The Nature of Wealth

This article is an excerpt from the first chapter of my new book ‘ The WEALTH of Quantum Era’.

The key points of this book is wealth. What is the wealth truth in Quantum Era, in Digital Economy 2.0? I will discuss the knowledge and the need of wealth, and how wealth came into being in ancient time. On top of that, I will analyze the nature of wealth, the evolution of wealth patterns, and the concept of wealth that I believe is correct.

After a long period of observation, I have found that many people have a deep misunderstanding of wealth. Due to the lack of understanding of the essence of wealth, their concept, be it praise or criticism, is somewhat extreme and inconsistent with reality.

One view we hear often is that people striving to obtain wealth are greedy and even harmful to society. Some others else think that property and resources are all that wealth is about, and they make possession the highest priority of life. We will illustrate later that only those who truly fight for the consensus of wealth usually make a great contribution to the circulation of the global market. But possessing resources without participating in the trading and circulation is not wealth and may indeed be detrimental to society. We think these views are caused by a lack of scientific understanding of the nature of wealth.

1. Two definitions of wealth

First, we need to define wealth. On the surface, wealth generally refers to money, gold, luxury goods, houses, cars, stocks, etc. Some people extend it a bit further to include valuable life experience, relationships, and emotions, which are especially popular in literature. In a word, there are two kinds of wealth we’ve mentioned: one is material and specific; the other is virtual and intangible, such as feelings, experiences, memories, relationships, etc. It is obvious that the latter kind, which people used to describe as “literature-wealth,” cannot be presented in the asset statement of the first kind of wealth. However, from the perspective of the quantum ontology, they should be considered wealth if we have a more scientific view backed by technology such as big data and blockchain.

Therefore, in the “The Wealth of Quantum Era”, we need a more accurate and consistent definition of wealth. This requires us to first investigate why human civilization created the concept of “wealth” in the first place.

2. The need for and generation of the concept of wealth

First of all, we need to think carefully to discover that wealth was generated not only because of the desire in human nature, but also because wealth is required by the development of the entire human civilization, or, in other words, that the division of labor in human civilization requires trading. This is, to some extent, one of the essential differences between mankind and animals. Animals do not have trading activities in principle. You are not going to see a scene of one group of lions hunting zebras, and another group hunting giraffes, and then they trade between each other. Even primates that are closest to humans do not trade in their daily life. We’ve only observed occasional giving activities.

The phenomena of human social civilization, whether the creation of words or the establishment of cities and nations, were caused by massive, society-wide cooperation and division of labor. What promotes human society to continue moving towards higher levels of division of labor is the large-scale trading that depends on the free market mechanism. We can say that human civilization would not have been constructed without a large amount of trading. The first book to clarify this is “The Wealth of the Nations,” written by the great Adam Smith. As far as we know, he is the first in history who clearly explained the relationship between trading and human civilization. As long as there is a free market in which people massively exchange at equal levels, making up each other’s deficiencies and letting the “invisible hand” play its role, the society will prosper and nations will be powerful.

This point was later elaborated by Hayek, a Nobel laureate in economics: “In order to understand our civilization, we must understand that this order of expansion is not the result of human design or intention, but a spontaneous product: it is an unintentional observance of certain traditional, mainly moral aspects. Among them, many of these practices are not liked, they usually don’t understand its meaning, and they can’t prove it is correct, but through an evolutionary selection process in the group that just follows these practices — population and wealth relatively increase — they spread quite quickly” [Author’s note: Hayek’s order of expansion here refers to a benevolent order that is not controlled by any power and is formed by the cooperation of multiple parties in accordance with the trading rules of the market]. Adam Smith was the first to realize that we happened to form a means by which humans cooperate economically in an orderly way, and it was beyond the scope of our knowledge and understanding. His “invisible hand” should probably be best described as an invisible model that is difficult to grasp completely. ”[]

Note that before Adam Smith’s “The Wealth of Nations,” nobody in the East or the West had a theoretical framework for why human society is happy and abundant based on free markets and free trade. In the past, human beings’ wealth and happiness relied on either gods in the heavens or capable emperors and governments on the earth. We will analyze later that this world, in terms of the quantum ontology, has evolved according to decentralized computational thinking, and all complex systems are a result of distributed computing. Smith’s so-called free market system is also a typical decentralized computing system like Blockchain and smart contract; because the basic protocol executed by the system is very simple, that is, the calculations result from exchanging at equal value and levels, complementing each other, it composes the perpetual refinement of the division of labor in human society. The so-called “invisible hand” refers to the constant trading according to this basic agreement (each transaction can also be regarded as a calculation. Professor Ben Koo of Tsinghua University and I cooperated on a paper specifically to demonstrate that the free market trading mechanism is equivalent to a working Turing machine via the concept of Maxwell’s demon). Free trade is the foundation of this market. As long as the exchanges are being carried out (the calculation), Smith ’s entire “The Wealth of Nations” will be deduced, and the products, investments, academics, technologies, quality of life, and even moral standards, mentality, and creativity of human society will be gradually optimized.

Brian Arthur, the father of Complex Economics, also said: “[…] we can say that the (free market) economy is a continuous computational entity; it is a large, distributed, massively parallel, and random computational entity. From this point of view, the economy has become a programmatically developed system in a series of events. It has become algorithm-driven.”[]

And me, with 40 years of personal experience of China’s Reform and Opening up, combined with close observations in the United States for over a year since 2018, can confirm that Adam Smith was correct.

The relationship between trade and division of labor is chicken and egg. Of course, there was a division of labor in human society first before the need for exchanges, but Smith’s greatest contribution was that it showed that only a large number of trades can push the division of labor and human civilization to a higher stage.

For example, due to enormous trading, higher quality, cost-effective products can gradually gain a larger portion of the market, be widely spread, and be mainstreamed, so that our resources can be more optimized. Smith had given an example: Some people specialize in pins, while some in clothes, and others in iron and steel. The society is becoming increasingly detailed in division of labor. This point was also mentioned by Professor Xiang Shuai of Peking University. In fact, the starting point, or the height of human civilization, is very much marked by whether the social division of labor is becoming more and more refined. Animals do not trade, and thus they have almost zero division of labor. It is unlikely that amidst a pride of lions, some are hunting experts, some are storage experts, and some are logistics experts. That is impossible. Human society is no different from animals if we don’t have division of labor. It is precisely due to an increasingly refined division of labor that human civilization has been established as a whole and is evolving into a more developed civilization, growing in creativity, and achieving technological breakthroughs.

As the division of labor becomes more polished, things are made finer, and the market improves. The best products and services will then cover the global market. The formation of a global market is the major accomplishment for all mankind after hundreds of years of hard work. For instance, I just returned from Switzerland to participate in the Davos Conference.(Dec.2019) Everyone knows that Swiss watches, army knives, and other Swiss crafts are ingenious. Other countries simply cannot manufacture the goods of the same quality. Then gradually there is always someone standing out and becoming dominant in the market. There is no way around but to respect what massive free-market trades can do for us. Smith had analyzed: in this free market, products are constantly being optimized, and investments are constantly being optimized as well. Now let’s discuss why the concept of wealth had to emerge.

In summary, a free market is a decentralized computational system based on computational thinking in Chapter 6.The basic algorithm is “exchange at equal levels, making up each other’s deficiency.” Each exchange can be understood as the completion of one calculation process, and the generation of division of labor, and civilization can be viewed as the emergence of large-scale operations in this system (note: we will use scientific concepts to explain why it’s called emergence in later sections). So how to make trading efficient and massive? It’s not hard to imagine that primitive people started with barter, which must be highly inefficient. For example, if A had an apple, B had a pear, B needed the apple, but A didn’t care for the pear, then the transaction was not going to happen. Moreover, they could easily miss a trade with fairs normally occurring only once a week during the agricultural civilization. Such low trading efficiency would cause the division of labor and development of civilization to remain at a low level for a long time. However, if folks trusted each other, like among friends and relatives, they could carry out credits (credit wealth). B could take away A’s apple first and return what A needed later, and their transaction would be completed. In another scenario, if B held things in equal value that they both agreed with (monetary wealth), such as gold or silver or currencies, the transaction may also be completed. Or, if B had stock and bonds (financial wealth), A could cash them in from the capital market any time, and the transaction would be concluded. All in all, market transactions require more trust and credit resources for the computational system of the free market to accelerate. The following section will examine in detail how the concept of wealth came into being after tens of thousands of years of evolution, and especially, the cognitive revolution of homo sapiens, after which men had utilized and even actively created mutual trust and had abstracted out equivalents from specific use values, enabling all market transactions, being spread out in time and space, to be conducted smoothly.

3. The evolution of wealth is a form of credit resources

3.1 The “wealth” of an acquaintance society: generating credit by “face scanning” in small areas

In fact, the most ancient way for humans to establish credit was by face scan (showing up, making yourself more familiar to others). I had read books written by Xueyan Hu, a notable businessman in the Chinese history, but I didn’t have a high opinion of the books about him. I personally disagree with his way of day-to-day gatherings to party with friends. Another example is the tea drinking culture in my hometown, Sichuan. The locals there can literally spend ten or more hours in a teahouse per day. But then I started to understand: this was one of the most primitive kinds of commercial credit. People asked, what can I do to speed up trading a bit in the realm of barter? If they wanted to increase mutual trust, they’d have to frequently “scan their faces” in front of others.

Face scan makes trading more convenient among relatives in a clan society. This was the most primitive stage of commercial credit. This stage had a severe shortage of credit resources.

3.2 Cognitive Revolution — the foundation of the emergence of large-scale wealth and trade

I once read a book called “Sapiens: A Brief History of Humankind”. I think the author’s (Yuval Noah Harari) reasoning was fantastic. The book stated that an individual can acquaint up to 150 people, depending on the specific acquaintance society. Social groups beyond this range do not fit into acquaintance societies even if they still call each other acquaintances.

How did larger-scale wealth (credit) and transactions arise? Harari provided an explanation in “Sapiens: A Brief History of Humankind”.

The short explanation was that Homo sapiens completed the cognitive revolution. It’s worth noting here that this book has become well-recognized due to the starting point it is based on: all human beings in the world originated from one group of ancestors from a small canyon in East Africa. Other nations may be reluctant to accept this conclusion, including the Chinese, many of which thought they were descendants of the Beijing Apemen and the Cave dwellers. Who would be happy when someone declared that your ancestors came from other places where it is not your motherland all of a sudden? Probably not only the Chinese but all nations wouldn’t. The book mentioned that the earliest humans first evolved from East Africa about 2.5 million years ago, and their ancestors were an even earlier ape of the genus “Southern ancient ape.” About 2 million years ago, these ancient humans felt eager to take a look at the outside world, so they left home and set off on a journey that covered a vast portion of ​​North Africa, Europe, and Asia.

This also showed that this conclusion was scientifically based on genetic testing. After repeated genetic inspections, the South African origin had to be acknowledged. It is said that many professors in China had suspected the theory as well. But the geneticists at the Chinese Academy of Science eventually arrived at the same conclusion after studying the genetic makers on the Y chromosomes of 28 population groups in China.

It is true that the genes trace back to Africa, and there’s only one race: the Homo sapiens. Don’t be trapped by the current diversity, white, black, yellow, and so many cultures. We all originated from Africa.

The following diagram illustrates the global expedition of Homo sapiens from a canyon in East Africa. Some arrows indicate a less successful expedition 120,000 years ago, while some arrows indicate a successful one 60,000 years ago. They finally covered the world. Image source: https://en.m.wikipedia.org/wiki/Homo_sapiens

Fig 1.1 Homo Sapiens’s global expedition from a canyon in East Africa. Refer to “A Brief History of Mankind,” drawn by Youngge

Harari’s starting point was supported by scientific genetic testing. Who would argue with science?

According to the book, there were already humans around the world before Homo sapiens set out from Africa, including Neanderthals in Europe, Beijing Apemen, and Cavemen in China. Then why did they become extinct altogether because of Homo sapiens? Genetic test results found that, regardless of Neanderthals or the earliest indigenous peoples in China, the genetic contribution of non-Homo sapiens was insignificant, only about 1% — 4%. Except for occasional cross-blooded ones, the rest basically went extinct.

How did this happen? It is still a huge mystery. What made Homo sapiens invincible? The book mentioned a theory that Homo sapiens already had an ability around 70,000 years ago possessed by none of the other races on the earth at the time: the cognitive capability. There were three of the most significant revolutions in the history of human evolution: the revolution of cognition around 70,000 years ago, which kick-started history; the evolution of agriculture about 12,000 years ago, which accelerated history; and the evolution of science about 500 years ago, which concluded ancient times, moving history into a new chapter. Harari went through how the three evolutions altered the lives of mankind and other creatures.

The evolution of cognition refers to the process where Homo sapiens had exceeded other races and creatures in their cognitive abilities. They began to imagine and produce abstract concepts which were not perceived in reality, such as the Sphinx. Harari used the logo on Peugeots as an example: a leopard head with a human body. In addition to these logos, there were also religions and gods. Do you see God in your daily life? Even the most faithful believers are not likely to have seen God, but how can they believe? This is what Harari called the evolution of cognition. What’s the greatest contribution of this evolution? It allowed human coordination to exceed the limit of 150 Dunbars.

Harari illustrated that one can only “face up” to 150 people in an acquaintance society, which is consistent with our experience. But as soon as Homo sapiens were equipped with cognitive abilities, concepts got abstracted out, and the group started to have faith and more widely-acknowledged consensus, such as religious beliefs. We know that many people believe in the same God, such as Christianity, which has 3 billion believers worldwide. There are other religions as well. It might be more than billions with all three major religions combined.

Let’s look at another example. A milestone in Chinese history is that the emperor Qin Shi Huang unified China. This is not so much his military merit, but more essentially, he helped the Chinese achieve the evolution of self-recognition. The concept of China is a typical cognitive abstraction. It was neither a range that could be clearly distinguished geologically (like Japan as a nation on an island) nor a pure pedigree that could be easily defined (like Korea). Nonetheless, the concept of “China” was internalized by all the Chinese people since the Qin Dynasty. Although the dynasty died out shortly, this concept lasted over 2,000 years and did not perish after continual foreign invasions or through Influence of Western culture in modern history, which is completely different from itself. This is apparently part of the Chinese’ participation in the evolution of cognition of all mankind. It has formed a giant civilization that stretched for thousands of years.

Thus, the process of a cognitive revolution is the prerequisite for modern humans to form large-scale, civilized co-operations. Humans must be able to create abstract concepts not visible to the naked eye. Those concepts should be agreed upon by everyone so that a consensus can be reached. This way, the upper limit of 150 interactions would be broken. Let’s go back to the example of the Peugeot logo, which obviously does not exist in real life, a standing leopard. Can a real leopard walk like that? No. Peugeot reached a consensus representing the brand using a metaphoric concept, which will keep existing even if all the offices and factories of the corporation were burned. It is said that the company has 200,000 employees all over the world and an annual profit of 50 billion euros. This should first be attributed to the recognition and consensus on “Peugeot” as a brand.

This is the revolution in cognition as mentioned by Harari: Homo sapien groups had broken through the 150 limit, forming tens of thousands of people for broader group collaboration. In this case, it’s not hard to imagine that other races, consisting of small groups of less than 150 people, could not compete with a surge of Homo sapiens in tens of thousands. Who do you think can win during racial wars like this, and who would be swiped away? Homo sapiens ended up ruling the entire world after tens of thousands of years. Regardless of the different colors, races, and cultures, we are all derived from Homo sapiens in Africa. This theory should give great inspiration to us. We should naturally associate it with the free, global market of Adam Smith. How to encourage billions of individuals to participate in collaborative trading, by which they “trade at equal levels, making up each other’s deficiency?” We certainly need a cognitive revolution where we can extract an equivalent that holds a common belief. We wouldn’t know each other when we trade, and one party may not need the goods offered by the other party. Barter won’t enable easy and extensive trading. However, gold is easy to use for trading since we all believe in gold. In other words, A and B do not recognize each other, but they both recognize gold. We both have faith in it because we have abstracted out the concept and have considered it wealth. Note that this is an abstract wealth concept and consensus.

3.3 Universal equivalents: shells, gold, etc.

Many people, who haven’t gone through a cognitive revolution, are still limited by the view that gold became wealth only because it had utility value in the first place. This is a misconception. We need to realize that gold barely had any use values before it turned into a wealth consensus among all human beings. It could not even be used for weapons. The gold in temples on warrior statues is purely decorative. No one on the battlefield actually takes gold or silver for weapons, as they are the softest metals.

The reason gold and silver became wealth consensus in human history was because they were relatively easy to be cut. Besides, they had stable physical and chemical properties, and were not easily oxidized. Their deposits are relatively scattered geologically, and most importantly, they are rare and hard to extract.

Gold had little to no use value in ancient times. Is a large amount of gold needed in modern industrial production? Not necessarily. There are barely any real civilian goods that use a lot of gold in them. As a common credit resource in human society, gold became a symbol of wealth not because of its utility value, but because hundreds of millions of people have reached some abstract cognitive consensus. Of course, it can also be deduced in reverse, because humans have used the scarcity of gold to reach a global consensus on credit, its consensus value as a form of wealth far surpassed its use value in other application scenarios, and this further prevents its use in industry applications.

Was there a universal equivalent even earlier than gold in the cognitive revolution of wealth in Chinese civilization? The answer is shells. How do we know? I once visited Beijing International Financial Museum and found out that most finance- or wealth-related characters have 贝(shell) as its radical, such as 财(fortune), 赊(credit), 账(account).

Chinese characters are living fossils of human culture and history. Many other ethnic groups have a short history of written language. Some are only a few hundred years old. Some even copied characters from other nations. Many writing forms cannot retain much historical information, such as Pinyin.

Figure 1.2. The Chinese characters with 贝(shell) as radicals are mostly related to wealth or trading behaviors. Taken by Sunny Feng Han, from the International Financial Museum (Beijing) founded by Wei Wang

Therefore, the Chinese people ’s cognitive revolution of wealth actually started with shells as the universal equivalent. Shells are an even stronger support for the theory of cognitive revolution of wealth consensus because they don’t have any direct utility values. Having abstracted shells as the equivalent in value for trading, people place their mutual trust and credits within shells.

Here we particularly point out that a false understanding of wealth has made people firmly believe that wealth is something of utility value. They insist that possessing more materials, products, or resources means possessing greater wealth. These views and actions not only provided no help to free market trading, but have also triggered economic recessions or peasant revolutions, especially in the late stage of a few Chinese ancient dynasties. The consequence of such possessive behaviors were a depletion of credit resources in the market, followed by a shrinking economy and collapse of the tax system of central governments.

In the past, a theory prevailed in China that land merging at the end of a dynasty was caused by private ownership of land, which completely mixed up the difference between private over-occupation and private ownership. In the current age of capitalism, private ownership is the cornerstone of free markets. Capitalists have occupied much more production and resources than did the landlords amidst the agricultural economy. But why hasn’t it caused the economy to shrink? That’s because capitalists use the means of production and resources in their hands for massive production that yield profits. We will analyze that in Chapter III — a new wealth consensus (paper notes) can be reached through the modern banking system. For example, particularly foresighted capitalists such as Ford have consciously continued to raise staff wages and benefits so that they can also afford their own cars and to participate in market trades. Therefore, the highly concentrated means of production and resources in capitalists’ hands in the Industrial age have actually promoted the prosperity of the market economy.

In fact, excessive occupation of production resources will always depress the economy with or without a developed market economy. For instance, before China began to issue real estate certificates in 1998, all lands and real estates were owned publicly by the government. Most citizens were living in apartments allocated by their work units. There was almost no concept of personal real estate properties and thus no real estate market. They all belonged to the country. Does that mean the country was wealthy? No. It is well-known that China was impoverished before the Reform and Opening up. By only reading the title of Smith’s famous “The Wealth of Nations,” one can easily misunderstand that the book was all about teaching countries how to occupy more resources. On the contrary, Smith illustrated throughout the book how a nation can generate credit resources (wealth) through massive equal trades by respecting the fundamental protocol of a free market. We’ve repeatedly mentioned that: trade at equal value price, complementing each other’s deficiencies. Only in this way can a nation become rich and powerful. The fruitful results of China’s Reform and Opening up, as well as its continuous development of a market economy, fully proves the true meaning of this concept of wealth.

In short, the occupation of material objects and resources is not wealth, whereas the creation of credits in a free market following a cognitive revolution is true wealth.

This cognitive revolution of wealth is still ongoing as the global market and industry synergy are still moving constantly towards a wider, deeper, and higher state. The concept and form of wealth therefore continue to change as well. Why can we say that digital currencies and bitcoin will become wealth later? I will discuss in detail later on that they are a continuation of the cognitive revolution since the beginning of human history and of the evolution of human civilization. From this point of view, it becomes easy to understand that the creation of abstract wealth consensus is a must for the human civilization, for the establishment of the free market worldwide, and for the existence of massive, efficient trading. Only with sufficient wealth can humans accomplish large-scale industrial synergy.

3.4 The modern day major manifestations and measures of wealth, from gold and silver to paper money: banks generate credit resources

Previously, we have analyzed that broad market trading requires credit consensus, which is wealth. The earliest formation of consensus mainly relied on the scarcity of natural resources and chemical stability, such as shells, gold, and silver. However, this model of generating global credit consensus is obviously not suitable for the broader and more efficient global trade in the later stages of the Industrial revolution. This is because the hallmark of the Industrial Revolution was the explosion of production. The number of products available for trading increased dramatically. Therefore, the next step in the development of wealth requires more accurate measurements of value and deeper liquidity. Bank currencies then inevitably came into being.

Hayek’s teacher Mises had said that money is nothing but a medium of exchange. If it helps process goods and services more smoothly than barter does, its mission can be declared complete.

According to Mises’ definition, currency apparently belongs to the category of cognitive consensus of wealth, and it is a credit resource to help the systematic trading in free markets appreciated by Smith. More specifically, it is a measure of wealth consensus and provides superior liquidity for wealth.

It is clear that gold and silver had also played part of the role of global currency. Nevertheless, it is inconvenient and unsafe to carry a large amount of them. The liquidity provided by gold and silver as credit resources would soon not be able to keep up with the pace of the Industrial revolution. Furthermore, the rarity of gold and silver made it easy for people to form a wealth consensus on one hand, but they also made the market prone to a lack of credit resources on the other hand, especially after the Industrial revolution. As a result, banks stepped up on the stage of history.

What role do banks play? I originally had shallow knowledge, thinking that they are just a place to deposit and withdraw money, a place to store wealth. In fact, the nature of banks (and currency) is that it generates credit, or, in a sense, generates “money.” How did banks arise?

Let’s talk about the Chinese TV series “The Qiao’s Courtyard”. It incorporated a part of early banks’ histories, where Chinese banks back then were called Qianzhuang (money houses). The setting of the TV series is Shanxi, where trade was well developed. Geographically, Shanxi was connected to Inner Mongolia and territory of some other countries. It was close to the ancient Silk Road and was bordered by several in-land provinces. That’s why trade was well developed there.

The Qiao Family was a large trader. The credit consensus in China at the time was silver. The Qiao family’s trading business was huge. They were frequently requested to do long-distance transportation of large volumes of silver. The process was very risky. They had to face the wilderness, mountain ridges, the Mongolian steppe, and bandits. Protection by Biao Ju (armed escort) was needed, but the cost was very high because those escorts would safeguard the goods with their lives. If we convert to the current financial service standards, the cost was about 10% of credit circulation each time, which was indeed too high.

Zhiyong Qiao of the Qiao’s later had an innovative idea, which was to issue something called “silver tickets.” He opened a number of Qianzhuang branches, and people could just exchange for silver with silver tickets in those branches without having to carry silver from, say, Taiyuan (in Shanxi province) to Baotou (in Inner Mongolia). Just hide the silver tickets, perhaps sew them inside the layers of a jacket, and dress as a beggar might. This greatly reduced the risks and Intermediate costs.

“The Qiao’s Courtyard” did not finish the financial story though. Only after reading “The Wealth of Nations” did I fully understand how real banks produce credit. The banks were still in their infancy in Europe at the time of the Qiao’s portrayed in the show.

Modern banks first appeared in Italy. The English word “Bank” originated from Italian word “Banca.” “Banca” means bench in Italian. The earliest finance workers sat on benches on the sides of roads to carry out their business. Those people sitting on benches were doing similar things to the Qiao’s: taking gold from clients and issuing them a ticket so they could redeem it from another “Banca” later. The exchanges were first carried out between cities in Italy. That removed the need to transport gold and thus reduced transportation risk and costs.

The later “Banca” people then thought very hard and launched new business called loans. What are loans? For example, a banker received 1 kg of gold from client A and showed it to another client who wanted to borrow it. But the banker didn’t lend the gold directly to B. Instead, he issued a check, representing the 1 kg gold loan, and B could redeem gold with the check from other branches. B could also redeem it without proof if there was trust. In any event, checks are the precursor to the paper money today.

On the other hand, Banca all wanted to expand the business. They refused to issue only one check for 1 kg of gold. They began to write more and more until there were five checks as the norm in the end. This eventually turned banking into a high-risk industry. The reason was straightforward. What this industry is scared of the most are runs. For example, a banker wrote five copies. Two owners later came to him at the same time to cash out for gold, but he couldn’t cash out. He gave the first one 1 kg of gold but could not exchange with the other and became a liar. So for a long time in Europe, bankers were synonymous with scammers and even banned by certain kings.

If we look into the nature of wealth, why had the early Banca “deceived” so many? This comes back to the need of the free market by Smith. When a free market booms to a certain degree, the traditional way of anchoring gold and silver, relying on the scarcity of goods to generate credit consensus, is no longer able to provide sufficient support on credit resources for global trade. The banking industry is actually producing new credit resources for the entire market because for the original 1 kg of gold, it could generate five, or even twenty copies of gold credits (checks, and paper money afterwards).

Of course, this kind of credit resource was fragile initially and may collapse at any time. But what Banca does, if it does not collapse, is mine gold for the market or inject more credit resources into the market so that people holding the checks can make transactions. In other words, it promotes the completion of transactions. So the phenomenon everyone can see these days is: banks distribute “money.”

From a historical perspective, any new type of credit(wealth) generation model often undergoes big ups and downs at Initial stage, bringing losses to many parties. So it is easy to be called a liar. Similarly, it took hundreds of years for the banking industry to develop from sitting on benches to building the most expensive buildings on top of most expensive lands. In the history of mankind, many of those who had created wealth and credit consensuses for human beings sacrificed a lot, including their lives.

I will specifically examine in Chapter III, how wealth had been created by Wall Street, a group of people who were probably labeled as scammers, especially in the early days, where the system was easy to collapse after poor trading operations. A multitude of people suffered losses when this happened. Even Xueyan Hu, the richest man in China in the late Qing dynasty, got run down at the time. We can read Yang Gao’s writing about Xueyan Hu, which mirrors history for the most part. Hu was rich and prosperous at the time. His former residence in Hangzhou is still magnificent, like a down-sized Forbidden City. The former Premier of China, Rongji Zhu, specifically left mocking comments on Hu’s extravagance after visiting the residence. Hu might have somehow offended Hongzhang Li (a high government official of nation similar as Premier at that time)’s supporters, who spread rumors and antagonized him. His money houses got persecuted, entering complete bankruptcy within just three days. Not a land or tile left. Dozens of his wives and concubines had nowhere to live. Hu eventually died a dog’s death.

Do you think Hu intended to be a liar?. I think this is not really the case. He actually generated great wealth for the society and provided extensive credit resources for the economy.

However, Wealth industry in the early days lacked management experience. The country’s legal protection and supervision were also insufficient. More importantly, China’s market economy was still weak at the time. There were not enough industrial profits to support credits consensus. Liquidity was frequently lacking, making risk events easy to occur. Just like the current cryptocurrency communities, it was easily regarded as dishonest and deceitful.

There are certainly people who deliberately deceive, but history has proved that all innovations come along through storms if we stretch the time axis long enough. It was a history of blood and tears. How many people sacrificed their lives creating wealth for humanity? How many people on Wall Street lost their reputations, including even President Grant, the hero of the American Civil War, who was trapped after stepping down from his position and died from a fatal disease.

You can only understand it when you correctly inspect the development of the entire human history. Those who created wealth for human beings, who created credit consensus and value, who promoted global market collaboration and division of labor, and who contributed to human civilization and prosperity, are the ones worthy of our recognition and remembrance. It is one of most brilliant part of the entire cognitive revolution within human evolution. It is through Adam Smith’s free market that we become builders of modern civilization.

3.5 From Paper Money to Digital Currency / Mobile Payment: Data as Credit Resource

After hundreds of years of advancement in the banking industry, many large banks have become the main force to produce credit resources and issue banknotes, especially certain banks in China endorsed by the government. However, Hongbing Gao, the vice president of Alibaba, claimed that this system is problematic. It produced credit resources for trade with too high of a cost. If the most expensive building at the most expensive location is to be constructed, with all employees working inside being graduates from prestigious colleges receiving the best salaries, how much would be the cost? Why did Gao mention this problem? What he tried to imply was that as the cognitive revolution proceeds, we are moving to the next stage of the Internet and big data, where data have begun to generate credit.

I heard a story once, that the Tianhong Fund was to be acquired by Alibaba. At first, the Tianhong Fund was full of hopes to marry Alibaba, because as a small fund, marrying Alibaba means that Tianhong would suddenly be among the top few big funds in China. However, the negotiation did not progress for a month. They were arguing about one issue: the original member threshold to join the Tianhong Fund was 50,000 Yuan at minimum. This sounds reasonable since funds, just like the banks, build the most expensive buildings at the most expensive locations. The threshold must be high to cover the costs, else every sale would be a loss if the threshold is less than 50,000Yuan.

Unfortunately, Alibaba’s request for Tianhong was that the threshold must be reduced to one Yuan, which was 50,000 times lower. Tianhong Fund originally thought it was impossible: Are you going to kill me? How can we drop the threshold so drastically? A drop of one or two thousands is perhaps acceptable, but what is the joke about with a dollar? The two parties quarrelled for a month. It is said that Alibaba in the end passed the ultimatum: if you don’t make it one Yuan, let’s just say goodbye and the marriage is down. The Tianhong Fund had no choice but to give up. Why? Gao had spoken that Alibaba believes that it represents a new era where data and information can also generate credit. Indeed, it is the beginning of a new era in the history of human wealth.

There were only physical objects in the past, such as gold and silver, visible and tangible to represent wealth. Who would believe that data can generate wealth? It was impossible to have this concept before. The numbers were written on paper. How can you say that it is wealth? Impossible. I would like to be a spoiler and tell everyone that this phenomenon can only occur in the era of big data. Why is there a substantial difference when we enter the age of big data? I will talk about an new ontology, a worldview brought to us by quantum mechanics.

I felt that Alibaba has contributed to history because it gave rise to big data. Gao told me that they have begun to outpace the credit model, or the credit producing logic of banks, which is high-cost in credit (wealth) production . They came to discover that big data can also generate credit, which is not weird at all. Owning more data should make a difference to a person’s credit value. For instance, one time I communicated with Lin Li, the president of Huobi.com. Li said: “Do you know what my credit card limit is? It’s just 30,000 Yuan. And what was even more ridiculous is that I often receive text messages from the bank congratulating me on winning a temporarily adjusted quota of 50,000 for the day. Is it a joke?” Who would not believe that Lin Li owned net assets worth at least several hundred million Yuan, but the credit card limit offered was only tens of thousands of Yuan.

Why did this happen? That’s because the bank didn’t have his big data, let alone his data assets. So the credit limit was low. Credit cards were originally a financial tool good at producing credit resources. They’re convenient, and everyone is using them these days. But the credit is indeed limited, for it’s inconsistent with our financial situations. As explained by Gao, big data will create a wealth consensus in the future with a much lower cost than do the current banks.

Gao invited me to discuss blockchain in 2016. I at that time presumed to have understood the blockchain quite well, considering that his team compiled the earliest book on blockchain in China. But to my surprise, Gao’s views at that time really opened my mind. Gao inspired me to figure out that human beings will later enter the era of data-generated credit and wealth. I said to Gao that the current issue though, is that the data is still publicly owned. It was unclear to whom the data on the Internet belonged. Who do you say my data on WeChat or Twitter belongs to? And what about my data once I login to Taobao? They are somehow being given to the platform. Same with Facebook.

I went on another trip to the United States to meet a PhD from the University of Chicago, Jeffrey Wernick, who was also very famous in China. We had a discussion in New York, and he said that the biggest Internet companies in the world operate through one business model, that is, making money with everyone’s free data. I later checked and found that Facebook takes the data from over 2 billion users each year and earns 40 billion US dollars from the data. The earnings are of the same order of magnitude as Peugeot. How immense is the wealth created!?

Public ownership of data yields less wealth than does private ownership. If data are publicly owned and do not belong to any individual, the growth of our own credit value and wealth would be severely limited. Yu’e Bao (a subset of Alipay) cannot give much credit. Sometimes even less than banks. It is far from realizing the potential of data in wealth production.

I was convinced by part of Gao’s logic. And after some time, It suddenly dwelled on me why Bitcoin is valuable. What is Satoshi Nakamoto’s greatest invention? The signature by private keys solves the problem of data ownership. Data finally, for the first time, belongs to “someone.” Why are they called encrypted digital assets? It’s the same principle as housing privatization in China when it started to issue real estate certificates. Immediately after Bitcoin, Ethereum developed a non-stop smart contract that also serves this purpose. The greatest thing about the future of blockchain is that it will authorize the ownership of the big data on the Internet to each individual, so that everyone’s data can make a new kind of wealth consensus.

Why does the advancement of human society require wealth in general? The most fundamental reason is that the free market structure of human civilization requires trading. However, in order to improve the exchange efficiency during the trading process, especially extensive trading among strangers, a cognitive revolution is needed to abstract out consensuses on credit, credit resources, credit equivalents, etc. In popular terms, it is “money.” The concept of wealth was gradually extracted from different things. No matter how history evolves, whether it is the earlier shells, gold, silver, bank notes, stock securities, or the cryptocurrency and data assets that will be discussed later in this book, the underlying principle is unchanged. As long as it enhances mutual trust and credit resources in the market and helps improve productivity and the scope of the market, it will have the opportunity to become a global consensus of credit and wealth. This is part of the human cognitive revolution in Harari’s work: cognitive abstraction of value. It empowered Homo sapiens to defeat all other primitive populations. It was one of the most brilliant chapters of humanity’s great evolution.

4. The Correct View of Wealth

If a society cannot create wealth, or it cannot create enough credit resources, the civilization cannot be structured. And none of the following would happen: the free market trade according to Smith, the highly precise division of labor, the optimal allocation of various resources, the broad coordination of human beings, or the prosperity of society. Therefore, we must have an accurate understanding of wealth and creating enough wealth consensus in a proper way.

Here’s an example: Spain discovered a large silver mine in the Americas at one point. According to a survey by China’s CCTV’s “Rise of the Great Powers:” “From 1521 to 1544, the gold carried back to Spain from Latin America averaged 2,900 kilograms per year, and silver 30,700 Kg. The number surged between 1545 and 1560, with an average of 5,500 kilograms of gold and 246,000 kilograms of silver each year. In the 300 years of Spain’s invasion of Latin America, 2.5 million kilograms of gold and 100 million kilograms of silver were transported” [I Jin Tang:” The Rise of the Great Powers”, People’s Publishing House, January 2007]. The real gold and silver were a huge and direct injection of credit resources, or wealth consensus, into the European market at the time. It fostered the British industrial revolution (history showed Spain silver injection and industrial revolution happening in the almost same period)and advanced human civilization to a whole new stage.

Another example is the discovery of a large gold mine in California, USA. According to the famous “Great Game:” “With the sudden injection of a large amount of gold into the economy (California), the US economy has developed rapidly, and the entire country presented a scene of great prosperity. As one of Indicators of economic activity, fiscal revenue was only 29 million U.S. dollars in 1844, but it already exceeded 73 million in 1854.” It was precisely because of the discovery of a large gold mine that new credit resources were injected into the US free market and helped the economy take off in the age of the Great Railroad. Numerous people think that building a railway can lead to economic prosperity, but it is not that simple. Without real credit resources, in other words the ability to facilitate the completion of a large amount of trades, modern American civilization could not have been established so rapidly.

Therefore, we believe that the correct view of wealth involves the following:

First, the pursuit of wealth is not necessarily greed. It is the starting point of human civilization. A healthy, modern society ruled by law must first protect behaviors that generate wealth consensus.

Second, wealth must be tied with the concept of private ownership. Imagine that if all things, be they gold, silver, land, etc., are publicly owned. It will not act as much support to boost credit for trading.

Only the privatization of property can motivate continuous participation in market exchanges, which in turn contributes to the generation of wealth consensuses. Only then can the so-called wealth consensus play its role in expanding credit resources for market exchanges, and only then can a higher level of human division and collaboration be fostered. If properties are not private, the society would not have true wealth consensus , and the market would lack a consensus mechanism, which would not benefit the prosperity of the entire market at all.

One book inspired me significantly: The Secret of Capital, written by Hernando de Soto, Peru’s economic adviser to the president. The book studies why developing countries are poor. The fundamental reason is that there are generally not good legal systems to protect personal assets, in which case, the societies always lack wealth and credit resources, and trading is never carried out efficiently, and participating in global industrial collaboration is next to impossible.

Third, resources should not be in the hands of only a few people. Historically speaking, including China, there have been numerous large-scale land-merging events. As a result, resources were concentrated in the hands of several large households, and ordinary people had no fortune. It is conceivable that this is not much different from public ownership, and the harm is the same. When it happens, the market will be lacking credit resources and trading will not be conducted on a large scale. The free market will collapse again, and the development of industries and market will stop.

So even in current developed capitalist societies, whether in Europe or the United States, legal restrictions have been used to crack down on monopolies. Why? Because excessive concentration of wealth within a small number of companies or individuals is never conducive to the operation of the free market, the circulation of massive credit resources in the market, the expansion of large-scale collaborations of human kind, or the overall development of human society. Many human crises in history were related to this dynamic.

Fourth, and also the focus of this book, in the future, blockchain will make data private so that they become everyone’s wealth. For this, I most recognize Elastos’ position in protecting personal data. The founder of Elastos is Rong Chen. He was admitted to the Department of Computer Science of Tsinghua University in 1977 and later went abroad for further studies. He started working on operating systems in 1984, and studied operating systems at the University of Illinois for 7 years. He then worked at Microsoft headquarters for 8 years, during which he participated in the planning and implementation of the Microsoft Research Institute’s multimedia operating system, and participated in the planning and basic service-oriented (SaaS) technology research and development of Microsoft’s new generation network operating system “.NET.” Later, he returned to China and worked in operating systems for nearly 20 years. In 2017, he founded Elastos. Rong Chen can be said to have truly witnessed the entire history of the Internet from its inception to its prosperity, which enabled him to deeply analyze the current Internet security issues in terms of data privacy. As Rong said, if bitcoin solved the double-spend problem for digital currency, then Elastos is solving the double-spend problem for all data assets on the Internet. It can be said that the new generation of Internet created by Elastos is the Internet of wealth that I believe in.

Recognizing the nature of wealth as a market credit resource and knowing that abstract value and “money” are a continuation of the human cognitive revolution, we are able to correct some of our previous prejudices against wealth and against the pursuit of wealth. Except for the greedy minority who hoarded too many resources, we should have great respect for those who have continuously sought wealth in history. They have played a vital role in promoting the development of human civilization.

To sum up, according to Yuval Noah Harari, the human cognitive revolution empowered our ancestors to create abstract concepts, form large-scale consensuses, enable collaboration among thousands of people, defeat other primitive races, and dominate the earth. In the economic field, the global collaboration and division of labor require massive, frequent exchanges. The progress of the human cognitive revolution is to surpass utility value from specific items, create abstract “wealth” concepts, and gradually form a value consensus, so as to continuously create credit resources for the global free market, discover new sources of “money”, and let the human division of labor and cooperation move towards higher and higher levels. From the earliest shells, to gold and silver, to banknotes, and eventually to the blockchain that converts data into wealth, which this book will analyze in depth, we can see that the evolution of human concepts and forms of “wealth” are a miniature, flash documentary of the development of human civilization.

All in all, through the nature of the concept of wealth and the trajectory of historical evolution, we find that : Wealth is not a tangible thing, but a global credit consensus!

Chief Author: Sunny Feng Han

Co-Author: Ben Koo,Hermione He, Cassie Zhang, Bao Song etc.

Translated by: Victoria Huanqiu Wang