Shenyu: What can we learn from historical experience and lessons starting from “Bitcoin breaking through $1” 10 years ago?

This article is a shorthand of the Hong Kong Web3 Carnival

Compiled by: Wu Talks about Blockchain

Shenyu: Co-founder and CEO of Cobo

Colin Wu: Founder of WuShuo Blockchain

Colin Wu : Since there are many readers outside the circle, please give a brief introduction of yourself.

Shenyu : I am an old investor and miner. I officially participated in the early construction of China's blockchain in 2011. In 2013, I launched the first Chinese mining pool, which once became the world's largest Bitcoin and Ethereum mining pool. At its peak, it accounted for more than one-third of the Bitcoin computing power, and we were also the only team in the world that successfully carried out a double-spending attack on Bitcoin.

After 2017, we found that blockchain began to have a large number of applications, but there were a lot of risk exposures around security and private key management. As a company that is good at infrastructure, we established Cobo, a company that specializes in private key management and its derivative risks. The company has been in business for more than six years, mainly focusing on underlying security and wallet custody, ranging from fully centralized and semi-centralized MPC co-management to fully decentralized on-chain smart contract multi-signature product forms.

Colin Wu : Shenyu is the person who is most willing to share in the Chinese Crypto community. You can also search online for some of his past opinions. To some extent, he should be the early leader in the Chinese industry who is most willing to share with everyone.

The cryptocurrency circle can be divided into several stages. The early ones are those who joined the industry before 2015, mainly miners in China. Please share with us what kind of opportunity you had when you first entered the industry and what the atmosphere of the circle was like at that time.

Shenyu : I entered this circle by chance. I was in college at the time. One boring afternoon, I was reading and surfing the Internet in the library when I suddenly saw two news articles about Bitcoin, probably about Bitcoin breaking through $1 . Out of curiosity, I searched for "Bitcoin" and found the white paper by Satoshi Nakamoto. After reading the white paper, I was deeply shocked. For the next three months, I almost lay in bed, concentrating on browsing Bitcoin forums and community discussions. Apart from this, I basically did not leave my bed. Even the meals were brought back to me by my roommates.

After browsing the forums for more than three months, I found that the Crypto world at that time was still a group of crypto geeks. Everyone had all kinds of wild ideas, which seemed unlikely at the time, but the underlying logic seemed to be logical. The core issue of cryptocurrency is that after the currency is digitized, it can circulate freely around the world without being double-spent. Although these are all very mature technologies, they are combined very well.

As an engineering student, I was deeply attracted by these technologies and discussions, so I didn't study hard after college, and worked on construction and exploration in the Bitcoin community. At first, I translated foreign technical articles into Chinese, and made a lot of friends in China. The earliest domestic community revolved around QQ groups as a means of communication. For example, some groups that everyone can still see and hear, such as the "Peace Hotel" and some very mysterious groups. In my impression, there are about 40,000 to 50,000 people. On the one hand, there is a group of crypto geeks, and on the other hand, there is a group of people who coincidentally have a large number of graphics card resources. This group of people first cracked Nokia parallel-imported mobile phones, but suddenly the iPhone became popular, and these parallel-imported mobile phones had no market. They had a large number of idle graphics cards in their hands, and just discovered Bitcoin, so they cut in and used graphics cards to mine. Basically, in the stage of 2011-2013, the Chinese crypto ecology was these two groups of people, one group was full of idealistic crypto punks, and the other group was down-to-earth miners who secretly mined with graphics cards.

Fortunately, China hit the very core mining field in the crypto track very early. At that time, there were not many things to do in the crypto ecosystem, only two things: trading and mining. After 2013, many exchanges with Chinese backgrounds began to emerge. After everyone experienced a round of group buying wars in the Web2 world, some companies switched to the Crypto exchange track and became the predecessors of the well-known crypto exchanges. At that time, it was basically like this. Everyone discussed various exciting ideas and thoughts every day. But more than ten years have passed, and many ideas and thoughts have now become reality, such as the idea of ​​stablecoins discussed at that time and the idea of ​​early decentralized exchanges have now been realized.

Looking back from now, it seemed that many incredible innovations and ideas could be realized at that time. Today, we have reached a better stage and have a large number of on-chain infrastructure and applications, so the future is becoming clearer and clearer.

Colin Wu : Thank you Shenyu for sharing his earliest status, including the QQ group of "Peace Hotel" he mentioned. If you are interested, you can search on Baidu and Google. There are many interesting things about how the early Chinese Bitcoin world community was formed. There are also many video interviews, including the familiar Bao Erye, the bank president, etc. You can see a lot of information in the search engine.

2017 ushered in the industry’s biggest bull market. Many well-known figures became more prominent at that time, such as Brother Sun who has been very popular these days, CZ (Changpeng Zhao), and many China-related public chains, whether it is NEO or Quantum Chain. However, many people also feel that 2017 was more full of ICO chaos.

Looking back at 2017, is there anything that you think is most impressive or worth recalling and sharing?

Shenyu : The 2017 ICO craze was of great significance and was overlooked by everyone. Although there were many ICO bubbles in 2017, and many speculative and even direct fraud projects emerged, looking back in 2020 and 2021, it brought a large number of on-chain asset products to the Ethereum ecosystem, which is also one of the reasons for the explosion of DeFi in the past two years, because there are enough assets. According to incomplete statistics, there were 200,000 to 300,000 ICO projects in 2017. Analogous to ICO and IPO, it is unimaginable that such a large number of IPOs will occur in the real world, and even in ten years, it is impossible to have such a large order of magnitude. Although there were a large number of fraud incidents at that time, after a round of cycle precipitation, good projects and good protocols still survived and continued to iterate, and new innovations emerged from the ruins. The entire industry is basically a process of bubbles, bursts, and reconstructions. At the bottom layer, it is a process of mutual drive between the public chain infrastructure and the application layer. Once there are a lot of bubbles and a large number of applications explode, it will force the underlying blockchain infrastructure to improve itself. But at the peak of the bubble, it was discovered that the underlying infrastructure of blockchain could not support the technological development of applications. At this time, the bubble burst and entered a sedimentation period. There were many geeks of all kinds who would iterate the underlying infrastructure to lay the foundation for the next explosion in the future. This is also the internal driving factor for the industry to continue to iterate so quickly. Bubbles are a good thing, but every individual in the bubble needs to remain calm and do logical things. From the perspective of the long-term industry cycle, it is a good thing.

Colin Wu : Ordinary people may think that 2017 was full of bubbles and the entire ICO industry was in a very chaotic state, but now it seems that the projects that emerged in 2020 and 2021 were also started in 2017 and 2018, whether it is Uniswap or DeFi-related protocols, as well as some public chains such as Polkadot and Filecoin, all started at that time. Because the protocol level itself is not as efficient as centralized institutions, it still takes some time to do things better. Some people have found that the thousand-fold and ten-thousand-fold coins that appeared in 2020 and 2021 were originally so-called high-quality projects invested in 2017 and 2018.

You just mentioned DeFi. The most important thing in 2020 and 2021 is the rise of DeFi. You were also the most famous DeFi miner at the time. When did you become interested in DeFi? After several years of development, what new views do you have on the DeFi industry?

Shenyu : I personally came into contact with DeFi at the end of the bull market and the beginning of the bear market in 2018 and 2019. At that time, some DeFi protocols began to emerge, and there were early protocols on UIS and Ethereum. At that time, DeFi was not widely used due to lack of driving factors. I spent some time exploring it, and found that I had lost almost all my money, so I didn't continue. In 2020 and 2021, DeFi has clearly reached a turning point, and a new wave of liquidity incentives represented by Compound has emerged.

I have a good habit. I am willing to spend some time, energy, and cost to try and fail in the forefront of the industry, observe, and set an indicator. When the turning point of the indicator comes, I will spend more time and energy to further study. In 2020 and 2021, I found that DeFi data improved and users poured in. I spent some time and watched for two or three days. The market was completely different and grew spontaneously. Later, I invested a lot of energy and put a lot of assets in DeFi to do a series of operations. I called on my friends and people in the group to take a look at the qualitative changes that have taken place in DeFi. I was also lucky to catch this wave of DeFi and make a good transition to a miner.

From being a miner in the physical world to a miner in the on-chain DeFi, I am less constrained by the real world. For a long time in the past, I had to work hard to find electricity, mine, and deal with various physical worlds. This was quite stressful for students who were more technical. After DeFi, I found that the industry had experienced a lot of early technical accumulation and had many advantages. The ultimate pursuit of private key management and underlying security was better utilized in the on-chain world. Therefore, I built various internal infrastructures in DeFi to improve efficiency. In the near future, I will gradually open up internal tools for everyone to use. Everyone is welcome to experience them.

Colin Wu : 2020 is the "Summer of DeFi", and 2021 has entered the era of NFT explosion, centered around NFT, various small pictures, and games. To some extent, its momentum is better than DeFi, because DeFi faces various regulatory factors, especially the problems after the Terra explosion, but NFT seems to be more clearly integrated with the mainstream.

I remember Vitalik said that what surprised him most was the explosion of NFT. He had never imagined that NFT would have such a big explosion, especially the completion of the title confirmation, transaction, and circulation of digital collectibles, which actually changed this rigid demand.

Shenyu has a characteristic, he likes to play with everything, there is basically nothing he doesn't play with, and he plays with NFT a lot. From the current perspective, does NFT have a very good prospect? There are also many entrepreneurs at the scene. Do you have any suggestions or ideas for them?

Shenyu: Although I personally play a lot with NFT, I also lose a lot. I am a famous anti-pointer in the NFT world. This is a very interesting and fun market. It has very big characteristics and is relatively decentralized. It is different from other blockchain tracks. For example, the head effect of DeFi is very strong. The chain carries high-value transactions. After all, the space of blockchain is very valuable. But the NFT market is different. There are a large number of fragmented communities. Each community has its own original characteristics and cultural characteristics. It is easy to find a sense of identity in such a community.

When NFTs first emerged in 2021, many friends couldn't sleep at 3 or 5 in the middle of the night and called us to talk about NFTs. They talked about how good this protocol was, how much it touched people's hearts, and what kind of cultural value it had. They talked all night. We saw that a lot of values ​​that can meet the inner emotional needs of various cultural groups began to emerge, including social capital and other values. From this dimension, the success and existence of NFTs have certain value and significance.

For the majority of young people, the entry threshold of the NFT field is much lower than that of the Crypto world. You don’t need to know a lot of cryptography knowledge or have a lot of money. As long as you have a certain artistic appreciation ability and humanistic spirit, you will see different scenes and experiments. There are many post-00s in the NFT world. In the early stage of NFT, in order to create IP and build a community, the cost of entry was basically very low. We have also seen a lot of stories of getting rich overnight in the NFT market, which has brought a lot of fresh blood.

From today's perspective, the NFT cycle may be very short, that is, a sentiment cycle of about 3 months, and may have experienced 3 or 4 rounds of rapid cycles. In today's relatively bearish market, NFT combined with many IPs and traffic makes the Crypto world more diverse, which is particularly important because the future still belongs to the younger generation. Under such conditions, NFT has brought a lot of new forces to the industry. Although I personally lost a lot of money, I am still very optimistic about the fresh blood that the NFT market will bring to the future of Crypto.

In addition, we can see that there are many assets in the real world that are non-standardized. These assets are difficult to express on the chain through standardized tokens. NFT is a very good asset category that can carry many real-world assets. From this perspective, the future NFT market still has great potential. Not only the collection value of PFP that we see now, but there may be a lot of value combined with the real world. However, more efforts are needed behind the scenes to promote a better integration of the industry with the real world. The road will be a little longer, but it should become a reality in the not too distant future.

Colin Wu : Let's continue to talk about history. 2022 is a very painful year for the Crypto industry, and it is even the year with the largest amount of explosions in history. From the beginning, small Chinese exchanges such as Hufu, AEX to Terra caused a huge vibration. Then Terra detonated the best capital in Crypto venture capital-Three Arrows Capital, and then Three Arrows Capital detonated the industry's largest group giant DCG. Everyone found out that the giants with such a glamorous appearance are so fragile. When everyone thought that this matter was about to end, SBF, the founder of FTX, who was at the top of the industry, the most glittering, donated to politicians, donated to religious leaders, and attended various excellent meetings every day, actually misappropriated users' assets, was insolvent, and made a lot of ridiculous transactions. With a simple news report and a Twitter post by Changpeng Zhao, an empire worth tens of billions can collapse in an instant.

2022 must be a very painful but exciting year in the history of cryptocurrency, and it also left a lot of lessons for everyone. Many well-known companies in the mining circle have gone bankrupt, and even many problems have not been dealt with. Of course, Shenyu is still relatively stable in 2022. From your perspective, what are the most impressive lessons in 2022, or do you think the industry needs to learn any lessons?

Shenyu : 2022 is indeed very cruel. Many old friends around me can't have dinner together because of various reasons. In the past year, the industry as a whole has fluctuated greatly, and various accidents have emerged one after another. But looking back, the underlying logic of various security accidents in the history of Bitcoin for more than 10 years since its birth is the same, and the essence is a problem of human nature. Although the industry is widely criticized for its high volatility and various uncertainties, the industry has been very certain in the past two years, because a large number of friends with very glamorous resumes have come, and a lot of Wall Street capital has come. The industry has begun to have native applications, DeFi, NFT, and GameFi, and it is no longer air. In such a thriving environment, a big pit suddenly fell, the bubble burst, and many things were disillusioned.

A long time ago, we also experienced rounds of such things. The underlying reason was that people’s confidence in themselves, individuals, and companies became more and more inflated. After reaching a certain psychological state, many decisions were no longer so rational. They firmly believed that the price might not fall below a certain range, the leverage could be higher, and the returns could be higher. This deviated from the original intention of blockchain. Blockchain gives us a lot of freedom and allows us to have technical means and tools to provide a more transparent and open world.

However, because power has been transferred from end users to centralized institutional owners, although it looks very bright and shiny on the surface and participates in various political events, in the process every user has not mastered the technical capabilities given to us by the underlying industry, and has transferred the strongest sword to a third party for safekeeping. This is a very big challenge currently facing the industry. It is difficult for the person who helps us manage this key to resist his inner greed.

Put yourself in his shoes. As a manager, he easily used everyone's keys without many people knowing. When the industry volatility is very high and there is a lot of high-quality information, it is easy to make a lot of money. When the industry is in a state of rapid expansion and prosperity, there is a certain probability that people cannot resist the temptation in their hearts and secretly use the key. They may make a profit after using it once, and their hearts will swell further, and they will use it more and more. The final state is an extreme black swan, and an unexpected accident causes the assets to be destroyed.

So I think 2022 is a year of demystification. We have learned a very important lesson. We must deeply realize that any company can go bankrupt. What can we believe in? We should not believe in human nature, but in mathematics and the underlying technical principles. We must master the technical means that blockchain has given us in the new era and master the key in our hands.

After the industry experienced extreme events throughout the past year, everyone is also discussing and actively thinking about how to enable everyone to better use blockchain technology in the future, increase industry transparency, and avoid things that go against human nature. Now we see that the private keyless technology based on MPC multi-party computing is developing rapidly. I believe that in the future, everyone can have a key out of the box, but your counterparty and service provider may only have a key to help you manage it. All transaction processes and assets will not be in the hands of any party. They are all open, transparent and visible, and can fully use the underlying characteristics and mathematics of the blockchain as a basic guarantee. Although we may have learned a very painful lesson in 2022, basically 40% to 50% of the centralized institutions in the industry have been wiped out for various reasons and affected, but this has also made us more determined to go on the decentralized side. We can clearly feel that the industry has basically reached a consensus. The private keyless solution based on MPC has gone a long way in terms of decentralized transparency.

We can see a more obvious example. Large hedge fund teams have proactively requested to use MPC technology to assist in asset management, rather than placing assets in centralized exchanges with confidence. We have also seen that the trading volume of decentralized and transparent DEXs and derivatives trading volumes on the chain are also developing rapidly. From this perspective, we have learned a great lesson in 2022, but industry practitioners, this group of crypto geeks have already taken the lesson. We are coming out of the trough, and the next 2-5 years will inevitably bring us more technical means and give us more freedom.

Colin Wu : I would like to add that 2022 was indeed a very tragic year, but the industry has made many improvements. For example, centralized exchanges have also begun to have on-chain reserve proofs (POR). Although there are many criticisms and it also has many problems, it is still a very important thing. In short, if there are novice users, and the exchange where your coins are located does not publish the POR proof, please withdraw your coins decisively. If an exchange does not even dare to publish the POR proof, why does it operate an exchange? Where did it move the users' money? This has become a very simple choice.

Let's take a brief look at the future. Next year is the next Bitcoin halving. Generally, there will be changes in the market with the halving. Now many people believe that the price of Bitcoin may have a deeper relationship with the Federal Reserve and will no longer be affected by the Bitcoin halving cycle. Please reiterate your opinion on the Bitcoin halving next year and its impact on the price and market. Of course, this is your personal judgment and not a financial investment advice.

Shenyu: First of all, I am not suitable for secondary investment. I discovered this three months before I entered the industry, so I embarked on the path of mining, otherwise I would have speculated in cryptocurrencies. After 2017, the correlation between cryptocurrencies and macroeconomics has been very high, especially since the interest rate hike this year, the correlation has been even higher, although there may be some event-driven results brought about by some industry-native factors.

From the perspective of this year and the short term, there are two major core driving factors: one is the macroeconomics. We are a small pond, and one factor that depends on the water level of the pond is whether the macroeconomics will release water. At present, the macroeconomics may improve, and coupled with the collapse of a large number of US banks in March, everyone has regarded Bitcoin as a safe-haven asset. From this perspective, the macroeconomics is improving, which is at least a neutral factor.

Second, the endogenous driving factors of the industry. From an economic perspective, halving does not play a big role at present, but it is a good narrative logic, and everyone believes that in this narrative framework, there is a high probability that there will be another round of halving from Q4 this year to next year. A simple calculation shows that the mainstream mining machines in the world are still S19 mining machines. If the price of the currency cannot stabilize above 30,000 US dollars after the halving next year, these mining machines will have to be shut down. This situation rarely happens in history, and even if it happens, it is very short-lived. So I personally think that the halving from Q4 to next year is still worth looking forward to.

Colin Wu: Shenyu is the founder of Cobo, which mainly engages in custody business. Custody business is a relatively long-term business with a very large investment. I would like to ask Shenyu to introduce the future development direction of Cobo and how to compete with mainstream Western custody institutions, and how to become more advantageous?

Shenyu: We just talked about the development paths of many industries in the early stage. We can see that there are two major core problems in this industry: one is the TPS problem, the performance problem. Each round of industry development is application-driven, which eventually leads to the inability of applications to keep up, the bubble bursts, and the infrastructure continues to iterate. The core is the TPS problem; the second is to provide a set of solutions for end users. This solution can make users very simple and easy to use, while ensuring user security, allowing users to access the blockchain and not transfer their right to control the key to a third party. These are two major problems in the industry. The current performance problem should be solved in the near future. After 7 or 8 years of exploration, the industry has solved it around the two-layer network and the three-layer network.

The next question is the security of the underlying private keys. Cobo has discovered that there have been endless security incidents in the crypto world since 2017. People have started to interact with the chain more and more, exposing many helpless people and those who do not master the technology to hackers. We are trying to build a set of solutions around the security of underlying assets, private keys and their private key risk management. The underlying logic is to find its core application scenarios around different stages of the industry, and provide a set of solutions around private keys in the application scenarios.

The first stage is represented by Bitcoin. The core blockchain applications are sending, receiving, storing, transferring, and trading. In this stage, Cobo Custody was developed, a purely centralized custody solution. The blockchain wallet was made into a SaaS product, Wallet as a service, so that users who need to send, receive, store, and transfer money can use it by calling the API. This is very suitable for the current situation in Hong Kong. There are a large number of compliant funds and emerging transactions that need to find a set of products that are compliant, secure, easy to use, and have a Web2 experience. This is the set of services Cobo Custody and Wallet as a service.

In the second stage, we found that people began to interact with the chain a lot. At this time, we needed on-chain interaction capabilities and contract status management capabilities. We packaged the large number of capabilities accumulated in the DeFi field into Cobo Argus products. The underlying layer is on-chain multi-signature, and it has a lot of capabilities to interact with various blockchain DeFi protocols. At the same time, it has a series of risk management modules and automation programs to better support 7×24-hour response on the chain and handle extreme situations.

In the third stage, the post-FTX era, people are increasingly aware of the importance of mastering the key. Many large institutions began to ask whether we can have a transparent, separately isolated asset pool, and all assets need my authorization and consent before they can be used. Therefore, based on the earliest centralized custody, the underlying technology is iterated to MPC technology. The end user controls the key, and we control a key to assist in asset management. Our key is mainly used for risk control, and another key is used for cold storage in a third party, which may be a security company or an insurance company. Later, many companies found that this solution is very good. They iterated on the basis of our solution and provided products for end users. When the end user only has the account password, they can quickly enter the blockchain. A large number of game companies use our solution to allow end users to enter the Crypto world with the experience of Web2. When the end user grows to a certain extent, there may be high-priced assets on the chain, such as scarce NFTs that are suddenly obtained in the game. At this time, the account can be upgraded and the third key can be granted to the user. The user already has the willingness and motivation to learn and understand some basic concepts, and can use this key better after getting it.

We basically provide three different products around these three stages: a purely centralized custody solution based on encryption machines, a multi-signature solution for on-chain smart contracts, and an MPC solution for decentralized co-management. These three solutions are basically aimed at different scenarios, and the core is to solve everyone's asset security and private keys, as well as risk management around the use of various scenarios on private keys. We also hope that through the company's efforts and iterations, more users can flock to the blockchain more safely, easily, and confidently, and explore a very exciting on-chain ecosystem on the chain.