The intersection of finance and technology has never been more dynamic than in the era of digital transformation. Among the most transformative innovations are Bitcoin and blockchain, concepts that have sparked global interest across industries, governments, and academic institutions. A recent lecture by Professor Zhiguo He — a distinguished scholar in finance and a visiting professor at the School of Finance, Shanghai University of Finance and Economics — shed deep light on these topics through the lens of financial theory. Hosted at Tongde Building and moderated by Associate Professor Deng Xin, the event explored both the technical foundations and economic implications of blockchain and Bitcoin.
This comprehensive exploration offers valuable insights into how decentralized systems are reshaping traditional financial frameworks, grounded in rigorous academic research and real-world applications.
Understanding Bitcoin and Blockchain: Beyond Digital Currency
At its core, Bitcoin is often perceived merely as a form of digital money. However, Professor He emphasized that this view is overly simplistic. Bitcoin and blockchain represent far more than just an alternative to fiat currency — they embody a decentralized system rooted in advanced economic principles such as mechanism design, game theory, and incentive alignment.
👉 Discover how decentralized systems are redefining modern finance
Blockchain technology functions as a distributed ledger, ensuring transparency, immutability, and security without relying on central authorities like banks or governments. This decentralization challenges conventional trust models and introduces new ways of organizing economic activity. The Bitcoin network, for instance, operates through consensus mechanisms where participants (miners) validate transactions based on cryptographic proof rather than institutional oversight.
This shift raises fundamental questions: Why does "the chain" almost always involve "the coin"? And what underpins the value of a purely digital asset?
The answer lies in incentives. Without a native token like Bitcoin, there would be no economic motivation for individuals to contribute computational power and maintain network integrity. Thus, the cryptocurrency serves as both a medium of exchange and a critical component of the system's sustainability model.
Economic Foundations of Blockchain Systems
In the afternoon session titled “The Economics of Bitcoin and Blockchain,” Professor He expanded on two of his research papers that analyze real-world dynamics within blockchain ecosystems.
Mining Pools and Equilibrium Outcomes
One key issue discussed was the rise of mining pools — collaborative groups of miners who combine their computing resources to increase their chances of successfully validating blocks and earning rewards. While Bitcoin was designed to promote decentralization, the high cost of mining equipment and energy has led to concentration in large-scale operations.
Professor He analyzed the equilibrium outcomes in fee structures within these mining pools. His findings show that fees typically increase with a pool’s market share but at a diminishing rate. This creates a self-regulating mechanism: as a pool grows larger, it risks losing members due to higher fees or concerns about centralization, which could threaten network security.
This delicate balance illustrates how game theory applies directly to blockchain economics. Participants act rationally based on incentives, shaping the structure and evolution of the network over time.
Smart Contracts and Financial Applications
Another major focus was the potential of blockchain in enabling smart contracts — self-executing agreements coded directly onto the blockchain. These contracts automatically trigger actions when predefined conditions are met, reducing reliance on intermediaries and lowering transaction costs.
Applications in finance include automated lending platforms, decentralized insurance, and transparent supply chain financing. However, Professor He also cautioned against over-optimism. Challenges such as scalability, regulatory uncertainty, and code vulnerabilities (e.g., bugs leading to fund losses) remain significant barriers to widespread adoption.
Despite these hurdles, the long-term promise of blockchain in increasing efficiency, reducing fraud, and expanding financial inclusion is undeniable.
Core Keywords and Their Relevance
To better align with search intent and enhance discoverability, several core keywords naturally emerge from this discussion:
- Bitcoin
- Blockchain
- Decentralized system
- Financial theory
- Smart contracts
- Mining pools
- Game theory
- Cryptocurrency economics
These terms reflect both technical components and broader conceptual themes essential for understanding the role of blockchain in modern finance. They also correspond to frequently searched topics among students, researchers, investors, and tech enthusiasts seeking authoritative explanations.
Frequently Asked Questions
Q: Is Bitcoin truly decentralized?
A: While Bitcoin was designed to be decentralized, practical factors like mining concentration have led to partial centralization. Large mining pools control significant portions of the network hash rate, raising concerns about single points of failure or collusion.
Q: What gives Bitcoin its value?
A: Unlike traditional currencies backed by governments or commodities like gold, Bitcoin’s value stems from scarcity (capped supply of 21 million), utility (as a transferable digital asset), and trust in its underlying technology and network consensus.
Q: Can blockchain exist without cryptocurrency?
A: Technically yes — some private or permissioned blockchains operate without tokens. But in public, decentralized networks like Bitcoin or Ethereum, a native cryptocurrency is essential to incentivize participation and secure the network.
Q: Are smart contracts legally enforceable?
A: Legal recognition varies by jurisdiction. While smart contracts can automate execution, they may not fully replace traditional legal agreements unless integrated with existing legal frameworks.
Q: How does game theory apply to blockchain?
A: Game theory helps predict how rational actors will behave within a blockchain ecosystem — for example, miners choosing which chain to support during a fork, or users deciding whether to pay higher transaction fees for faster processing.
Q: What are the risks of mining pools?
A: The main risk is centralization. If a small number of pools dominate mining power, they could theoretically collude to manipulate transactions or launch a 51% attack, undermining trust in the network.
👉 Explore how blockchain incentives shape user behavior and network security
The Road Ahead: Innovation Meets Regulation
As blockchain continues to evolve, its integration into mainstream finance will depend on resolving key tensions between innovation and regulation. Governments recognize the efficiency gains offered by distributed ledger technology but remain wary of risks related to money laundering, tax evasion, and financial instability.
Academic research — such as that presented by Professor He — plays a crucial role in informing policy decisions with data-driven analysis rather than speculation. By applying formal economic models to real-world blockchain phenomena, scholars help bridge the gap between technological potential and practical implementation.
Moreover, educational initiatives like the Yuxiu Lecture Series foster dialogue between experts, students, and practitioners, cultivating a deeper understanding of digital assets beyond hype cycles.
👉 Learn how economic principles guide the future of digital finance
Conclusion
The lecture on Bitcoin and Blockchain in Financial Theory delivered by Professor Zhiguo He offers a rare blend of academic rigor and practical insight. It moves beyond surface-level discussions to explore the foundational mechanisms driving decentralized finance — from mining economics to smart contract design.
As we move further into the digital age, understanding these systems is no longer optional for finance professionals, economists, or technologists. The convergence of blockchain, cryptocurrency, and economic theory represents a paradigm shift — one that demands both critical thinking and informed engagement.
By grounding discussions in proven theories like game theory and mechanism design, we can better assess the true potential — and limitations — of this revolutionary technology.