem is that because of the existence of transaction costs, many transactions in real life are difficult to occur, so it is very important to clearly define who the property rights belong to. If the data belongs to platform companies, they can use the data for financial gain, and that person's privacy may be violated. If the data belong to us, we will not sell the data or ask for a price that cannot be marketed for the sake of privacy protection, making it very difficult to use the data, and finally the resources cannot be effectively used.
In the Internet age, it is assumed that data belongs to individuals, but platform companies use it well, then platform companies can purchase personal data, mine data resources, and maximize benefits. Therefore, although the data belongs to individuals, it does not affect the use of data by platform companies, nor does it affect the maximum economic benefits that everyone can obtain from data resources. At the same time, individuals can get better user experience and lower costs by selling data.
However, in the Internet, the benefits of enterprises are far greater than the sum of the benefits of users. This is not the Pareto optimal solution of market resource allocation.
The article "The Nature of the Firm" published by Coase in 1937 became an important milestone in the theory of entrepreneurship, and it was also one of the two papers he won the Nobel Prize in Economics in 1991, the other being "The Problem of Social Cost". In this short article, Coase answers two basic questions: 1. Why does a firm exist, and 2. What factors determine the size of a firm.
As far as the first question is concerned, Coase believes that the enterprise has replaced the role of the market, and the essence of the enterprise is to replace the price mechanism. The operation of the price mechanism has costs, and the market operation also has costs. The reason for the existence of enterprises is the inevitable result of replacing market coordination and reducing costs through management coordination. Therefore, the market and the enterprise are alternative means of resource allocation. The difference is that the resource allocation in the market is regulated by the price mechanism, while in the enterprise it is regulated by the management mechanism.
In fact, the economist Zhang Wuchang analyzed the contract economy in the book "Explanation of the Economy" and believed that the market only needs contracts, and enterprises are a special form of contracts. In his own words, "the firm is a form of contractual arrangement", and the substitution of the firm for the market is nothing but "the substitution of one contract for another".
This answer just throws the answer to the blockchain.
In the blockchain, the type of enterprise is finally replaced by smart contracts, and smart contracts become the representative of the market. The final result of the encryption decentralization of the blockchain is that each individual user participates in the network as a node, exchanges value through digital currency, and uses smart contracts to maximize market efficiency. It means that the marginal cost of the network tends to zero infinitely, while the marginal benefit is maximized.
Therefore, in the blockchain, when users own their own private behavior data, the market will form a Pareto optimal solution.
On the other hand, regarding the second question, Coase's answer is "transaction costs determine the boundary of firm size". What does it mean? According to Coase, the boundary of firm size is at the point where the cost of organizing a transaction within the firm equals the cost of conducting the transaction through the market. Therefore, the firm has a tendency to expand until it reaches this boundary. On the other hand, the improvement of technology and management will help reduce transaction costs, that is, expand the boundaries of enterprises.
In the blockchain, because each user participates in the network as a node, it is not only a contributor to the behavior data of the network, but also a maximum owner of network resources. When more users participate in the network, transaction fees will eventually tend to zero indefinitely. So in turn, the scale of a blockchain project itself tends to be infinitely minimized, and the market scale eventually tends to be maximized infinitely. A Pareto optimal solution is also reached.
This is why it is said that the user group that the blockchain may eventually cover will reach 7 billion or even 10 billion people. Therefore, only the blockchain can make a real "sharing economy". After all, every participant in the network is the owner of the maximum benefit. Then in the blockchain, the Coase law can be understood as follows:
Resources will eventually be guided to a network where marginal costs tend to be infinite and marginal benefits are maximized, a completely decentralized network.
How can this logic be verified?
It's actually a good answer to this question. We see that the current market value of Tencent is about 3.2 trillion Hong Kong dollars. According to the active data of WeChat in January 2019, its current user base is about 1.1 billion. That is to say, when we hand over our private data to At the time of Tencent, the value of each user's private data was 2,900 Hong Kong dollars, which is approximately equal to 370 U.S. dollars. Similarly, Google's current market capitalization is US$750 billion, serving 2 billion people around the world, which means that the value of each user's private data is equal to US$375.
Apple’s current market value is around US$910 billion. As of the end of 2018, there were more than 1.4 billion Apple products activated worldwide. If calculated according to its previous valuation limit of US$1 trillion, it means that the value of each user’s private data is approximately equal to 714 US dollars, nearly twice that of Tencent and Google. This is already the limit of the value of the Internet.
Let's look at the blockchain in turn. Taking Ethereum as an example, the number of wallets in June 2019 reached 67 million. Then we calculate according to the value of the privacy data of each Internet user at 375 US dollars, which is equivalent to a valuation of about 25.1 billion US dollars, and the total amount of Ethereum is 100 million, so we can know that the minimum value of 1 Ethereum should be equal to 251 US dollars. Exactly what the Ethereum price was this past weekend.
But please note that many of the 67 million wallet accounts may be empty addresses without ETH deposited. This means that in Ethereum, the privacy price of each user who owns Ethereum will be much higher than $251, not to mention that the price of Ethereum once reached $2,000.
The same is true for switching to Bitcoin, assuming that 7 billion people in the world will eventually own an infinitely cut part of Bitcoin to achieve the Coase Law. Then the final price of Bitcoin will be much higher than the current price, unless there is a better market allocation solution.
Facts have proved that when privacy returns to the user's own possession and the mechanism of the Internet is replaced by the blockchain, a Pareto optimal solution will eventually be formed.
So back to the Libra stablecoin issued by Facebook. In the white paper, it is clearly mentioned that only institutions are eligible to participate, and each institution that wants to participate needs to pay a membership fee of US$10 million to Facebook to become a node. There are already more than 100 companies willing to participate in it. In other words, the current profit method of the Libra stablecoin is to charge the network participation fee of the nodes. After that, there is a high probability that it will be the transfer fee.
Currently participating companies include investment institutions, blockchain, social media, communication companies, e-commerce, shared travel, non-profit organizations, music, travel, payment and other fields. And each node company can get 1 vote of the council, and a single founding member can only get 1 vote or 1% of the total votes. It is used to effectively prevent consortium monopoly. The consensus mechanism used is Bft, to be precise, LiBraBft. In fact, it is also an innovative version of the consensus mechanism that has existed for a long time, but it is not very familiar to everyone.
According to the existing information, users can buy Libra stablecoins with legal currency through various types of companies that become nodes, and then spend in various corporate channels that become nodes. It can be used for shopping, investing, paying phone bills or taking taxis cost.
In other words, the Libra stablecoin is a semi-decentralized alliance chain in the B2B2C mode. It is a blockchain type under the "Internet Alliance" architecture with a total of 2.7 billion potential users. Node" alliance chain version of the EOS-like stable currency.
There is no doubt that the Libra stablecoin will bring a large number of users, and it will cause huge repercussions. But will these users eventually stay in the blockchain under the framework of the "Internet Consortium"? In such an alliance chain type, the ownership of private data still belongs to the enterprise, not to the user. Unless it eventually moves towards complete decentralization.
That is to say, if the Libra stablecoin is in a state of gradual iteration, from semi-decentralization to a fully decentralized consensus mechanism, then it is likely to become a strong competitor of USDT. Conversely, if the structure remains under the "current legal framework" due to policies, regulations and other factors, it may eventually be replaced by a completely decentralized stable currency.
Data ownership means that it is not a Pareto optimal solution. According to the Coase law, when the transaction cost is infinitely close to zero, resources will eventually be directed to those who are suitable for using it.
Then the most likely situation is that the Libra stablecoin has done the blockchain education work for 2.7 billion Internet users around the world, but all those who understand it will eventually lead to the real blockchain public chain, such as Bitcoin or Ethereum.
The Libra stablecoin may not be a flash in the pan, it will eventually become a rich stroke in the history of the blockchain, but unfortunately it is only a turning point, not a long-term dash. When these Internet users understand the blockchain through the Libra stablecoin, the market will eventually guide users to a completely decentralized privacy protection system and achieve a Pareto optimal solution.
According to the white paper of the Libra stablecoin, it describes a basket of currencies, which means that the competitor of the Libra stablecoin is the US dollar. Of course, there will be huge difficulties in the future. After all, China has already caused the United States a headache. The current competitor for the dollar is simply a technology company riot in Trump's view. There are other stablecoins such as GUSD and USDC that have been approved by the U.S. government, and stablecoins such as USDT that are moving towards complete decentralization.
The most valuable part of the Libra stablecoin in the future may not be inclusive finance, but become a descriptive trading pair for its semi-decentralized exchange.
In fact, according to the white paper, the Libra stablecoin in each wallet can be used for investment and consumption in 100 "super node enterprises", so it should not be difficult to add the function of trading bitcoin on this basis. After all, the issuer is in Switzerland, so it is not difficult to obtain an exchange license. But what does this mean? It means that 2.7 billion potential users of Bitcoin have been added in an instant all over the world.
This will lead to a large-scale migration of Internet users around the world to the blockchain. It may be possible for the Libra stablecoin to truly form value and exist in the blockchain world for a longer period of time.
If you want to subvert the consensus of Bitcoin, I think it is basically impossible. In any case, the market will guide resources to eventually move towards a network in which marginal costs are infinitely close to zero and marginal benefits are maximized.
