The love between digital legal currency and digital token
The current state of blockchain technology is experiencing a surge in popularity, yet there remains a significant debate about the distinction between digital legal currency and cryptocurrency tokens. This article aims to explore and clarify the differences and relationships between these two concepts.
The recent discussions within the 3 AM blockchain community have sparked a wave of interest in blockchain innovation. While some groups focused on the broader implications of blockchain technology, others were more concerned with the financial aspects, particularly the cryptocurrency market. This has created a vibrant but sometimes confusing landscape.
In reality, the first "National Digital Legal Currency" that gained attention in the crypto community was not a true digital legal currency. It was actually an oil-backed token issued by Venezuela, operating on the Ethereum network as an ERC-20 token. Unlike traditional digital currencies, it wasn't pegged to the Venezuelan bolÃvar or the US dollar. Instead, it circulated through digital exchanges, essentially functioning as a government-endorsed cryptographic token for oil assets. However, since the government's credit has been severely weakened, the risk associated with such tokens is quite high.
[Image: The relationship between digital legal currency and digital tokens]
First and foremost, digital legal currency must be directly tied to a national fiat currency. For example, a central bank’s digital currency would be backed 1:1 with the local currency, supported by reserve mechanisms. However, the issuance of such digital currencies is not simply a replication of existing money supply, as that could lead to confusion and create a dual-currency system.
There are several key indicators used to measure money supply, such as M0, M1, and M2. M0 represents physical currency in circulation, M1 includes M0 plus demand deposits, while M2 expands further to include savings deposits and other liquid assets. M1 is closely related to GDP, reflecting the value generated by economic production, whereas M2 reflects broader monetary conditions, including inflation and consumption patterns.
So, how does a central bank's digital currency policy relate to the issuance of digital legal currency? Since it is 1:1 backed, it won’t simply mirror the total amount of fiat currency in circulation. Instead, it may follow a distribution model based on the production, consumption, and growth of digital assets after anchoring and reserve mechanisms are in place.
Now, what is the nature of commercial digital tokens? Tokens like Tencent's Qå¸ or other loyalty-based currencies are often used as incentives for consumer behavior, similar to CPI. They don’t represent the value of physical assets and thus have limited impact on the broader digital currency ecosystem. Their value is generally low and not directly tied to digital legal currency.
However, when it comes to valuable digital assets—such as tokens representing real-world ownership, usage rights, or revenue streams—they can significantly influence the digital economy. These tokens rely on code-based consensus and trust, forming the foundation of a digital currency system. The process of tokenizing real-world assets is closely linked to the development of digital legal currency. If commercial systems can rapidly tokenize their assets, they may surpass traditional token currencies in value.
The relationship between the chain (blockchain) and the currency circle is inherently intertwined. As commercial systems adopt asset tokenization, the value of digital tokens becomes more prominent. In this context, encrypted tokens become monetized, representing value, equity, exchange, and pricing. They establish a certain rate anchor with digital currencies, while also stimulating production and consumption behaviors through token-based incentives.
Ultimately, digital legal currency and digital tokens do not have to be mutually exclusive. Why should we emphasize the payment and settlement functions of tokens while ignoring their role in pricing, exchange, or incentives? In practice, strong monetary systems like the US dollar tend to introduce digital currencies slowly, while countries with weak or unstable currencies may adopt them more quickly. After all, the introduction of a new currency system can have unpredictable effects on the existing monetary structure.
Considering the characteristics of stablecoins like USDT, which offer liquidity and stability, they serve as a bridge between traditional finance and digital ecosystems. They provide functions such as reserves, net cash value mechanisms, and supervision, enabling investment and financial management.
Additionally, while loyalty currencies like Qå¸ hold value, they lack the full functionality of money. Their future value is largely limited to consumption and does not generate added value unless they are tied to real-world assets. Today, tokens and cryptocurrencies are often confused, and both the blockchain and crypto communities continue to debate their roles.
In conclusion, the distinction and interplay between digital legal currency and digital tokens remain complex and evolving. Understanding their unique roles and potential synergies will be crucial for the future of the digital economy.
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