Babbitt column | Cai Weide: The rise of the blockchain industry, this time is true, but is there any regulatory preparation? (under)

Author's statement:

This article authorizes reprinting from DeepTech (ID: deeptechchina)

preface

The industrial sandbox is global, not just local. Professor Cai Weide believes that the sandbox should pay attention to legal and technical supervision. It should not only pay attention to individual aspects. The supervision sandbox should be combined with the industrial sandbox to become the “supervisory sandbox 2.0”. Coupled with the physical sandbox, regulation is more convenient.

5. Industrial sandbox

The industrial sandbox is different from the regulatory sandbox. It is set up spontaneously by the industry and has a virtual test environment. The entire industry can be used [12]. The blockchain industry sandbox tests the bottom of the blockchain and blockchain applications. Blockchains cannot be tested as long as they are (online).

The picture below shows the “Industry Sandbox” system [3] presented by the Innovate Finance report in the UK. It can be seen that there are not many industrial sandboxes that have been completed.

(Source: Innovate Finance)

5.1 . FinTech Sandbox

This is a non-profit organization in Boston, USA that provides data and infrastructure to financial technology companies to experiment with. The sandbox company has 70 start-up companies joining, 46 partners, 30 of which provide financial data, 4 provide infrastructure, and 12 provide accelerators.

According to FinTech Sandbox, there are 2,300 members, participants do not need to pay, and the fees are provided by Sandbox sponsors. Sponsors include Fidelity, Thomson Reuters, Silicon Valley Bank, Intel, State Street Bank, and more.

Although FinTech Sandbox is a non-profit organization, why are sponsoring companies willing to pay for technology startups to join the sandbox company without charging? Why is FinTech Sandbox willing to provide services, data and infrastructure to these start-ups for free? In fact, such a non-profit organization has a profit model. When the sponsor company finds that a startup has a good new technology that can be used by a financial company, they will invest in the startup. In this way, their investment risk is greatly reduced, because the technology of the startup company has been tested successfully in the real environment. It can be said that the sponsorship fee is the advance payment of the investment finance company.

Figure | FinTech Sandbox Flowchart (Source: FinTech Sandbox)

The picture above is a schematic of the FinTech Sandbox process, which is clearly the process by which financial companies such as State Street Bank and technology giants research startups. This is more accurate than traditional investment only by PPT, because the software has been tested and it is an experiment done in a real environment. These technology infrastructure companies also want many startups to use their facilities to complete the solution.

5.2. US Level-One Project (leveloneproject.org)

Founded by Microsoft founder Bill Gates and his wife Bill & Melinda Gates, Level-One Project is used to connect communications companies, banks, and financial technology companies to create an interactive protocol. Sandbox system.

Although the system is global, it is mainly concentrated in Africa and Asia. The diagram below shows a schematic of the Level-One Project (from leveloneproject.org and [4]). Below are some traditional companies, including the central bank and various banks, which are some of the participants and designs of the Level-One Project. By. It can be seen from the figure that it has established a new financial infrastructure that allows everyone to make payments and other banking operations.

Figure | Level-One project is to establish a national payment system (source: Level-One)

The sandbox case of Level-One Project is mainly to develop software for customers in the ecosystem (mainly banks, communication companies and financial technology companies), they have 3 mobile wallets, 1 interactive service, 1 payer and 1 Banks, their APIs can be downloaded, and the use of these services requires payment. But in theory the company is not profitable, the fee is only to recover the cost.

5.3. India India Stack (indiastack.org)

The India Stack is an important example of the industry sandbox, which was originally intended to involve 1.2 billion Indians in financial technology innovation. It is a very large industrial sandbox with the world's largest open API software, including ID and eKYC, with a focus on digital standardization. It is the pride of Indians, allowing more than 1 billion Indians to go online with ID cards, transfers and data permits, which are not available in many of the world's largest systems.

Figure | Payment System for India Stack (Source: India Stack)

A few years ago, India forced the withdrawal of 500 and 1000 banknotes from the market. These banknotes have become waste paper, which has had a huge impact in Indian society. To this day, many scholars are still discussing this matter. Because it basically cut off the channels of corruption and money laundering. And why can India make 500 and 1000 banknotes withdraw from the market? Because they have the support of the India Stack. India Stack allows all Indians to enjoy the banking of payments and transfers. So it is a very active and bold project.

Figure | India Stack Data Licensing System (Source: India Stack)

The India Stack is not just an identity and payment system, but also a data licensing mechanism built on a digital identity system. When data is from the supplier to the consumer, the data owner must provide a digital signature to permit the supplier to provide the data. A few years ago, the India Stack was on the line, but it was a pity because blockchain technology was not popular at the time. It did not use blockchain technology, and ID cards, KYC, payment, licensing mechanisms, etc. were precisely the strengths of the blockchain.

5.4. China Taishan Sandbox System

The Taishan Sandbox System was produced by China Tianmin (Qingdao) International Sandbox and started development in 2017. It has now entered the third generation [11]. Different from the previous three industrial sandbox systems, Taishan Sandbox is mainly for blockchain and financial technology services, which can test the capabilities of the underlying protocol of blockchain, such as consensus mechanism, block mechanism, encryption mechanism, etc. Blockchain applications and financial technology applications such as payment, clearing, and copyright applications can also be tested. You can also add other apps.

Taishan Sandbox has a complete sandbox access technology evaluation index model and test index layered model to guide sandbox supervision and testing. Provide testing and regulatory techniques such as access and audit platforms, automated test platforms, consensus and transaction tracking systems, and security and penetration testing toolsets. For example, testing the underlying consensus mechanism Taishan sandbox use tracking method to collect data, check whether it is a Byzantine general agreement, and visualize the collected data to verify the agreement.

Figure | Taishan Sandbox Consensus and Transaction Tracking System (Source: Taishan Sandbox)

The automated test platform is designed as follows:

(Source: Taishan Sandbox)

Different applications require different industry sandboxes : different blockchain applications (clearing, paying, insurance, trading) require different technologies. For example, the clearing chain and the payment chain design are not the same. The liquidation pays attention to high throughput but pays attention to low latency. According to the queuing theory, the two cannot be combined; the sandbox testing software design will be different.

In the clearing test system, high-throughput input is necessary to test the system's ability to withstand data pressure; on the payment system, low-delay is the most important, to verify that the system can guarantee that each successful transaction has no double flowers, The payment is successful and completed within one second. If a transaction is unsuccessful, each transaction must be rolled back in the same block, and the account participating in the transaction must be notified. The payment of digital tokens is easier to do because it can wait an hour or more to know if the payment is successful. In the current financial system, this waiting time cannot exceed one second.

In addition, the problem of digital tokens is far less complicated than the current financial system. In many central banks, the LSM mechanism is configured to deal with the double-flower problem, but this mechanism will increase the delay. In the Tiande payment system, this mechanism is completed together when building the block. It is different from the mechanism of the digital token system and the modern financial system. It is an innovation.

Figure | Taishan sandbox support testing different applications (Source: Taishan sandbox)

The future blockchain will be by composition and the test sandbox will be assembled. The industry sandbox is a virtual test environment formed by many companies in the industry, allowing many companies in the industry to test in the same environment. Due to the same test environment used, participating test companies can produce more objective results. The industrial sandbox can provide services for technology finance, customers, business incubation, education and research, and fund investment.

Sandbox technology needs to keep pace with the times : blockchain technology is changing with each passing day, and new changes are made every day. The blockchain technology in the future will be very different from what we see now. For example, the financial blockchain must consider PFMI, and most blockchain systems now do not consider this aspect [7, 8]. If you consider it, the blockchain design will be very different. Therefore, the technology of regulatory testing must keep pace with the times and keep up to date.

In the future, the blockchain will change from the current single chain to the multi-chain, and it will become a transnational and inter-regional chain network (blockchain Internet). The blockchain will not only be able to handle small data, but also big data. China has already made a big data version of the blockchain, and in the future it is no longer a chain of links, all the designs are the same, but the domain chain (Architecture design with different chains in different areas), assembly chain (different subsystems assemble it into complex systems), cloud on the chain (many chains are running on the cloud).

Sandbox technology requires online monitoring : There is another important concept. The blockchain is a real-time system that needs to track the history of the operation. Therefore, the blockchain cannot be tested as long as it is tested. It also needs to be monitored online. As an online monitoring sandbox, you can monitor and manage anytime, anywhere.

5 .5. Comparison of industrial sandboxes

The Taishan sandbox is different from the previous three foreign industry sandboxes [11]. Taishan Sandbox is the only industry sandbox that can test the underlying protocol of the blockchain, including both the alliance chain and the public chain, which can be tested on the Taishan sandbox. The 2nd generation Taishan sandbox uses black box software testing technology, so you can test all kinds of alliance chains, public chains and their applications. The third generation has a monitoring mechanism. The Taishan sandbox can be said to be a "test + simulation environment + monitoring" sandbox.

FinTech Sandbox is mainly to test financial applications and can not test the underlying protocol of blockchain, because providing financial data, operating environment (cloud service), financial company application interface, can be said to be "data + operating environment" sandbox, mainly to provide environment and The data allows startups to experiment and does not provide testing capabilities. Startups can develop applications and test systems in this environment.

Level-One and India Stack belong to the "Application + Test Integration" sandbox, and the main function is the application, and the sandbox is only an aid. Because the application is fixed, the sandbox system can develop test software for those applications. Correspondingly, the Taishan sandbox is mainly a test system, there is no fixed application, and users are encouraged to use the simulation environment to develop different applications; FinTech Sandbox mainly provides data and environment, and the application is not fixed. Level-One is mainly to provide a different payment system for a country and its central bank system. The sandbox part mainly supports local financial institutions (such as banks) to integrate and test integration. India Stack's main functions are ID card, eKYC, payment and data management. The sandbox part mainly supports all financial institutions in India to integrate and test integration.

(Source: Taishan Sandbox)

6. Sandbox big data analysis

The blockchain industry urgently needs a fair, open, scientific, and systematic assessment. In 2017-2018, some systems that were not blockchains at all were not made, and many funds were pooled, causing market confusion. Everyone was eager to promote the development of the blockchain system and experiment. In the market, “empty chain” turned out to be the most popular chain. There is no blockchain system. It only uses Ethereum smart contract to issue coins and capital operation speculation. Such an empty chain system actually far exceeds Bitcoin, Ethereum and other mainstream parent chain extension systems, and such digital token market prices must not last. Many of these tokens have also been zeroed today.

But today, there is still a lot of false information on the market, and it is difficult for computer experts with a doctoral degree in the United States to know the authenticity. Therefore, the market needs a fair, open, scientific, and systematic assessment, not a hype.

Tianmin (Qingdao) International Sandbox Company began to build a big data platform to analyze the blockchain after the second generation blockchain industry sandbox system on August 31, 2018, because the public chain data is more than the alliance chain. Most of the analysis is now on the public chain.

The first batch began with the analysis and evaluation of 200 public chain projects starting from the public chain project corresponding to the highest market value of digital tokens. The public chain assessment work is based on the established public chain technology evaluation model, using the Taishan sandbox-blockchain technology evaluation database system automated testing and analysis. It not only provides a basic assessment of the public sector community situation and product technology, but also includes in-depth research and analysis of multi-dimensional technical data such as public chain white papers, relationship between projects, project team effectiveness, source code similarity and quality.

The first blue book collects and organizes public-chain related information corresponding to the highest value (top 200) digital tokens, and conducts multi-dimensional calculations on specific indicators such as white papers, open source communities, source code, technical teams, and project products. And evaluation [13].

There are 157 digital tokens open source community projects with open main chain or smart contract source code, of which 156 projects are GitHub community projects and 1 project (Ardor) is Bitbucket community project. This assessment is mainly for GitHub community project evaluation. Using the combination of objective data analysis and technical evaluation, the technical evaluation model framework is used to calculate the evaluation scores of the technology.

The assessment is based on the three aspects of “technical planning and implementation”, “development team and effectiveness” and “community health and situation” of the public chain project. According to the collection and analysis of relevant data, according to the technical evaluation of Tiande The model judges the technical value of the evaluated public chain project and gives an evaluation score.

Figure | Public Chain Technology Evaluation Model (Source: Taishan Sandbox)

After analyzing the 200 public chain projects, the Taishan Sandbox found the following three points:

( 1 ) Insufficient innovation in the public chain

Although some public chains have great innovations, the innovation of the entire public chain industry is not high. In the public chain industry, there are only a few large tribes, among which the Bitcoin, Ethereum, and EOS teams are the three major chain mother chains, and each branch has many public chains. In the same tribe, there is little difference between chains and chains.

In addition, although EOS is a tribe, EOS was criticized by the founder of Ethereum Vitalik Buterin, who thought it was not a blockchain, but a beautified cloud computing service. If EOS is not a blockchain, then the public chain has only two large platforms. On the whole, the innovation of the public chain is far from the growth of its market value.

( 2 ) The public chain team is highly centralized

The public chain is advertised as “decentralization.” Many early Bitcoin supporters believed that the government could not be trusted or even evil, and did not require government regulation. But in terms of team data, digital tokens may be the most central development group in the world. The 200 public-chain projects were developed primarily by about 200 engineers who control most of the active public links now, which is less than a single single-chain node. Because only about 200 major engineers are engaged in development, many public chains are highly overlapping and similar. It can be seen that this is a very centralized industry where the same group of engineers participate in different public chain projects.

( 3 ) Public chain developers quickly leave the project

There are only a few hundred real chain developers in the world, but there are tens of thousands of public chains released, because these developers start a project, get the money, and may soon jump to another new project. A developer may have participated in four or five public chain projects, and each project is similar to the previous project. This often happens when digital tokens skyrocket.

After the successful issuance of digital tokens, the price of tokens rose linearly. Developers sold their tokens for cash, and then developed a second project, which was repeated. So that a developer can participate in several public chain projects in a short time. After jumping to another project, developers will leave the original public chain project, so that 90% of the public chain is now a "zombie" chain, that is, there is no chain of activities, which is for investors and industry. Bad influence.

Today, if in a stock market, 90% of the stocks become dumplings (that is, stocks that have no value), the company has no activities. After the financing, the company staff will leave and speculate on another new stock. It must be considered illegal and the stock will soon have no value. But in the public chain, this is not illegal, investors can only admit themselves. Some public chains, such as EOS, categorize almost all risks to investors. The project side has no responsibility and does not need to complete the project. The funds can be spent anywhere.

In December 2018 we analyzed 200 chains, but in the end we only evaluated more than 100 chains. Why only evaluate these chains? Because many public chains do not have enough data to analyze, the project side is no longer active, and some websites even give up maintenance, there is no analytical value, and these chains are still the public chain with a market price of up to 200. These Blue Book of Public Link Analysis can be downloaded from the Tiande website (www.tdchain.cn) [13].

Because of the above point of view, if the public chain community is to continue to develop, it is necessary to launch a public chain assessment system to maintain ecological health. If someone wants to propose a new public chain system, white papers and technical materials should be provided to third-party organizations for in-depth analysis, and continuous monitoring of their community and source code status to determine whether there is innovation value. There is no innovative project, the purpose is to "cut the leek" project, the so-called air currency or empty chain, are worthless, and should not be issued by the currency.

New regulatory sandbox model

In today's technologically advanced background, we cannot only use the legal system to regulate technology, but also use technology to regulate technology. Therefore, we propose a new type of regulatory sandbox (Regulatory Sandbox 2.0), which is a process that uses a sandbox to monitor, but uses an industrial sandbox to test and evaluate [9, 10]. The regulatory sandbox can use industrial sandboxes and rely on industry sandbox testing, evaluation, and analysis tools. Such a regulatory sandbox 2.0 adds a technological component to the 1.0.

Regulatory Sandbox 1.0 + Industry Sandbox = Regulatory Sandbox 2.0

The regulatory sandbox is divided into three parts:

Physical sandbox, there are physical spaces that can be considered as follows:

  • Company registration: This will affect local taxation, regional industry development, technology park management, and financial security zone management. There are special laws and regulations such as the test area and the free trade area. Different policies will affect the system's experimental regulations in the sandbox. For example, special import and export restrictions, special taxes, special talents and other policies will affect different sandbox experiments and practices. In some restricted areas, because of the policy, experiments can be done in other places. For example, the UK's regulatory sandbox allows technology companies to use a blockchain to issue stock experiments within a range, but this is not allowed in the UK market. . For example, if a city has 2-3 very strong industries, it should develop sandboxes for these industries, promote the digitization of these industries, provide financial services, and make these industries more competitive.
  • Personnel stationed: relevant technical and management personnel stay in the physical sandbox management, which will facilitate personnel management, education, training, research and development.
  • Server station: The related computer server and so on are stationed in the physical sandbox management. In March 2018, the US SEC moved a famous blockchain company server because it thought the company's operations were illegal. This does not impose restrictions on the public chain, but it can have a great impact on the alliance chain. Because China will adopt a coalition chain application rather than a public chain, this can have a limiting function.
  • Exchanges: Since many of today's problems appear on exchanges, legally compliant exchanges can be placed in physical sandboxes for easy management. Client wallets and accounts can be managed jointly by the exchange and the regulatory unit or the sandbox park. At the same time, illegal exchanges are closed, and banks, financial institutions and legal exchanges are prohibited. This is a system for managing digital tokens abroad. For example, the Canadian Securities Exchange (CSE) is operated directly by government regulators and is the only exchange in Canada that can legally trade tokens.

Institutional sandbox

  • This is a traditional regulatory sandbox that focuses on legal and institutional issues.
  • Under normal circumstances, technology companies are allowed to experiment, but they can only be deployed after legal and institutional changes.

Technical sandbox , divided into 4 levels:

  • There is no industrial sandbox.
  • There is an industrial sandbox, but only the bottom of the blockchain can be tested.
  • There is an industrial sandbox that can test the bottom of the blockchain and test the blockchain application.
  • There is an industrial sandbox that can test the bottom of the blockchain, test the blockchain application, and monitor the blockchain system at runtime.

Sandbox is not only a tool for testing and evaluation, but also a driving force for the industry. Many people think that the sandbox is like a regulatory system, an evaluation mechanism, but the industrial sandbox can also be an industry driving force. When a large number of systems are tested in a sandbox, a large amount of software and data is generated. This is a huge industry-shared database and knowledge base that will promote the development of the entire industry. For example, there may be two or three important industries in one place. If these two important industries are on the chain, you can develop two or three industrial sandboxes. Relevant blockchain application companies or technology companies can do a lot of work in the industrial sandbox to promote the rapid development of blockchain systems in these industries, thus becoming a propeller for the regional blockchain industry.

Industry sandbox defines industry standards. If industrial sandboxes are used in large quantities, industry standards can be promoted. Although many blockchain standards have emerged today, these standards do not necessarily become industry standards. These standards have reference value, but whether these standards will be adopted in the future is another problem.

More than 40 years ago, when the Internet came out, there was an ISO standard, which was considered a very important standard and was written into all textbooks. However, the Internet did not follow the ISO standard, but adopted the de facto standard of TCP/IP! So a standard may be accepted and written into each textbook, but it was not adopted later. The adopted system becomes a true industry standard. Therefore, if a region can develop two or three industrial sandboxes and popularize them, the system on the sandbox may become an industry standard.

The industrial sandbox market is global, with global competition and strong competitiveness. The industrial sandbox market will be global and competition will come from all over the world. The locality should play its own comparative advantage and concentrate on developing the industrial sandbox with its own characteristics. It is the world leader in this industry and its customers will come from all over the world. This will lead the development of local blockchain technology, make the place become the world leader in the application of blockchain in related fields, and define the blockchain industry standard with huge economic value. This is the economics of the industrial sandbox.

The Internet industry began in the middle of 1990. After more than 20 years, it is still leading the world in science and technology and economic development. The blockchain industry has only begun in 2019, and the future development space is limitless. China has already been competitive in this respect because we already have the Taishan sandbox.

Finally, highlight two important concepts. The first is "Regulatory Sandbox 2.0" . The sandbox should pay attention to legal and technical supervision. It should not only pay attention to individual aspects. The supervision sandbox should be combined with the industrial sandbox to become the “supervisory sandbox 2.0”. If you add a physical sandbox, supervision is more convenient.

Second, the industrial sandbox is global, not just local . The industrial sandbox has special economic attributes and is the driving force for the industry to transform into a digital economy. It can not only promote local industries, but also lead local industries to become the world's leading industries. Therefore, successful industrial sandboxes must be highly competitive to stand out in the global competition. Industrial sandbox can be the driving force of local industry and the driving force of blockchain technology. (This article first appeared on the DeepTech platform on Tuesday's DeepHash column)

references:

1. Hayley Kirton (http://www.cityam.com/profile/hayley-kirton), "Why a Red Tape Bonfire won" t Help Fintech: The FCA's

2. Christopher Woolard talks to City AM about Regulation Testing,” March 27, 2017, City AM, available at http://www.cityam.com/261244/why-red-tape-bonfire-wont-help-fintech-fcas -christopher

3. Financial Conduct Authority, "Regulatory Sandbox," Nov. 2015.

4. Innovate Finance (UK), "Industry Sandbox: A Development in Open Innovation Industry Sandbox Consultation Report," 2017.

5. Bill & Melinda Gates Foundation, "Requirements for a Pro-Poor Interoperability Service for Transfers," Seattle: Bill & Melinda Gates Foundation, 2014.

6. Financial Conduct Authority, "Regulatory Sandbox Lessons Learned Report," Oct. 2017.

7. Cai Weide et al., “Application of distributed ledger technology in payment, clearing, and settlement services”

8. Cai Weide et al., “Part 2 of the PFMI Series: The Clearing Chain “Design Road”

9. Cai Weide. "Cai Weide: Supervision of the sandbox 2.0 pseudo-innovation of the demon mirror"

10. Cai Weide, “Regulatory Sandbox 2.0 and Industrial Sandbox Economics”

11. Cai Weide, “True and False Block Chain – Taishan Sandbox knows!”

12. Cai Weide, “The Sandbox Technology for Regulating Technology”

13. “Blue Book of Technology Assessment and Analysis for Global Public Link Projects”

14. UK FCA, Global Financial Innovation Network (GFIN), August, 2018

15. Cai Weide et al., "Pro, what is your chain?"

16. Cai Weide et al., “Several important pits of blockchain technology (top)”

17. Cai Weide et al., “The lessons of tens of millions of dollars – the difficulties and solutions SWIFT encountered”

18. Cai Weide, “Let the bullets fly a little longer: Interpretation of the SEC Commissioner of the US Securities and Exchange Commission”

19. Cai Weide, “The blockchain is “decentralized” and not “decentralized”

Text / Cai Weide (Thousand Scholars and Founders of Tiande Chain), Jiang Xiaofang (Ph.D., Beihang University of Computer Science)