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Dear Linmengbao members, fans, users, blockchain industry enthusiasts and observers, first of all, thank you for your attention and care over the past six months. Thank you for your suggestions, opinions and complaints along the way. These have always been and will continue to be a boost in our development. Recently, Linmengbao is planning some big moves, involving the upgrade of the underlying blockchain, the development of upper-level APP applications, and some adjustments to Linmengbao's market strategy and operational direction. When this article was published, everyone should have seen our latest announcement, including the destruction of 745 million existing LMCs and the upgrade of the POS reward mechanism, etc. There are also some new features and new strategies at the APP application level, which have not yet been announced. The version will be updated in the near future, so please stay tuned. The idea of destroying a large number of LMCs has been around for a long time, and I have communicated and discussed with many people in the industry, partners, and loyal members of Linmengbao. Here, I will try to fully explain my thoughts in recent months. There is a lot of content, if you think it is a waste of time, please close it directly.
1. The debate between centralization and decentralization
In previous documents and materials, we have publicly stated our views on blockchain "centralization -> semi-centralization -> complete decentralization". I have always insisted that ① “Decentralization” has established a trustless accounting mechanism and a new type of social relationship and business model, but there are problems with inefficient decision-making, execution and development. The delay in Bitcoin expansion is a typical proof. There are also many projects that are “decentralized” from the beginning, but often no one cares about them after a period of time. In recent years, many altcoins have ended up like this, and there are many such corpses on Bitcointalk.org. Some business models are suitable for adopting a “completely decentralized approach” from the beginning, but it is not a panacea, and not all projects are suitable for this model. ②Although the "centralized" or "semi-centralized" architecture may lack the foundation of trust at the beginning, it is more important in the early stages of exploring many business models, because the decision-making efficiency and execution efficiency are much higher than "decentralization". Moreover, the reputation and interests of the team are closely tied to the development of this project. The team can repeatedly try and fail, repeatedly optimize and adjust strategies, and can constantly seek breakthroughs in development and correct some early mistakes. Taking Ethereum as an example, the status of Ethereum is between "semi-centralized" and "decentralized", slightly leaning towards the former. The recent fork event in July, and even the upcoming fork again, although there are many doubts in the industry, I think this is the best choice for the current Ethereum team. ③If you understand the first two points, you will understand that "centralization" and "decentralization" can be different stages. This is also the path that we have been trying at Linmengbao - that is, in the early stage of the project, the high efficiency of "centralization" is needed to ensure product iteration and operational execution efficiency, and to conduct trial and error and verify the business model. In the process of development, we will gradually "decentralize" and establish trust based on technology, rather than just trust in people and teams, so that more resources, partners, and users can participate.
So, Linmengbao initially planned to complete the path of "centralization -> semi-centralization -> complete decentralization" in 2-3 years, and planned to gradually distribute 600 million LMC to users in the APP in about 2 years. When this large amount of coins is distributed, and the team only has 10% of the total LMC, we expect the market to recognize that this has reached a "decentralized" state. In terms of the POS mechanism, when a large number of coins are scattered among enough users and nodes, it is a completely decentralized state (at least from the technical logic of the POS blockchain, it is decentralized, and the core team's control over the code is another matter). After the project was running for half a year, we had to admit that we made a mistake - the user development speed did not meet expectations (as for the slow user development speed, I will explain in detail later), the issuance of coins was very slow, and the process of decentralization was far away. We had previously predicted too optimistically that when the number of users was quickly promoted to hundreds of thousands or even millions, these hundreds of millions of coins might not be enough to issue. If a large number of coins were issued to existing users just to issue coins, it would actually cause the coins to be not decentralized enough and cause continuous market selling pressure. Therefore, the issuance of coins has been controlled. A large number of coins have been accumulated in the hands of the authorities, and the state of "decentralization" is far away. At the same time, some diehards in the blockchain industry do not trust such a centralized APP backend to control the issuance of coins, and there will be doubts about opacity, black box operations, etc. Although we stick to our moral bottom line, the insistence on a centralized operation strategy in the early stage of the project has caused great controversy in the industry and seriously affected the mentality of investors. Therefore, destroying a large number of LMCs that cannot be issued temporarily and reducing the so-called "official holdings" of LMCs to a relatively low number is a way to accelerate "decentralization" and a possible way to alleviate doubts about "centralization". Of course, this is far from enough, let's continue the discussion.
2. At the current stage, how much LMC is needed is a complex proposition related to monetary finance and macroeconomics.
In the practice of Linmengbao, we found ourselves playing the role of a central bank (in fact, we knew from the beginning that it would be a small "central bank"). We also knew that the job of "central bank" was not easy, but we still did it without hesitation (because we are not just making a coin, but to create a closed-loop ecosystem for offline merchant marketing driven by LMC. Issuing LMC is just a means, not an end). I will try to explain the complex logic here as simply as possible. ① Is the money supply stable or adjustable? This is a question. This is a question of inflation or deflation. Many coins on the market are set to have a stable output (Bitcoin, Litecoin, Ethereum and other POW mining coins are the most typical). But my point of view is that if the market demand is small, the issuance volume should be properly controlled; if the market demand is large, it can be appropriately increased, but it is subject to the total amount limit and cannot be over-issued at will. We can see that if new coins are continuously and steadily generated (by mining with a constant daily output), but the demand is insufficient, a continuous decline will occur. At this time, the market is in the stage of inflation . Even the originator Bitcoin is not immune to this, and this kind of inflation has occurred several times in different stages of history. The most recent one was in 2014, when Bitcoin fell throughout the year. Although there were reasons such as the Mt. Gox incident and the closure of the dark web Silk Road, another important reason was that miners mined a fixed 3,600 Bitcoins every day, which were worth millions or even tens of millions of RMB, but the market demand was insufficient and there was not enough capital entering the market, which caused Bitcoin to form a bear market for a relatively long period of that year. There are many similar examples, such as Siacoin, which has been popular for a while recently. The recent price slump is largely due to the huge output, but the program is not stable yet, and the demand for the currency generated by actual applications is insufficient. On the other hand, still taking Bitcoin as an example, in 2015 and this year, there have been many huge Ponzi schemes such as MMM, the rise of many new dark web trading platforms after the Silk Road, and capital flight caused by the depreciation of the RMB, etc., which have caused a surge in demand for Bitcoin. In particular, the halving of Bitcoin production in July 2016 reduced the supply, thus creating a situation of continued steady rise in Bitcoin prices, thus entering a deflationary phase. Another similar example is Ethereum. In the early days, the demand was insufficient, and the stable mining produced a large number of new coins every day, causing the price to fall to more than 2 yuan. Since the second half of last year, many financial and IT giants have joined the Ethereum ecosystem, forming a strong demand for Ethereum, which further led to the entry of keen off-site speculative funds and promoted the sharp rise in Ethereum prices. Naturally, after the excessive surge, it was revealed that the real demand for Ethereum was still insufficient, and the market rationally fell back. During this period, the DAO incident and the fork were encountered, which were black swan events. Therefore, any market speculation is unsustainable. Judging from the experience of Bitcoin and Ethereum, the two states of inflation and deflation will inevitably switch periodically. In fact, the same is true for fiat currencies such as the RMB and the US dollar. Therefore, my value of Lin Meng Bao LMC also foresees this cyclical inflation and deflation situation. Phased and shorter-term inflation and deflation are also acceptable. In the inflationary stage, more users can obtain chips at a lower cost; conversely, the continued rise in prices during the deflationary stage can attract more players and merchants outside the circle to participate in the ecosystem. Therefore, inflation or deflation is not all bad, and it cannot be generalized. Therefore, we want to try to intervene to a certain extent by adjusting the issuance volume. The main reason is for the consideration of the merchant market. A situation of a slow rise with a smaller amplitude, rather than a sharp rise and fall, will be more conducive to the interactive development of the offline merchant market and the player market. ②What needs to be considered when adjusting the circulation volume? The main factor to consider is market demand. There are two sources of market demand: one is investors, including long-term hoarders and short-term operators, and the other is real users. The former are quick to act and are the main contributors to market price discovery. But the latter is the fundamental force and cornerstone of a digital currency system or a blockchain asset ecosystem. We hope to cultivate and accumulate users who truly use the Linmengbao APP and LMC as advertising and marketing tools. In simple terms, they are people who continuously input RMB into the Linmengbao ecosystem. We hope that these are merchants and some individuals who use RMB to participate in the ecosystem due to advertising needs or other social needs. Well, in the early days of Linmengbao, without a user scale, it was not attractive to merchants, so we prioritized resources and energy to develop player users. We hope to develop merchant resources after achieving a certain density of player users in local areas or regions (such as campuses). For APP players, Linmengbao adopts the method of giving away free red envelopes and coins to attract users. However, from the perspective of the monetary economic system and the actual results of our experiments with parameter adjustment, the more free coins are issued, the more inflation and depreciation will occur when demand is insufficient. If the coins are issued less, the enthusiasm of players will be affected. In the process of product iteration and operation promotion, we also adjusted the strategy to issue more coins to new users, hoping to make the coins more decentralized. The more decentralized the coins are, the more people there are, and the more diverse the crowd behavior is, we hope to precipitate more players who are not in a hurry to ship and cash out. From our background data, the addition of new users does not have a significant impact on the market selling pressure, but they are not active on the APP. But if more coins are issued to active old users, the result will be completely different. There are already a large number of active cashers in the market, and strong selling pressure will continue to form in the market. Specifically, the total amount of distribution in the Linmengbao App was originally planned to be 600 million, and 240 million were to be issued within half a year. In fact, only more than 27.5 million have been distributed so far. Among them, 12.5 million have been transferred out of the system, which may be in the trading market or in personal wallets for POS. The remaining 15 million have been kept in the APP. Among the more than 100,000 users, only a few hundred accounts are active in transfers in and out, which may be OTC middlemen who collect coins offline and sell coins online. Most users have been accumulating coins, especially new users. During the promotion and development of Linmengbao, we encountered two problems from the product level. One is the security threshold of digital currency itself. We spent a lot of energy and money to ensure security, which delayed the iteration speed of APP products and also affected the speed of market promotion. The other is the user experience problems such as real-name authentication and the complicated LMC monetization process, which made the acquisition of new users outside the circle actually costly and the speed could not be improved. Therefore, after solving the product experience problem, we believe that it is still necessary to appropriately adjust the circulation volume according to market demand at different stages and under the influence of different external and internal factors. ③The most important thing is to create demand for the use of LMC. Of all the digital currencies that have appeared in history, only a very small number have usage demand and application scenarios, thus generating use value, collection value, and hype value. What is the demand for Bitcoin or what are the application scenarios? To put it bluntly, it is to spend and save as money. The numerous pyramid schemes listed above have contributed tens of billions or hundreds of billions of RMB in liquidity to Bitcoin. Black transactions on major dark web platforms, Bitcoin gambling, currency exchange, money laundering, and other gray or illegal application scenarios, as well as the demand for asset allocation caused by the expectation of RMB depreciation, constitute the current demand for Bitcoin and create huge buying power and liquidity. What are the application scenarios of Ethereum? It is an open source smart contract system with great potential. Don't understand? It doesn't matter. Various applications built in the form of smart contracts can be built on Ethereum, which greatly expands the application scenarios of Ethereum coins. Typical examples include Digix digital gold assets, Slock IoT smart locks, Augur gambling platform (officially called prediction market, for the sake of understanding, I call it gambling platform), Kibo lottery, InChain decentralized insurance (new project, I don't quite understand it yet), WeiFund crowdfunding, the DAO fund and other types of dividend rights, equity, debt assets... There are already more than 200 existing applications on Ethereum. If each application develops tens of thousands, hundreds of thousands, or millions of users (of course, some less reliable projects will die), then how big will the Ethereum ecosystem be? You can try to imagine it. This is why Ethereum ETH is valuable and why it has become the second largest digital currency. Well, only a very small number of other altcoins have so-called application scenarios. Most of them are purely created for hype and have no usage demand and scenarios at all. Their demise is only a matter of time. Speaking of Linmengbao LMC, the use scenario we created for LMC is a marketing and traffic diversion tool for offline merchants. The vision we hope to achieve is that more and more merchants purchase LMC with RMB, that is, spend part of their marketing and advertising expenses on LMC, and then put LMC on the Linmengbao APP in the form of LBS map red envelopes, which is the consumption of LMC. Players get these LMCs for free, but contribute their own traffic to merchants. Players sell the LMCs they receive for cash. This becomes a value exchange, forming a closed loop in the LMC economic system - some people are spending money, some people are making money, and the bridge and intermediary in the middle is LMC. If it is just speculation in the secondary market, the inflow of funds will sooner or later flow out. Only by forming an ecological closed loop and continuously flowing in and out of funds can a situation of sustainable development be formed. Unfortunately, in the first few months, the promotion of players was unfavorable, and the promotion of merchants was even more difficult and costly, so Linmengbao has not yet built such a closed loop. However, Linmengbao has continued to work hard and adjusted its strategies on both the merchant and player sides to quickly form a closed-loop model in which off-market funds enter and are consumed due to demand. For details, please see the recently released APP update.
Back to the topic of destroying coins. Therefore, we realized that if we could build a closed loop for Linmengbao as soon as possible, there would be no need to reserve so many LMCs for free distribution. After detailed statistics, technical evaluation and data calculation, we can destroy 745 million coins, leaving a total of about 280 million. It is enough to keep only a small amount of coins for developing new users and maintaining old users in the APP, as well as for third-party cooperation and promotion. Please refer to the relevant announcement issued by the official for details. (PS: I have studied Steemit, Siacoin, Synereo (AMP), DeCent, Firstblood, and some domestic currencies or blockchain projects (I won’t mention their names), etc. Some projects don’t even have a closed loop in their plans, so don’t touch them. Some other projects have good application scenarios, but their self-built economic systems (or “central bank-like” monetary systems) will mostly encounter the detours we have taken in the past six months. Welcome to discuss and exchange ideas.)
3. New economic system, balanced money supply
After a large number of unsent LMCs are destroyed, can the remaining LMCs support the needs of future application scenarios? The answer is yes. Of course, there are many paths that we need to practice and test. However, we have added a new blockchain reward strategy, which will generate new coins to a certain extent. That is, the POS mechanism provides higher POS interest rewards for users who are willing to deposit coins for a long time and establish nodes. The most important purpose of increasing the POS reward ratio is to encourage more users to hold coins and enjoy higher interest, thereby contributing nodes. It is also an important measure to accelerate decentralization. After this upgrade, the amount of coins in the official hands will be greatly reduced to less than 10% of the total amount. In the next 1-2 years, after the free coins are given away, it will drop below 5%. The scale of new coins generated by POS rewards is ultimately dynamic and affected by many factors, so it is not possible to accurately predict it for the time being. I believe that this will become a means of dynamic market regulation in the future. When the market price rises significantly, it will attract more people to buy coins and save them to enjoy higher interest rates; but too many people save coins to earn interest, which will cause the number of new coins to increase too quickly. If the market application demand at that time is less than the supply of new coins, it will cause the market to fall. This cycle will form a dynamic cyclical balance. By then, no one can issue more at will. Although there is no upper limit on the total amount, compared with other digital currencies, the potential user group of Linmengbao LMC is broader and larger, and the demand is greater. Therefore, like all legal currencies and digital currencies, the price follows the market. The greater the demand, the higher the price; the weaker the demand, the lower the price. 4. Linmengbao's future development plan Linmengbao's next major task is to create demand for use as soon as possible, but the cost of merchant promotion is too high, and the existing team and financial resources cannot afford it, so in the short term we will still focus on developing the player market. Different from the previous strategy, the first is to gradually reduce the amount of free coins issued. In addition to still giving away a larger amount of coins to attract new users, we will gradually reduce the amount of free coins issued to existing users. The second is to design and develop some new functions to generate LMC consumption at the player level. A version will be launched in the near future, and a small application will be added for trial and exploration. If effective LMC consumption and a local closed loop within the player level are generated, further optimization and exploration based on such a strategy will enable sustainable development and expansion of the user base. Merchant promotion will only be officially launched when the user base expands to a million scale. 5. Conclusion Linmengbao has been walking a different path from others. Let me repeat this sentence again: LMC is not the goal, but only the means. The future of Linmengbao will be a commercial traffic value exchange platform where a large number of merchants and players gather. Lin Mengbao has made mistakes and encountered twists and turns along the way. Even in the face of temporary difficulties, we are still working hard to find breakthroughs. Lin Mengbao's future may be successful or unsuccessful, but we will have no regrets.
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