"Opportunities and Development Stages of Blockchain" Want to understand blockchain? Must read this article!

The topic I will share today is the opportunities and development stages of blockchain. Before I talk about this core topic, I would like to spend some time talking about why blockchain was born.

Why was blockchain born?

The birth of blockchain starts with Bitcoin, because blockchain is the underlying technology and infrastructure of Bitcoin and was born at the same time as Bitcoin.

This is just a simple understanding of blockchain. A deeper understanding is that blockchain is essentially a bookkeeping system, or a decentralized, Internet-based bookkeeping system. This is the core answer to what blockchain is.

Why is blockchain such a bookkeeping system? What is its relationship with Bitcoin? In fact, we need to consider a very old concept, a concept that has been debated for a long time in the history of currency: What is the so-called currency? There are two opposing views in history, one is the metal theory of currency, and the other is the nominal theory of currency.

The metal theory of money believes that the essence of money is a special commodity that embodies the general labor of mankind and has its own intrinsic value. The currency catalog theory believes that money is just a bookkeeping symbol and exists in name only.

With the collapse of the Bretton Woods system, when paper money and metals were completely decoupled, modern credit money has given the answers to the two views I just mentioned. Money does not need intrinsic value, because paper money itself has no value. A more typical example is the electronic money we use now, the so-called online banking, Alipay, WeChat, the account balance is just a number, and the electronic transfer between us and anyone is a change in the account, and there is no physical exchange.

In this way, we can summarize the relationship between Bitcoin and blockchain. Bitcoin is a representation and symbol of the accounting system, and a number on the accounting system of the monetary system. Blockchain is a system of credit records and credit record clearing behind it. This is the relationship between Bitcoin and blockchain.

In my book, I also mentioned another level of understanding about blockchain. It is not just about understanding it from the perspective of accounting system and currency, but more importantly, it is about introducing the perspective of information and understanding why blockchain was born from a historical perspective.

This is also a question I have been thinking about, it is quite interesting. In the history of human civilization, there are two things that have an extremely special status: writing and currency.

Writing allows humans to communicate and pass on knowledge at a spiritual level, while currency allows humans to communicate and pass on knowledge at a material level. The invention of these two things has enabled human civilization to develop and iterate, both spiritual and material. So the invention of these two things is very special.

From the perspective of historical evolution, from writing to defining information and then evolving into the Internet, this is a relatively clear development context. A landmark event was when Shannon first scientifically defined what information is. He introduced the unit of bit to measure information, but before that, information had no mathematical definition and was unmeasurable. Various measurement units such as weight, volume, and length have existed for many years, but the measurement unit of information only appeared in modern times, which was also a very great contribution of Shannon.

Since then, after two industrial revolutions and the electrical age, mankind has embarked on the road of informatization. The birth of the Internet is also inevitable, which has made the transmission of information between any two points and between people extremely efficient and convenient. Now the cost of information transmission has approached zero.

The Internet has created such an era. Information can be transmitted point-to-point anywhere in the world through infrastructure. The Internet is a great product of the information age and has developed to a very advanced stage. If text corresponds to information, then currency corresponds to credit. Its inherent nature does not mean that it has inherent value, but that it is a credit system.

From the perspective of blockchain principles, blockchain does not construct an unchangeable credit record. It can be tampered with, but the cost of tampering is very high. From this perspective, blockchain is trying to define credit. In the blockchain system, credit is considered to be calculable. From currency to credit to blockchain, this is another context of development.

Therefore, I think the technological development level of value transmission and information transmission is commensurate. For example, we have efficient Internet and mobile Internet, the birth of mobile payment, and the birth of a whole new value transmission technology based on the new era.

From this perspective, the birth of a point-to-point credit system or credit network that can transmit value, or a new level built on the basis of the Internet, is inevitable.

Opportunities and development stages of blockchain

Now let's get to the point. Let's talk about what blockchain is. Our main topic is the opportunities and development stages of blockchain.

When it comes to opportunities, we have to talk about a big topic. What will the entire blockchain bring in the macro sense? I think the core is the value Internet. We are ushering in an era driven by blockchain, from the information Internet to the value Internet.

This is the biggest opportunity we are facing now. From a higher level, it is the arrival of the era of value Internet. So what will the value Internet bring? In fact, this is an open question. The direct result is that the transaction cost will continue to decrease until it reaches zero. I think this is the most direct and core change in the future.

The information Internet era has brought the cost of information transmission close to zero. We have a basic physical layer and data layer that can realize the point-to-point transmission of any information. However, there is currently no decentralized means of value transmission like the Internet, which means that we have to rely on a large number of intermediaries to transmit value.

This results in a relatively high cost of value transmission. We have entered the digital age, and assets of all values ​​are being digitized, but the transmission cost is still high. Before the birth of Bitcoin, we did not have a point-to-point means of transmitting value without the need for any third party.

Therefore, I believe that the future value Internet will lead to a gradual reduction in transaction costs (constantly approaching zero) and a gradual increase in transaction efficiency. Of course, this era will be relatively long. This is my consideration from a broad perspective, but what kind of changes such a result will lead to is worth studying. It is a very complex issue that involves many economic theories and is not something I can control, so I will not expand on it here.

Next, I will talk about the major opportunities that blockchain will bring us in several directions.

First of all, the digital currency industry chain

Digital currency was born with blockchain. Digital currency is the most direct application field of blockchain and is also the most mature field at present. At present, Bitcoin is the core of the digital currency field because Bitcoin is the most widely used digital currency. The industrial chain of Bitcoin is divided into upstream mining, midstream trading and exchange, and downstream applications, related media, and data. Why is it the most mature? Because many companies rely on the mature profit model established by this industry.

Especially the upstream mining and mining machine production, and the midstream trading have formed an industry of a certain scale. From the downstream application level, there is still a lot of room for development.

Many people ask me, what supports the price of Bitcoin? (Because the price of Bitcoin has always fluctuated greatly.) Its core value is usage. Everyone expects that it will become a widely used digital currency in the future. As the user population and scope of use expand, its value will be truly reflected. At present, whether from a global or domestic perspective, its scope of use is still relatively small.

As the digital currency industry is still in its early stages of development, there is still a lot of room for development in the future. Whether it is a decentralized digital currency like Bitcoin, or it is possible that central banks of various countries will issue their own digital currencies with the help of blockchain technology. No matter which digital currency it is, it will become a very core and very important field of blockchain application. Although it is a relatively mature field in comparison, from the perspective of this field itself, it still has a lot of room for development, and it is still in a very early stage.

Summarize:

I think the space for digital currency is still very broad, especially from the application level, there is still a lot of room for future expansion. However, due to the different policies, supervision, attitudes towards digital currency, how to issue digital currency, and development ideas of various countries, I think the development of digital currency is not so balanced globally, but it will be a field that moves forward.

Let’s talk about the second big opportunity, Internet finance.

Internet Finance

Recently, I have found that people are talking less about Internet finance and more about Internet technology. The term "Internet finance" first appeared in China, which is similar to fin tech (financial technology) abroad. In fact, it is endogenous. We believe that the development of technology has brought about changes in the financial field, and may even cause disruptive changes in the future.

The core is driven by the evolution and development of technology. However, the development of domestic Internet finance in recent years has encountered a relatively big dilemma. Many companies hope to rely on the Internet, an efficient information transmission platform, to do things without intermediation. For example, from the perspective of lending, directly matching lenders and borrowers without going through banks makes the entire transaction more efficient and reduces costs.

This exposes a huge problem: Is there a reliable underlying technology for disintermediation or does the evolution of technology support this? The traditional Internet is an Internet of information, which does not care about the value and ownership of information. This will lead to the lack of the ability to build a disintermediation system through the Internet.

Therefore, if many Internet financial companies want to truly control their risks, they have to use a lot of existing centralized things, such as the risk control of traditional finance. There are also many Internet financial companies that simply make private finance Internet-based, which leads to a lot of risks. On the one hand, they do not have the underlying technology that can truly de-intermediate, and on the other hand, they do not have the rigorous risk control system of traditional finance, and they have completely lost the ability to control risks. This is why many companies that claim to be Internet finance are not actually Internet finance. This ultimately leads to a series of problems.

From a broad perspective, I believe that blockchain is a technology that can make the dream of Internet finance come true. It provides a point-to-point credit platform for value transmission, which truly provides the underlying technical foundation for disintermediation. I believe that it is a very core key technology for the future development of Internet finance and financial technology, and for moving forward according to the original positioning.

The core problem that Internet finance is currently facing is the lack of mature underlying infrastructure and high credit risk. This is a problem but also a huge opportunity. Whoever can take the lead in using reliable technology that can solve the underlying credit problem will be able to seize the opportunities of the new era.

Finance involves many specific areas, so I won’t go into detail. We will have the opportunity to have in-depth discussions in the future.

Another big opportunity - the Internet of Things and the sharing economy.

Internet of Things and Sharing Economy

This is a question I am asked quite often. Because it is easier to understand the application of blockchain in the financial field, because it is intrinsically close to finance. But what is its relationship with the Internet of Things?

In my personal opinion, the Internet of Things will be one of the most exciting application areas of blockchain.

The Internet of Things is the era of the Internet of Everything. When PCs can access the Internet, we call it the Internet era, and when mobile phones can access the Internet, we call it the mobile Internet era. With the development of the IT industry, everything we can touch in the future can be connected to the Internet. This is the Internet of Things, which is the next generation of the Internet, or the natural extension of the Internet.

This will bring about a very intelligent era, because all devices will be connected to the Internet. But there will be a problem. When everything can be connected to the Internet, such as lights, cups, tables, etc., the number of devices connected to the Internet will increase dramatically, which will cause us to have high requirements for data storage.

This requirement may require a storage volume of data that no center can bear, but this is not the most serious problem. The most serious problem is that if we do not have the right technology to strike a balance between transparency and privacy, it may hinder the real development of the Internet of Things.

Data storage is one problem facing the development of the Internet of Things. The second problem is the flow of data.

Let's start with the sharing economy. The essence of the sharing economy is the shift from ownership to use rights. The frequency of use rights transactions will be much greater than the frequency of ownership transactions. We only change a new car every few years, but we take a taxi several times a day. The frequency of ownership transactions will increase greatly. Coupled with the increase in the base of sharing in the era of the Internet of Things, no center can bear the flow of data.

These two issues (data storage and data flow) are exactly where blockchain can be used. When we know what blockchain is, the principle of blockchain. In the previous question, we can give an answer, which is to build an era or system of decentralized and autonomous Internet of Things.

The biggest opportunity at this stage - infrastructure construction

We are still in the early stages of blockchain. The core problem we are facing is that the technical facilities are not mature enough. Although we have a good concept that can be applied to many industries and fields, we cannot use it immediately. Therefore, building infrastructure is the most important opportunity for blockchain.

Big opportunities can be divided into several major directions. I think we will usher in an era of "blockchain +" in the future, just like "Internet +".

Stages of blockchain development

It’s clear that blockchain is in its early stages, or in my opinion, in its infancy.

There are some criticisms and accusations about blockchain technology. A typical example is that the Bitcoin blockchain can only handle 7 transactions per second, which is a number that has been criticized. Including the expansion issue that has been discussed some time ago, it is also based on the consideration of transaction capacity. Visa and Alipay can handle tens of thousands of transactions per second. Many people will question how a system that can only handle 7 transactions per second can be useful?

When we understand the current stage of blockchain, we can understand its problems. Blockchain is currently in its infancy. Just like a newborn baby who cannot speak. Our traditional theory believes that people should be able to speak, so should we strangle him to death? Obviously not. Why do we have such a judgment on blockchain technology? I think it is caused by a lack of clear understanding of the development stage and the stage of technological evolution.

Due to the early stage of development, the entire technology system is not mature enough, which leads to various imperfections. Just like when the steam engine was invented, Europe compared trains with horse-drawn carriages, but the trains could not run faster than the carriages, and everyone laughed at the trains. However, the invention of the steam engine truly brought about the outbreak of the first industrial revolution in human history. New things have their immature parts, but the seeds of subversion have been planted. So we must look at new things with a developmental perspective.

The biggest problem in the infancy of blockchain is that the technical infrastructure is not mature enough, which will hinder large-scale outbreaks. The era of big explosion based on blockchain applications has not yet arrived. Moreover, we often have a misunderstanding about disruptive technologies. We tend to overestimate its short-term impact and underestimate its long-term impact. Just like the early days of the Internet, it began to be commercialized in 1994-1995. By the time the Internet bubble collapsed in 2000, no company relied on the Internet to build a mature business model. But no one expected that more than a decade later, the Internet has not only changed the entire economic structure, but also changed our lives.

I believe that the development of blockchain will be slower than we expected in the early stages and will take longer (but shorter than the Internet), but the scope and depth of its ultimate impact will far exceed our imagination.

This is my judgment on the development stage of blockchain.

This article is compiled from the speech given by Huobi Technology Vice President Zhang Jian at the Weiyang.com Fin-Lab of PBC School of Finance on July 14.