Why is it difficult for even BAT to participate in the competition of blockchain technology?

Author: Ultrain super-brain chain co-founder & CEO Guo Rui

Source: Blockchain Outpost

Introduction: After the combination of the blockchain technology and the public chain technology, the competition of blockchain technology will eventually develop into the competition of networking capabilities, which is a competition that is difficult for BAT to participate in.

1.What is blockchain technology

When we talk about blockchain technology, most people think of decentralized accounting, but what is decentralized accounting? Let's look at the term bookkeeping first. "Record" refers to the writing of records. "Account" can refer to data in a broad sense. "Accounting" refers to the storage and calculation of data. What is decentralization? That is, the many computers that make up the blockchain system are not owned by a centralized institution or organization, but are jointly owned by many institutions, organizations, groups, and so on. Therefore, in essence, blockchain technology is a technology for storing or manipulating data on the basis of a decentralized computer network. The characteristic of this technology is that after any data is stored in this system, the data cannot be destroyed. , Cannot be tampered with.

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2.The commercial value of blockchain technology

2.1 The Essence of Business Value of Blockchain Technology

What are the advantages of blockchain technology over traditional distributed database technology? The core is that blockchain technology is decentralized, while traditional distributed database technology is centralized.

What are the benefits of decentralization versus centralization? We take Sina as an example. Sina is a centralized information platform. The public can only read the news provided by Sina. If Sina tampers with or deletes the published news, it is difficult for the public to perceive it. If it is a decentralized information platform, After the news release, no one, including the platform itself, can tamper or delete these published news, so the public can fully trust that these news have not been tampered with after the release.

It is based on the characteristics of this immutable blockchain technology that we can build a low-cost trust center to solve the high pain points of trust in the business community.

Trust is the foundation of the business society. Establishing trust is the prerequisite for business transactions. Without trust, any business transaction cooperation relationship cannot be long-lasting. In the early days of the development of business society, trust relied on kinship and was established on the basis of personal interpersonal relationships. The scope of influence was limited and it took a lot of time to cultivate, which was costly.

Then, based on "contracts" and "contracts" as restraints, legal and institutional guarantees, and anticipation of illegal costs formed by the legal logic of legal punishment for violations, we established institutional trust, which is the basis for the operation of modern business society. Guidelines and cornerstones. Institutional trust effectively expands the scope of application of trust, but because it requires a set of social rules, systems, and laws to protect it, its operating cost is still high.

With the advent of blockchain technology, based on the technical characteristics of immutability, for the first time in human history, objective trust that does not rely on the subjective will of third parties has emerged, and machine trust based on machine assurance has been realized. After the data is stored on the blockchain, no one or organization can tamper with the data. Based on the guarantee of the machine or algorithm, the public can trust the authenticity and reliability of the data. By replacing the data here with the contracts or business benefit distribution rules common in the commercial society, you can use blockchain technology to ensure that the benefit distribution rules are true, transparent, reliable, effective, and credible. Characteristics, we do not need a complete set of social systems to protect, this benefit distribution rule will be automatically calculated and executed on the blockchain platform, thereby greatly reducing the trust cost of the business community in transaction execution.

In general, blockchain trust creatively expands the scope of trust, reduces the cost of trust, further promotes the process of objectification of human trust, and opens up new possibilities for greater global integration and collaboration.

2.2 Further analysis of business trust

Before analyzing the business scenario of the blockchain, we may wish to look at trust in the business context again. Trust is the basis for the establishment of a commercial transaction or exchange relationship. Its core is the rules for the distribution of commercial interests by two or more parties to the transaction. When it comes to the transaction relationship, there are parties A and B of the transaction. In abstract terms, there are two types of trading relationships:

1. One is that one party is strong. For example, party A is strong. If Party B wants the transaction to be successful, it needs to fully trust Party A. Party A is a strong source of trust in this transaction relationship.
2. One is the balance of power between the two parties. At this time, the trust relationship between the two parties is weak, and both parties are weak sources of trust. If you want to conclude a transaction, you need to rely on more constraints and costs (such as the contract system of the commodity society) to establish trust. It is difficult to establish trading relationships;

Here, we introduce the definition of "source of trust" and its strength. "Trust source" is the ability to provide trust endorsement to each other in a transaction relationship. In the course of business practice, we have found that in a business transaction relationship, it occupies a strong position in the industry, can formulate industry benefit distribution rules, and can provide industry credit endorsement. A company or institution that can be trusted by other parties in the scenario can be regarded as a source of strong trust; a company or institution that does not occupy a strong position in the industry and cannot provide industry endorsements is called a weak source of trust; for example, in the supply chain finance scenario, As a leading enterprise in the industry, a central enterprise places 2 billion purchase orders each year on 10 SMEs, and the 10 companies place purchase orders on 100 SMEs. The bank can provide supply chain financial services to these 110 companies based on the order amount. However, the determination of the loan amount must ultimately be traced to the order amount of the central enterprise, in fact, it depends on the credit endorsement of the central enterprise. Here we call the central enterprise a strong source of trust in this business scenario, and a small and medium-sized enterprise in China. Because it does not provide sufficient credit endorsement, we call it a source of weak trust.

2.3 Business Scenarios of Blockchain Technology Application

In essence, blockchain technology is a technology born to reduce the cost of trust between multiple institutions and organizations when they collaborate. We can analyze from large to small, which business scenarios need to build trust, and what strength to build. Trust.

2.3.1 Business scenarios based on global consensus trust endorsement

The business scenario based on global consensus is the commercial realization of global integration and collaboration, and the goal of global economic integration. To achieve this goal, we need to be able to establish a global consensus, such as the consensus of global citizens, or the consensus among countries around the world. . With the rapid development of globalization, similar business scenarios have gradually emerged:

A. Facebook's Libra Project

The Libra project essentially seeks to create a super-sovereign world currency that can flow around the world for value exchange and settlement. This requires the establishment of consensus and trust on the value of Libra on a global scale, including global organizations, institutions and individuals, which can be accepted for trading and settlement. In this scenario, there cannot be a strong source of trust (unless the world state is established). All parties in the alliance are weak sources of trust and need to cooperate to establish a credible alliance.

B. Commodity trading platform between countries

We imagine a scenario in which multiple sovereign countries hope to conduct direct transactions in commodities without establishing a specific legal currency (because of excessive reliance on a single legal currency to be harvested in one direction), and establish an inter-country commodity trade. platform. Due to the natural distrust between sovereign states (there are no eternal friends between nations, only eternal interests), the platform cannot be established by a single country or enterprise, because the country or enterprise can control the platform Data (guided platform rules are in your favor) is equivalent to having to fully trust the country or business. In this scenario, there cannot be a strong source of trust. All parties in the alliance are weak sources of trust and need to cooperate to establish a more equal alliance.

2.3.2 Business Scenario of National Sovereign Trust Endorsement

The RMB digital currency that the People's Bank of China is about to issue recently is the best example. DC / EP (Digital Currency Electronic Payment) is China's own digital currency. Its positioning is the same as RMB, but it is expressed in the form of digital currency. DC / EP is the same as Renminbi. The Chinese government provides endorsement of trust. Since the Chinese government exists as a strong source of trust, the commercial banks as participants in DC / EP fully trust this strong source of trust. In the / EP scenario, there is a secondary issuance structure. At the level of the central bank issuing M0 currency, the central bank exists as a strong source of trust, and all commercial banks can trust this source of trust; so the technical architecture of DC / EP we are seeing now At the central bank level, a centralized technology architecture is adopted, while at the commercial bank level, a blockchain technology architecture is recommended.

2.3.3 Business Scenarios for Endorsement of Trust in Natural Monopoly Industries

Natural monopoly industries. In an industry, if the total cost of products and services produced and supplied by an enterprise in the entire market is less than the sum of the costs of supplying the same number of products and services by two or more enterprises, it means that the industry is in Institutionally, it is economically efficient to ensure monopoly supply. In theory, such industries are called natural monopoly industries. In China, monopoly industries include eight industries including petroleum and petrochemicals, tobacco, telecommunications, power, weapons, railways, aviation, and banking.

In these industries, one or more giants naturally exist. They jointly occupy a large portion of the market, and have the right to control the upstream and downstream of the industry and formulate the distribution rules of the industry's benefits. They can exist as a source of strong trust in the industry. Most of the time, because of their dominant position, they don't need to alliance with other companies to build a business ecosystem. Other companies can only act according to their specified rules. But in both cases, they need to build alliances.

The first case: cross-industry cooperation.

Taking the actual supply chain financial scenario we have been exposed to, for example, Hospital A supplies nearly 200 million yuan of various materials each year from about 200 suppliers. Suppliers hope to use hospital purchase orders to finance from Bank B. Bank B needs The order is confirmed to be valid, but the hospital is unwilling to confirm the order at this time. At this time, an alliance between Hospital A, Bank B, and many suppliers can be established to share order data, and Bank B can base on these order data and Historical order records to provide financing to qualified suppliers. In this case, Bank B needs to conduct cross-industry cooperation and establish cross-industry trust. At this time, it can use Blockchain technology to build an alliance with Hospital A and multiple suppliers to achieve order-based supply. Business of chain finance. In this case, there is often a family as a source of strong trust to promote the landing of business. In this case, Bank B is the source of strong trust.

The second case: cooperation between industry giants.

Under the condition of natural monopoly, the situation that there is only one giant in the industry is increasingly difficult to be accepted by the government and the public. In many cases, there will be multiple giants in the industry at the same time, and sometimes the multiple giants will reduce the cost of the industry. For the purpose of improving the efficiency of the industry, it is necessary to cooperate on the basis of establishing trust. The typical example here is the R3 alliance. The R3 Blockchain Alliance was established in September 2015. Founding members include Barclays Bank, Bilbao Bank of Vizcaya (BBVA), Commonwealth Bank of Australia, Credit Suisse, Goldman Sachs, JP Morgan Chase, Royal Bank of Scotland, State Street Bank , UBS, and other nine companies, dozens of international banks and financial institutions have joined, with members all over the world. It is committed to reducing the cost of core business scenarios such as complex settlement and clearing between banks through blockchain technology. In this case, members of the alliance can be regarded as a source of weak trust and need to work together to find an alliance.

2.3.4 Business scenarios for endorsement of trust between loose corporate alliances

In addition to natural monopoly industries, there are also a large number of industries with sufficient market competition, including scientific research, manufacturing (machinery, textile, etc.), logistics, retail, culture and entertainment (education, literature, IP, games), medicine, biochemistry, food, Real estate, agriculture, animal husbandry and fishery, services (catering, travel), etc. In these industries, there is no one-dominated situation, so there is no case where one or more companies can formulate industry benefit distribution rules. When these enterprises hope to establish alliances, a core issue they face is how to build mutual trust. At this time, these alliance members are weak sources of trust and need to form an alliance together.

Contrary to the perception of the general public, this trust among enterprises is often very difficult to establish. Take an example of a domestic head-to-head courier company that we cooperate with. The courier headquarters has provided a comprehensive courier single settlement system that can settle daily with courier franchisees in each district, but the franchisees in each district still use the book to send themselves on the same day. The courier information is recorded and reconciled with the settlement system of the headquarters. The core is that the franchisee does not trust the system of the headquarters, and always feels that it will stray or miss the delivery slip. This is still the case under a franchise system. If it is a looser alliance without legal commercial binding relationships, it is even more difficult to establish trust, which is basically impossible to establish.

It is for this reason that under the traditional business environment and technical conditions, it is very difficult and extremely costly to hope to form a similar business alliance ecology in a fully market-competitive industry. Similar to Alibaba, it has invested tens of billions in establishing payment-based After the system's trust system, the construction of the e-commerce business ecosystem was completed. But under the new business environment and technical conditions, can a similar business ecology be constructed at low cost through blockchain technology?

In our business practice, there are many companies with similar ideas. I will take an NEEQ listed company that cooperates with us as an example. The company's main business is to provide biomass energy, that is, to replace wood after processing wood, wheat straw, etc., and replace the fuel. This technology has been recognized by China as a zero-carbon technology in the past few years. Can effectively save energy, reduce carbon emissions, and protect the environment. In the process of energy supply, they can make statistics on the carbon emissions saved, trade the reduced carbon emissions on a carbon emissions exchange, and generate a new income for the enterprise.

The problem with this new business model is that the boilers they provide are basically small boilers, such as 6 ton and 8 ton volumes, but carbon emissions trading is basically from 500,000 tons. Therefore, they need to collect all the emission reductions after the combustion of all boilers, and conduct batch transactions between the unified and carbon emission exchanges.

But who counts this data? If it is the company's own system for statistics, the carbon emission exchange will not recognize it, because the company may modify the data for profit; if you find a third party for statistics, the third party may collude with the company and it is not credible; This business model requires very high trust costs to be established, which is basically not feasible.

At this time, the zero-cost trust ability provided by blockchain technology can solve this problem very well. We cooperated with the company to implement a set of carbon emissions blockchain solutions. The company's boiler is equipped with an IoT device called a thermal mass spectrometer, which is used to record the daily combustion amount of the boiler. Through wireless transmission technology, Through this device, the burning heat data is directly written to the blockchain and stored. From this data, the carbon emission reduction can be easily calculated. Due to the immutable nature of the blockchain, all parties involved in carbon trading can determine that the data is true, valid, and reliable, and the business model can be implemented.

After the platform is completed, similar biomass energy companies in the industry can join the alliance in the form of joining, use the platform's capabilities to achieve carbon emissions trading, and form an alliance platform in a fully competitive environment. Blockchain technology has established a low-cost, strong trust source trust center through technology here, which supports the landing of this business model.

3.What kind of blockchain technology do we need to support these business scenarios

Blockchain technology is essentially used to reduce the cost of trust between multiple institutions and organizations. But trust does not necessarily need to rely on blockchain technology to establish. If a strong source of trust has been formed between institutions and organizations, the role of blockchain here is relatively limited, and is mainly used to reduce trust friction between alliances. Improve the efficiency of trust transfer and reduce the cost of trust. If there are weak sources of trust between institutions and organizations, this problem cannot be solved by traditional centralized technologies. Blockchain technology can be used to build a non-reliance at a lower cost. Subjective third-party, inter-institutional trust based technology-based strong source of trust to achieve disruptive innovation in business models.

At this stage, blockchain technology is divided into two major categories, alliance chains and public chains. Each of these two types of technologies has advantages and disadvantages and is applied to different business scenarios. Let's analyze them one by one.

3.1 Public chain

Definition: Public chain refers to a blockchain network system that anyone can join freely, quit freely, and have no access restrictions. Each Internet user can install public chain software on his own computer, join the public chain network, have all read and write permissions to the network, and provide blockchain services to the outside world.

Technical characteristics:

• Large number of nodes: The public chain can support large-scale computer networking. The typical public chain system Bitcoin and Ethereum have nearly one million computers;
• Low performance: traditional public chains, such as Bitcoin and Ethereum, the entire system can only process less than 20 transactions per second, and performance cannot support traditional commercial applications; the blockchain 3.0 technology developed in the past two years, through VRF, Various technical optimization methods, such as VDF and sharding, can already improve performance to 50-100 times the original characteristics under the guarantee of security and decentralization. It can process more than 1,000 transactions per second, which is close to traditional centralization. Processing system capabilities;
• Decentralization: The public chain network is an open dynamic network. Internet users can join and exit at will. The computers that make up the network are not controlled by one or more centers. They are owned by the public, so they can be guaranteed to the greatest extent The data stored on this network cannot be tampered with and deleted.

Because the computers that make up the network are owned by the public, no one can tamper with the data on it by any technical means, so the public chain network provides an objective trust platform that does not rely on the subjective will of third parties . Strong source of trust is the biggest feature of public chain technology.

3.2 Alliance Chain

The alliance chain is a blockchain managed by an alliance of members who meet certain conditions. It is not as open to the whole society as the public chain. Only authorized trusted nodes can participate in forming the alliance chain network and can use all read and write permissions of the network. Other users have only partial permissions.

Technical characteristics:

• Limited number of nodes: The alliance chain system generally consists of 4 to 7 computers, and the number of networking computers that its technology can support is limited;
• High performance: Due to the small number of computers that make up the network, with the help of mature distributed computing technology, the computing performance of the alliance chain can generally reach 10,000 transactions per second;
• Semi-centralized: The computers of the alliance chain system are generally provided by multiple organizations forming the alliance, which are used by members of the alliance to ensure that each other does not cheat, which is credible;

Since the computer of the alliance chain system is provided by multiple institutions, this has improved the credibility of the centralized system provided by one institution, which increases the difficulty of cheating. However, if multiple institutions conspire, they can still The data in the alliance chain system is modified and deleted. Therefore, the alliance chain system essentially relies on the outside world's trust in the multiple organizations that make up the alliance chain. It cannot be an independent source of strong trust, but it is applicable to the scenario of trust transfer of strong trust sources.

3.3 Application scenario analysis

Knowing the technical characteristics of the public and alliance chains in the blockchain, we can analyze the applicable technologies for each application scenario:

From the table above, we can find that in the scenario of national sovereignty consensus and natural monopoly consensus, the alliance chain has huge advantages; and in the scenario of global consensus, competitive market consensus and cooperation with industry giants, public chain has huge advantages ; As two different tracks, these two markets will be trillion-dollar markets, and both have broad market prospects and development space.

3.4 Development Trend of Blockchain Technology

From my personal point of view, the alliance chain and the public chain are just different paths in the development of blockchain technology. Eventually, these two technologies will be combined into one, each with its own strengths. The core goal is to build a technology through technology. Objective source of strong third-party trust. And they all need to break through the impossible triangle of blockchain technology consisting of security, decentralization, and performance, and realize the disruptive and breakthrough development of technology in order to better support business changes.

3.4.1 Development Trend of Public Chain

As a multi-disciplinary technology complex such as distributed computing, cryptography, and game theory, public chain technology is extremely difficult. The public chain hopes to build a global decentralized computer that can support business operations, but the traditional public chain technology is far from achieving this goal, mainly reflected in:

• Node centralization: Decentralization is the biggest feature of the public chain. The more independent nodes in the network, the higher the degree of decentralization of the network, and the more the network cannot be controlled. Although the Bitcoin network is composed of about 1 million miners, due to the inadequate consideration of its consensus design (machines concentrated in one machine room can be counted faster and have higher economic benefits), the disclosure of the Bitcoin network There are only about 10,000 IPs. In fact, the Bitcoin network can be regarded as consisting of only 10,000 computers. This is far from sufficient for supporting a huge trillion-dollar economy with security and decentralization. . We need to solve this problem in two directions: from a consensus perspective, eliminating the economic benefits brought by machine concentration; from a network perspective, supporting hybrid network deployment, and automatically supporting hybrid deployment of public cloud networks, private networks, public networks, and home networks To maximize the number of independent machines in the network;
• Low performance: Traditional public chains, such as Bitcoin and Ethereum, can only process transactions within 20 transactions per second, and performance cannot support traditional commercial applications. A new and innovative consensus design is required to ensure security and security. Under the characteristics of decentralization, the performance is increased to 50-100 times the original, and it can process at least 1,000 transactions per second, which is close to the capacity of traditional centralized processing systems;
• High cost: Because all the computers that make up its network can only process the same smart contract at the same time in a consensus cycle, the cost of using the network is very high, which is more than 100 times the cost of cloud computing of the same size. In order to solve this problem, it is necessary to reduce the use cost to a reasonable range through various technical means such as fragmentation.

3.4.2 Development Trend of Alliance Chain

As the alliance chain technology based on distributed computing technology, in the premise of solving high performance, in order to expand its application scenarios, the next development trend must be to increase the number of nodes in its network, and to solve the large number of nodes in the network. A series of technical challenges brought by the improved performance and security will face the same technical challenges as the public chain.

3.5 What kind of blockchain technology do we need in China

The development of any business and technology needs to comply with local policies, regulations and regulatory requirements. China's current policy is "currencyless blockchain". I believe that the blockchain technology developed in China should meet the characteristics: it can run in complex network environments, support large-scale nodes, and controllable and trusted high-performance licenses chain.

• Complex network environment: Automatically supports mixed deployment of public cloud networks, private networks, public networks, and home networks.
• Large-scale: The theoretical design supports networking of more than 1 million nodes.
• High performance: single-chain TPS 1000, the entire network TPS can support 1 million.
• Controllable: real-time monitoring and tracking of the status of all nodes in the entire network.
• Trustworthy: All computer nodes connected to the network, the node owners need to complete real-person authentication before they can access.
• Licensing: Permission is required to access the network.
• Incentives: The network needs to have incentives in order to allow more people to join. Unlike traditional networks that use data currency incentives, they should follow the "currencyless blockchain" required by Chinese regulations, so the network's incentives should not Incentives in the form of digital currency should be based on DC / EP, and incentives should be based on DC / EP.

3.6 What kind of blockchain technology do we need

From a global perspective, if we want to build a blockchain network that can support global consensus, we need a more flexible, more open, more secure, more dynamic, and fairer blockchain network:

• More open: The network is a globally deployed network in order to form a global consensus; it needs a sufficient number of independent nodes to ensure the neutrality and credibility of its network. The number of independent nodes should be at least one million.
• More flexible: The network should be able to adapt to the needs of legal regulation in different countries and regions, and be able to flexibly adjust its networking rules within the scope of compliance with local regulations and legal policies.
• More secure: The essence of KYC is to ensure the security of the chain. In a country, security can be achieved in this way. In a multinational environment, KYC information itself cannot flow across countries, so it needs to be technically like a bit. Like coins, self-consistent (game theory + cryptography + distributed technology) achieves a high level of security.
• More dynamic: The network should be able to dynamically adjust network capabilities based on changes in the external environment, including the network transmission environment, node trusted environment, and economic system environment, so that it is always stable enough, robust, secure, and decentralized. Characteristics.
• Fairer: Considering the global consensus, it may not only need to support the business economic ecology, but also have certain social attributes. The design of the network needs to take into account the participation and balance of Dopareto subjects.

3.7 Prospects for the future development of blockchain

In general, the competition of blockchain technology will eventually develop into a competition for networking capabilities after the combination of alliance chain and public chain technology. Because blockchain technology provides the ability of a third-party source of strong trust, the greater the number of independent nodes in the network formed by which technology, the more able to provide a reliable source of strong trust. A blockchain network composed of 1 million independent nodes must provide higher tamper resistance than a blockchain network composed of 100,000 independent nodes.

Another interesting feature is that this is a competition that BAT can hardly participate in. If the blockchain network is also composed of 1 million computers, one machine is provided by Internet users and one machine is provided by Ali, then this blockchain network provided by Ali has two fatal disadvantages:

1. 1 million machines are provided by Internet users, and the cost of networking is 0, while Ali provides, Ali needs to bear all the high-cost machine purchase costs of networking.
2. A network of machines provided by Ali. The network has the ability to control and tamper with the data content on it. Trusting the blockchain network is equivalent to trusting Ali's credit endorsement. In this case, Ali's cloud computing service is used. Seems to be a better choice.

Blockchain technology is developing rapidly. From the perspective of the public chain, internationally including Ethereum 2.0, Dfinity, Algorand, and domestic Conflux and Ultrain teams are rapidly approaching the technical goals of blockchain 3.0 that support decentralization, security, and high performance. ; From the perspective of the alliance chain, the Ant Financial blockchain team and the Tencent blockchain team are also rapidly approaching the breakthrough of large-scale network nodes to support this goal, hoping that in the next two years, blockchain technology can make breakthrough progress. Great progress has been made in commercial landing, so that the development of a decentralized business ecology can begin to take shape.

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