Xunlei Wanke Coin is full of tricks and is completely different from Bitcoin

Header image of this article: Chen Lei, CEO of Xunlei and OneMind Technology

Xunlei's performance in the US stock market has been amazing in recent times. On October 12, Xunlei's share price was $4.31, and as of November 21, Eastern Time, Xunlei's share price had reached $21.46 per share, a nearly five-fold increase in more than 40 days, a 398% increase.

Such performance naturally attracted a lot of public attention. The interpretation of this outstanding performance also pointed to the "Wanke Cloud" project launched by Thunder in August. Some people believe that Thunder is an ICO (Initial Coin Offering) under the guise of selling dog meat, and the cryptocurrency-like content "Wanke Coin" in the project is the core factor leading to this round of rise.

Many foreign media hold this view. Some financial media described the reason for this round of rise as "the consequence of (Thunder's) strategic decision to shift its focus to blockchain technology" and believed that this showed "investors' trust in Thunder's ability to make profits from digital currency business."

However, Bitcoin, the leader of digital currencies, has already been both praised and criticized, and its future is uncertain: some people compare it to a Ponzi scheme, and JPMorgan Chase CEO Jamie Dimon believes that the Bitcoin craze is even worse than the tulip bubble in the 17th century. Moreover, driven by the myth of Bitcoin making people rich, more than a thousand digital currencies have appeared in the world. What is so special about Xunlei's "Wanke Coin" that makes it stand out?

Therefore, some investment analysts believe that even if Xunlei's stock price performs well in the short term, the long-term risks are still significant, especially as a Chinese company, "it is only one regulatory order away from collapse."

Speaking of regulatory orders, as we all know, on September 4, 2017, the relevant departments had issued the "Notice on Preventing the Risks of Token Issuance and Financing", calling for a halt to digital currency business. But note the time, this notice was issued long before Xunlei's stock price surged. Moreover, Xunlei itself has also clearly stated that third-party transactions of Wanke Coin are prohibited, and Wanke Coin must be completely decoupled from physical currency (On November 3, when this statement was issued, Xunlei's stock price fell 25%, but rose again in the following two weeks).

This cannot but make us think: Apart from the eye-catching Wanke Coin, what else supports the confidence of US stock investors in Thunder?

The answer is actually very clear, it is the Wanke Cloud ecosystem that Wanke Coin relies on.

One Cloud uses the long-established CDN technology, namely the Content Delivery Network. Its basic idea is to utilize idle civilian bandwidth and storage resources, direct service requests from users to the nearest node, obtain the requested content nearby, and improve network response speed. Video, live broadcast, and download companies have generally used this technology to reduce bandwidth costs, and users who provide idle resources can also benefit from it. One Cloud's predecessors, Money Maker and Download Maker, have been on the market for more than two years, but their performance has been mediocre. In August of this year, Xunlei upgraded Money Maker again and transformed it into One Cloud, introducing the concepts of blockchain and digital currency, which kicked off this round of growth frenzy.

CDN plus blockchain/digital currency technology, the dual combination is the core of Thunder's new wave of operations.

Why can CDN and blockchain technology be combined? Why does Xunlei need to combine these two technologies? What pain points do these two technologies solve for each other?

In short, how does Xunlei deliver this combination of punches?

Are Wanke Coin and Bitcoin really the same thing?

To understand the essence of Wanke Coin, we must first clarify several characteristics of Bitcoin.

Bitcoin was created in 2009. It is a digital currency (cryptocurrency) generated based on the unique algorithm of encryption technology. There are more than 1,300 such digital currencies, the most famous of which is Bitcoin. In addition, there are Ethereum, Litecoin, etc. Based on its principle, the theoretical upper limit of Bitcoin is 21 million, and as the production quantity approaches this upper limit, the difficulty of production will increase infinitely; there are currently more than 16 million Bitcoins circulating in the market. "Mining" often refers to the use of high-computing special computers ("mining machines") to perform computing tasks to obtain Bitcoin. The mining process consumes a huge amount of electricity.

The blockchain technology used in the production and trading of Bitcoin is a distributed shared database that uses a decentralized and trustless approach to collectively maintain the reliability and immutability of the database by the Internet. Bitcoin's peer-to-peer transactions are recorded on the blockchain through the network, so there is no need for the participation, certification or supervision of other third-party institutions. For customers, this means that transaction costs can be greatly reduced: Goldman Sachs' research calculations show that the cost of credit card transactions is approximately 2.75% to 4.25% of the transaction amount, while the transaction cost of Bitcoin is only 1%.

To emphasize, the characteristics of Bitcoin are: limited quantity (cannot be over-issued), cannot be tampered with, decentralized, unregulated, and low transaction costs. These characteristics give it certain advantages over traditional currencies and have the potential to become the world's digital currency in the future.

And what is Wanke Coin?

According to Xunlei, the way to obtain Wanke coins is to purchase Xunlei's "Wanke Cloud Smart Hardware", activate the reward plan, and use the Wanke Cloud hardware to share your own bandwidth and storage resources; based on daily contributions, Xunlei officials will reward users with Wanke coins.

Therefore, the Wanke Cloud hardware, which is hard to find on JD.com and has a four-digit price on Xianyu, is not a mining machine and does not have the ability to calculate and produce Wanke coins. The production site of Wanke coins is still in Xunlei headquarters, and users cannot "mine" Wanke coins by themselves. Instead, they share their idle network resources through Wanke Cloud hardware to obtain Wanke coin rewards from Xunlei.

In addition, Xunlei officially prohibits third-party transactions of Wanke Coin. According to Xunlei, the purpose of Wanke Coin is to exchange for "network acceleration services, cloud storage services and shared content services", and it also stated that "with the development of shared economy cloud computing and blockchain technology, Wanke Coin will have more application scenarios." In other words, the trading market of Wanke Coin is actually Xunlei's CDN system and the subsequent cloud computing market.

In this way, Wanke Coin is very different from digital currencies represented by Bitcoin. First, it has lost one of the most important characteristics of digital currencies: "decentralization" and "no supervision". All Wanke coins are centrally managed by Xunlei Company and are not open source at present. Secondly, in the current environment, Wanke Coin cannot be a digital currency at all, and there is no actual (legal) trading scenario.

From this perspective, Wanke Coin is not a digital currency, but a virtual currency. In other words, in this sense, it is reasonable to say that Wanke Coin and Q Coin are the same thing. Of course, Wanke Coin is based on blockchain technology, and still has the characteristics of quantity limit and non-tamperability, and is still stronger than ordinary virtual currencies in terms of theoretical reliability.

As a virtual currency, it is not like digital currency that can be used globally, but has a specific scope of use and scenarios. As mentioned earlier, the trading market of Wanke Coin is actually Xunlei's CDN system and the subsequent cloud computing market. In this way, Wanke Coin is closely related to Xunlei's CDN system.

In fact, not only is Thunder CDN a usage scenario for Wanke Coin, but Wanke Coin also assists in the construction of the Thunder CDN system.

Ingenious: Xunlei CDN saved by digital currency

As mentioned earlier, CDN, a technology that utilizes idle civilian bandwidth and storage resources, has actually been put into use a long time ago and is now very mature. For video, live broadcast, and download companies, this technology can fully obtain cheap bandwidth resources and reduce operating costs. For such companies, bandwidth resources have always been one of the main costs. When the National Development and Reform Commission launched a broadband antitrust investigation against China Telecom and China Unicom in 2011, Youku executives publicly stated that "China's broadband costs are four times that of the United States."

In 2015, Youku Tudou launched its own bandwidth-sharing router and continued to promote the brand of "the router that makes money" in advertisements on its own video platform. Users who install Youku routers can obtain Youku coins based on their bandwidth contribution value, and 1,000 coins can be exchanged for 2.4 yuan.

At the same time, Xunlei launched the "Money Making Treasure" product. Users who purchased the product could obtain "Thunder Crystals" based on the shared bandwidth. 10,000 crystals could be exchanged for 1 yuan. Xunlei used the bandwidth shared by software users to create the "Star Domain CDN" product. Xiaomi, iQiyi, Momo, Bilibili, Panda TV and other companies all used this product. Later, Xunlei upgraded the Money Making Treasure to "Download Treasure", continuing the previous business model.

However, neither the money-making treasure nor the download treasure has achieved the expected ideal effect. Xunlei needs to pay more than 700 yuan in user rewards for each shared bandwidth device every year, but these devices are not as attractive to users as expected. Distributed CDN can only form a technical advantage when there are enough nodes, but Xunlei's money-making treasure sales volume is only 300,000, and 300,000 distributed nodes are far from enough to form a strong and stable CDN service network.

This obviously did not achieve Xunlei's ideal goal. When Xunlei first went public in the United States in 2014, its R&D expenses per quarter were around $5 million; by 2017, Xunlei's R&D expenses per quarter had increased to $15 million to $18 million. In total, the annual R&D expenses increased by $40 million to $50 million. These R&D expenses were mainly used on a company called "NetMind Technology", which is a wholly-owned subsidiary of Xunlei and whose main product is Xunlei's "money-making treasure" hardware.

The first and second generation money-making tools not only failed to build a commercial CDN network of ideal scale, but also failed to control Xunlei's own bandwidth costs. According to Xunlei's financial report, from 2014 to 2016, Xunlei's bandwidth costs were US$33.54 million, US$37.22 million, and US$55.135 million, respectively, accounting for 24.7%, 28.6%, and 35.1% of its revenue, respectively. With the significant improvement in video clarity and user download speed, Xunlei's bandwidth costs have risen rapidly. By the first and second quarters of 2017, Xunlei's bandwidth costs were US$17.8 million and US$18.8 million, respectively, accounting for more than 45% of its revenue.

R&D costs and bandwidth costs continued to rise, but revenue growth could not keep up. In 2016, Xunlei lost $24.118 million; in the first quarter of 2017, it lost $6.71 million, and in the second quarter, it lost $9.67 million.

At the same time, competition in the CDN business is becoming increasingly fierce. With the entry of Alibaba Cloud and Tencent Cloud, CDN prices have been falling again and again, and Xunlei is facing huge competitive pressure. In the face of the industry giants with deep pockets, Xunlei, which continues to lose money, does not have enough funds to pay rewards to shared bandwidth contributors, and insufficient rewards cannot attract users, resulting in insufficient CDN nodes and bandwidth, and falling further behind in the competition. Xunlei's CDN business seems to have entered a deadlock that is difficult to break free of.

Therefore, in August 2017, Xunlei upgraded the second-generation money-making tool again, introduced the concepts of blockchain and digital currency, and launched the Wanke Cloud ecosystem.

Taking advantage of the popularity of digital currency and ICO concepts, the halo of the Bitcoin myth, and the fact that the earlier you enter the digital currency market, the more advantages you will gain, Wanke Cloud has stimulated the nerves of countless digital currency players.

The crowdfunding price of Wanke Cloud hardware on Taobao was 279 yuan, and the total crowdfunding amount exceeded 10 million yuan and was quickly sold out; the price for participating in JD.com's Double Eleven event on November 1 was 399 yuan, and it continued to be in short supply; the suggested price on Thunder's official website was 599 yuan; and on Taobao and Xianyu, the current lowest price of Wanke Cloud equipment has exceeded 2,200 yuan, and the high price has reached 3,000 yuan.

Based on the disassembly pictures taken by netizens, it is estimated that the hardware cost of Wanke Cloud does not exceed one hundred yuan.

What is the specific sales volume of OneCloud hardware, which has huge profit margins?

According to official information, the total number of Wanke coins is 1.2 billion, and the daily output has been 1.64 million since October 12, with a decay period of one year, and a decay of 50% each time. The number of Wanke coins each device receives every day is scored based on the device's contribution, and the coins produced that day are distributed to all devices in the network according to the score weight. Initially, a device could get up to 130 coins per day, but now each device can only get 16 coins per day. It can be easily calculated that in less than a month and a half, there are at least 100,000 Wanke Cloud devices on the market working at full capacity.

By introducing the concept of digital currency, Xunlei solved the problem of high cost and difficulty in promotion of the original money-making treasure: using virtual currency as a reward for shared bandwidth reduced the cost of CDN construction; taking advantage of the ICO and digital currency, it instantly attracted a large number of users to enter the market. If it can continue to develop in this momentum, expand its scale, and form a distributed computing network of millions or even tens of millions of nodes, Xunlei will be able to gain a firm foothold and even gain an advantage in the fiercely competitive CDN field. The real purpose is not to say that Xunlei is trying its best to play the ICO that is trembling in the cracks of supervision, but it is better to say that Xunlei just wanted to take advantage of the hype of virtual currency to expand and upgrade its CDN network scale.

And it's not just Xunlei's CDN system that was saved.

One of the criticisms of various digital currencies is the hype and bubbles caused by their symbolic nature. Some people believe that the current production of digital currencies is calculating content that has no practical significance. If the wasted computing power can be used to reward network resource transmission, then the production of digital currencies will be given actual value.

In the story of Xunlei, Wanke Coin is different from ordinary symbolic digital currencies in that it is actually closely connected to the Xunlei CDN network and has its own practical application support. It is not just a conceptual symbol. As part of the Xunlei CDN network payment system, Wanke Coin at least has the assets of Xunlei CDN business and its development prospects. This means that it has its own lower limit, unlike ordinary digital currencies, which will be gone once they collapse.

Perhaps it is this set of complementary and mutually beneficial combination punches that attracted the attention of investors. The increase in Xunlei's stock price in recent times can more or less reflect the capital market's optimism about this dual gameplay. Xunlei's operation can be called a masterstroke.

But is the story so pure and beautiful?

Success or failure is due to Xiao He: the shadow of dual gameplay

Given the close connection between Wanke Coin and Thunder CDN, some people say that buying Wanke Coin is, to a large extent, buying the growth rate of Thunder CDN business.

Then let’s take a look at the current growth rate of Wanke Coin and the development of Thunder CDN.

When Wanke Coin was first issued, its unofficial trading price was only 0.1 yuan per coin. Now it has exceeded 8 yuan, an increase of 80 times in 40 days.

What about the growth of Xunlei CDN network? As calculated above, the number of Wanke Cloud devices running at full capacity on the market should be around 100,000. Although this is a considerable increase, the bandwidth contribution of 100,000 devices to the current scale of Xunlei CDN network will not exceed double (after all, the installed capacity of Moneymaker has reached 300,000 devices before).

Even without looking at the numbers, the growth difference between Wankecoin and Xunlei CDN is imaginable. After all, Xunlei is taking advantage of the hype and enthusiasm brought about by the digital currency attributes of Wankecoin, and relying on the popularity of the former to drive the latter.

In fact, although Xunlei officials vaguely pointed out the future application scenarios of Wanke Coin, they have not yet clarified the specific services that Wanke Coin can be exchanged for. Because once the words are made clear, the wonderful enthusiasm brought by imagination will inevitably return to calm rational calculation.

Of course, we can say that the value of Wanke Coin depends on the development of Xunlei CDN network. If Xunlei CDN network can really gain a dominant position in the market, as a provider of shared bandwidth solutions, it will be a new generation of network operators, and its imagination space is unlimited. It is unwise to limit the application scenarios of Wanke Coin now.

But rational people can see that the thickness of this cake, at present, is probably not more than the thickness of a piece of paper.

If Xunlei encounters an attack on its CDN business, whether from competitors or national regulators, the blow to Wanke Coin will be fatal; or regardless of external attacks, if Xunlei does not control the development of Wanke Coin and allows it to expand recklessly, people cannot help but worry about the possible collapse caused by the large internal gap of this combination. Xunlei is now using the popularity of digital currency to develop CDN, just like a traveler who has been trekking through the wilderness and found a ball of heavenly fire; fire can certainly bring us heat and light, but those who play with fire must remember the dangers of getting out of control .

Summarize

Xunlei has won the favor of US stock investors by combining the concept of digital currency with CDN and taking advantage of the popularity of digital currency and ICO to develop the scale of CDN business. This combination of punches seems to have achieved gratifying results. However, whether this set of punches is an exquisite and unmatched one, or a seven-wound punch that cannot last long, remains to be seen.