Xunlei co-founder Cheng Hao: Blockchain solves the intermediary credit problem

Hello everyone, I am Cheng Hao, the founder of Xunlei, and now I focus on investment in the Internet field. Thank you for your trust and attention to Brother Hao.

Blockchain is quite popular recently. I first heard about it from a friend. Since I have always been interested in technology-driven things, I also did some research. Simply put, blockchain is a decentralized trust mechanism.

In the past, blockchain was mainly used in Bitcoin. Until the past six months, blockchain has gradually begun to have some other applications, especially in the financial field. So people keep asking me: "Brother Hao, can you tell us about blockchain?" Today I found an article for you, which is more popular science in nature. You don't need to have any background in technology and finance. I hope it will be helpful to you.

This Q&A is mainly for ordinary people who want to understand blockchain and have no professional technical or financial background. We will try to avoid all technical terms.

Q: What is blockchain?

Answer: Blockchain refers to a technical solution for collectively maintaining a reliable database in a decentralized and trustless manner.

Q: Can you explain in simple terms what blockchain is?

A: In simple terms, blockchain technology refers to a way for all people to participate in bookkeeping. Behind all systems is a database, which you can think of as a big ledger. So who keeps this ledger becomes very important. At present, whoever has the system keeps the ledger. Tencent keeps the ledger for WeChat, and Alibaba keeps the ledger for Taobao. But now in the blockchain system, everyone in the system has the opportunity to participate in bookkeeping. If there is any data change within a certain period of time, everyone in the system can do the bookkeeping. The system will judge the person who keeps the ledger the fastest and best during this period, write his record into the ledger, and send the ledger content during this period to all other people in the system for backup. In this way, everyone in the system has a complete ledger. We call this method blockchain technology.

Q: What are the benefits of a blockchain that allows everyone to keep accounts?

A: It can be found that this is a great security at the expense of a little efficiency. First of all, there is no central ledger, so it cannot be destroyed. Each node is only a part of the system, and each node has equal rights and has the same ledger. Destroying some nodes has no effect on the system at all. Secondly, it is impossible to cheat, because unless you can control the computers of most people in the system to make changes, the system will refer to the opinions of the majority to decide what the real result is. As a result, you will find that it is completely meaningless to modify your own ledger (because others do not recognize it). Secondly, since there is no centralized intermediary, everything can be automatically run through pre-set programs, which can not only greatly reduce costs, but also improve efficiency. And because everyone has the same ledger, it can ensure that the ledger recording process is open and transparent.

Q: What problems does blockchain solve?

A: The most important thing about blockchain is that it solves the problem of intermediary credit. In the past, it was difficult for two people who did not know or trust each other to reach a collaboration, and they had to rely on a third party. For example, in the past, any kind of transfer required the existence of an institution such as a bank or Alipay. However, through blockchain technology, Bitcoin is the first time that humans have achieved a transfer behavior that both parties can trust without the involvement of any intermediary institution. This is a major breakthrough in blockchain.

Q: Is blockchain Bitcoin? Or is Bitcoin blockchain?

A: Blockchain technology is the underlying technology of Bitcoin. In the early days, not many people paid attention to the underlying technology of Bitcoin. However, when Bitcoin was operated and managed by no centralized organization, it ran very stably for many years without any problems. So many people noticed that the underlying technology might have a great mechanism and could be used not only in Bitcoin, but also in many fields. So Bitcoin technology was abstracted and extracted, and called blockchain technology, or distributed ledger technology. So from a certain perspective, Bitcoin can be regarded as the first application of blockchain, and blockchain is more like the underlying technology such as TCP/IP, which will be expanded to more and more industries in the future.

Q: In which industries can blockchain technology be mainly used?

A: The main advantages of blockchain are that it does not require the participation of intermediaries, the process is efficient and transparent, the cost is very low, and the data is highly secure. Therefore, any industry that has any demand in these three aspects has the opportunity to use blockchain technology.

Q: Why should the financial sector use blockchain technology? What are the substantial benefits?

Answer: The main advantages of blockchain technology in the financial field are disintermediation and significant cost reduction.

First of all, the financial industry currently needs to conduct audits to control financial risks in order to prevent single point failures and systemic risks, but this also causes high internal costs. In addition, due to the emergence of increasing regulatory regulations, especially the 2008 financial crisis, the threshold for financial control has continued to rise, and the anti-money laundering and anti-terrorist financing scope of the war on terrorism has gradually expanded the breadth and depth of supervision, resulting in a sharp increase in the regulatory costs of the entire financial system. In this case, blockchain technology can greatly reduce the cost of the entire financial system through tamper-proof and highly transparent methods. According to a report released by Santander, the largest bank in Spain, if all banks around the world use blockchain technology around 2020, it will save about $20 billion in costs each year. Such data is enough to illustrate the tremendous changes and breakthroughs that "blockchain" has brought to the traditional financial field.

In addition, due to historical reasons, traditional financial institutions rely on central clearing houses for settlement and clearing, which results in low efficiency. Traditional cross-border settlements are usually calculated on a daily basis because they have to go through institutions like SWIFT. However, Bitcoin has been running perfectly for seven years without any centralized operating institutions when using blockchain technology. It can not only achieve real-time settlement and clearing, but also has not had any account errors. Therefore, if all financial systems can achieve decentralized real-time settlement and clearing, it will not only greatly improve global financial efficiency, but also change the global financial landscape.

Q: What is “mining” in Bitcoin?

A: "Mining" in Bitcoin is actually the process of bookkeeping. Bitcoin calculations use a mechanism called "Proof of Work (PoW)". In order to find out who has stronger computing power, the system will issue a math problem each time. Only the computer that solves the problem the fastest can record the book. The computer that grabs the right to record will receive a reward of 25 bitcoins. This behavior is usually called "mining", and the bitcoins obtained are regarded as rewards for successful mining.

Q: Do all blockchains require mining?

A: Not all blockchain projects will adopt the "proof of work" method like Bitcoin. This is more common in early blockchain projects. If other proof mechanisms are adopted, such as "Proof of Stake (PoS)" and "Delegate Proof of Stake (DPoS)", there is no need to adopt such a mining method.

Q: What is the relationship between blockchain and big data? Will blockchain replace big data?

A: Blockchain and big data are not closely related. Big data is mainly about managing massive amounts of data, while the core of blockchain is to achieve high security and reliability of data without the involvement of centralized intermediaries. Therefore, blockchain and big data do not conflict with each other, nor will they replace each other. They are completely different solutions for data in different scenarios.

Q: What is the relationship between blockchain and cloud computing and cloud storage? Is blockchain cloud computing or cloud storage?

A: Cloud computing is usually defined as providing dynamic, scalable and often virtualized resources through the Internet, but the cloud computing platform is often provided by a centralized organization. The network composed of blockchains generally does not have a specific organization, so blockchains are closer to the definition of distributed computing systems and are a type of distributed computing. However, blockchains can achieve cloud storage. Unlike the current centralized cloud storage space, blockchains have some decentralized cloud storage solutions. Such projects include Storj, Sia, and Maidsafe.

Q: Is blockchain a software? What program is it written in?

A: Blockchain is not a specific software. Just like the word "database", it is a design concept of a specific technology. It can be implemented in most languages, and there are many ways to implement it. Moreover, blockchain technology is still developing rapidly. Relatively speaking, the design concept of blockchain technology is still relatively simple, and it may become more complex in the future.

Q: What is a public chain? What is a private chain? What is a consortium chain?

A: In a public chain, any node is open to anyone. Everyone can participate in the calculation of the blockchain, and anyone can download and obtain the complete blockchain data (all ledgers). However, in some blockchain application scenarios, it is not desirable for anyone to participate in the system and view all data. Only licensed nodes can participate and view all data. This kind of blockchain structure is called a private chain.

A consortium chain means that the permissions of each participating node are completely equal, and everyone can achieve trusted exchange of data without the need for complete mutual trust. The bank blockchain alliance formed by R3 is building a typical consortium chain.

However, with the rapid development of blockchain technology, it is possible that the boundaries between public and private chains will become more blurred in the future. Because each node can have more complex read and write permissions, perhaps nodes with some permissions will be open to everyone, while some nodes with accounting or core permissions can only be open to permitted nodes, which will no longer be a pure public chain or private chain.

Q: What are the main problems in the current development of blockchain technology?

A: Blockchain technology is still in a very early stage. Not only has a unified technical standard not yet been formed, but various technical solutions are still developing rapidly. However, the problems that were previously believed to be very resource-intensive (similar to Bitcoin) or that blockchain technology systems have limited data processing have been technically broken through. However, the scalability of blockchain technology has not been tested on a large scale, and is still mainly in the prototype design stage.

If we cannot quantitatively analyze the actual benefits that blockchain technology can bring us, including the money that can be saved and the value created, the financial industry will remain relatively cautious in the short term. After all, the current global financial infrastructure investment has exceeded trillions, and the establishment of a new financial architecture and underlying operating system requires actual data support. In the case that the existing technology has not yet been deployed and obtained use cases, the total amount that can be saved is still difficult to determine. So far, there is still a huge question, that is, how much money is needed to build a blockchain platform that is strong enough to handle the trillions of dollars that the capital market ecosystem needs to face every day.

In addition, the blockchain industry is extremely short of talent, lacking a large number of multi-faceted talents who understand both blockchain technology and finance. The market is desperately looking for talents who can connect the two worlds. They need to be able to implement blockchain technology in the capital market in the real world and achieve better functions. The need to build a new system based on blockchain technology will inevitably require such cross-border talents.

Q: What is a smart contract?

A: A smart contract is a contract that uses computer language instead of legal language to record terms. Smart contracts can be automatically executed by a computing system. If blockchain is a database, smart contracts are the application layer that enables blockchain technology to be applied in reality. Traditional contracts generally have no direct connection with the computer code that executes the content of the contract. Paper contracts are archived in most cases, and software executes the contract terms written in computer code. The potential benefits of smart contracts include reducing the costs of contract signing, execution and supervision; therefore, for many contracts related to low-value transactions, this is a significant reduction in labor costs.

Q: How to use smart contracts?

A: If the central bank can issue legal tender through blockchain, it can also embed the code into the issuance of legal tender through smart contract technology, and this part of legal tender can be called "programmable currency". For example, if the central bank specifies that a certain part of the funds is to be issued to agricultural-related accounts, then the corresponding program can be written into this part of the funds, specifying that this part of the funds can only enter agricultural-related accounts, and then this part of the funds will not be diverted to other accounts under any circumstances. If most currencies become "programmable currencies", then we can imagine that the financial environment they form becomes "programmable finance".

Q: What is the relationship between blockchain and ordinary people?

A: Basically, it has nothing to do with it, unless you are planning to start a business in this field. It is just like the relationship between the TCP/IP protocol and ordinary people. Ordinary people do not need to know what the TCP/IP protocol at the bottom of the Internet is. They just need to enjoy the services provided by the Internet.

Q: Does a blockchain project necessarily require the emergence of some kind of currency?

A: No. Bitcoin itself is a payment system, so it needs a value measurement tool, so bitcoin must appear. In addition, in order to reward more people who are willing to contribute their computers to provide computing for the system, bitcoin is needed for rewards. In some private chain systems, special assets can be designed for transactions, and each node must participate in the calculation. This is their responsibility and their right, so there is no need to consider encouraging them to participate through rewards. Therefore, in such a system, it may no longer be necessary to design a certain currency.

Q: Is Bitcoin legal now?

A: Bitcoin has always been completely legal in major world powers, including China. Due to the misleading information of some bad media, many people think that China has declared Bitcoin illegal. In fact, according to the notice on preventing Bitcoin risks issued by the People's Bank of China and five other ministries on December 5, 2013, Bitcoin is a specific virtual commodity, and ordinary people have the freedom to participate under the premise of assuming their own risks. Financial institutions and payment institutions of all kinds are not allowed to carry out Bitcoin-related financial services or use Bitcoin as an investment target.

Bitcoin is used as a currency unit in Germany and is defined as a commodity in the U.S. The European Court of Justice considers Bitcoin to be a means of payment and is not subject to VAT.

Q: Can I invest in XX coin? Is it a blockchain project? Is it a pyramid scheme?

A: Currently, all digital currencies, including Bitcoin, are very risky. Blockchain technology itself is just in its infancy, and all blockchain projects are also very risky. It is not recommended for any ordinary person to invest in any digital currency and blockchain-related projects. In addition, digital currency and blockchain have certain technical barriers, and ordinary people cannot distinguish which are real projects and which are MLM projects. Therefore, ordinary people are advised not to invest in any such projects. For any project that you cannot tell whether it is a MLM, please directly regard it as a MLM project.

Q: How to invest in blockchain?

A: Most blockchains are in their infancy, and most of them are overseas. There are very few good blockchain projects in China, so it is not recommended for any non-professional to invest in blockchain projects. If you are very interested in blockchain technology and have a background in technology or finance, it is recommended that you consider starting a business in this area.

Q: Who invented blockchain/Bitcoin? Is Satoshi Nakamoto Japanese? Is it a conspiracy of the US government?

A: Bitcoin was created by a person or team who called themselves "Satoshi Nakamoto" and completely withdrew from the project in its early stages. It is very unlikely that "Satoshi Nakamoto" is Japanese, because his past emails suggest that he should be a native English speaker.

In addition, the creator of Bitcoin has no influence on the current Bitcoin project, so it is unlikely to be the product of a conspiracy. Whether "Satoshi Nakamoto" appears later or is physically eliminated, it will not have much impact on Bitcoin.

Q: What is the difference between Bitcoin and Q coins?

A: Q Coin is a centralized electronic currency, including the total amount and issuance method, which are all controlled by Tencent. The total amount and issuance method of Bitcoin are pre-set by programs and encryption algorithms, and run on multiple nodes around the world. No one or organization can modify it, and it is not controlled by any single person or organization. Q Coin is generally called electronic currency or corporate token. Bitcoin is called digital currency or encrypted digital currency.

Q: Is there a limit to the total amount of Bitcoin? How is it distributed?

A: As mentioned above, miners who participate in the competition for the right to record books have the opportunity to receive rewards. At the beginning, the system will reward 50 bitcoins to the fastest and best bookkeeper every 10 minutes, and then these 50 will be halved every four years. Around 2140, there will be no new bitcoins, and the upper limit of 21 million will be reached. After that, transaction fees will be used to reward miners.