Written by Dr.Xiao Feng, the President and CEO of Wanxiang Blockchain.
Abstract: the Internet is an information machine while the blockchain is a truth machine, which is because the information on the blockchain cannot be tampered with or revoked. Blockchain is a decentralized trust mechanism that is opposite to the Internet. Blockchain will give rise to a distributed business model that is open source, free, license-free and non-profit. Finally, the blockchain adopts distributed ledger, which is different from the centralized ledger of the Internet. On the blockchain, the unit of the ledger is programmable and traceable digital currency. At present, many digital assets are highly volatile and do not yet have the qualifications to be the digital currency of the future.
Over the years, many people have asked what blockchain is. So, I will make a comparison between blockchain and the Internet to explain the meaning of it from another perspective.
1. The Internet is an information machine while the blockchain is a truth machine
The Internet is a machine of information that allows people to transmit information to each other with lower cost and higher efficiency. The blockchain’s data structure, along with a combination of cryptography, timestamps and other technologies, ensures that once a piece of data is linked, it is not tampered with or revoked, but is traceable. So blockchain is a truth machine compared to the Internet. This is a very big difference between the Internet and blockchain. In the Internet era, no matter what kind of database, the data can be revoked and changed, which means there’s no Internet-based database is immutable.
2. Trust mechanism is the core difference
Secondly, the trust mechanism between the Internet and the blockchain is completely different. There is no good or bad. The difference between centralized trust mechanism and the decentralized trust mechanism are not being good or bad, high or low, but when the proportcion of digital economy and digital life becomes higher and higher, we may no longer rely on the centralized trust mechanism to make a trust endorsement in some environments and scenarios. Instead, using a decentralized trust mechanism is more efficient and lower-cost. This is the core difference between the Internet and blockchain.
Decentralized trust mechanism relies on algorithms to build trust and make trust endorsement. If you use blockchain to design a point-to-point system that treats BitCoin as a currency or electronic cash, obviously this experiment is a failure. On the other hand, it’s also a failed experiment to use BitCoin as a global payment system because the value of BitCoin fluctuates wildly. But now there is a global consensus that regards BitCoin as a “digital gold” to use a trust mechanism to create digital scarcity and trust endorsement, which is a very important feature of BitCoin.
3. Totally different business models
Thirdly, the difference between the Internet and blockchain is that blockchain is open source, free, license-free and non-profit. As an open source software system, no public blockchain has incomes from financial statements, shareholders, board of directors, management, employees, etc. In such a business system, investors, producers, developers and users are completely integrated after the stock right and equity are totally removed. Therefore, in a point-to-point blockchain environment with highly consistent and transparent information, the relevant stakeholders can often get an optimal and compatibly incentive result through algorithm game. This is beyond the reach of a centralized business model and trust mechanism.
4.Different business models
The fourth difference between the Internet and blockchain is at the aspect of commercial application. Business applications on the Internet are centralized while the ones on the blockchain are decentralized or called distributed. For example, there was a piece of news before that a travel writer published a book on Ethereum workshop, all the sales revenue is 100% owned by the author, but if the book was published on the Internet, the author generally only get 75% of the sales revenue. In the era of paper books, the author needs to find a publisher to print，edit and distribute the work, and then sell it through the offline bookstore. How much sales revenue can the author get? Usually 8% of royalties are paid to the author while the rest belong to the publishers or channel providers. This is the huge difference between IP and DIP. In the age of DIP, there’s no middlemen earn the difference.
5. Different accounting methods
Fifth, the accounting method is different. The Internet still inherits the accounting method of the past 500 years, known as double-entry bookkeeping method. Blockchain is a kind of distributed bookkeeping. In fact, distributed bookkeeping in China actually has examples to follow. In 2004, the president, Zhou Xiaochuan, of People’s Bank of China allowed Alipay to set up its own Internet wallet and put money in it. At that time, only Banks could put money into an account, so the move caused a lot of controversy. Thanks to the experiment, there are two world-class phenomenon products — China’s mobile payment and Yu’E Bao. So far, no Internet channel can sell 2 trillion yuan of money funds like Yu’E Bao.
Complex trade requires complex financial support that also requires scientific accounting method. It can also be seen from the examples of mobile payment and Yu’e Bao that any financial innovation is based on the establishment of a new account system. Traditional bank account system cannot give rise to the current mobile payment and Yu’E Bao, which means only in the new account system can they appear. Internet accounts such as Alipay and Wechat pay are maintained by Internet technology companies. They are not bank accounts and do not have bank licenses, but they can write money in accounts and undertake liquidation business.
We are not yet able to predict what new financial services and transactions methods will emerge in the blockchain-based account system, but I’m sure it will, just like the disruptive innovations created in the Internet account system. In conclusion, any subversive innovations are based on account innovations without which we can only make changes on marginal benefit in the original model, and cannot produce a new model.
6. Different accounting units
The last difference between the Internet and blockchain lies in the unit used in an account. Internet electronic wallets record legal currency while blockchain records digital currency. The biggest difference between digital currency and legal currency is the exchange between codes. Digital currency is a programmable computer program, which reflects the computer code. It can complete point-to-point commercial exchange or financial transaction without centralized third-party service.
The development of digital currency is always in the process of change. If BitCoin and the etheric currency are the 1.0 era of digital currency, then stable digital currency is the 2.0 era of digital currency. Only stable digital currencies, or legal digital currencies issued by central banks in the future can become real blockchain-based currencies. Other tokens such as BitCoin and the etheric currency can only be called crypto assets.
A stable digital currency can be used as a means of payment, a medium of exchange, a measure of value and a store of value and only coincides with these four characteristics is currency. Previously, President Zhou Xiaochuan has said there are legal currencies and there are stable digital currencies issued by private institutions. I believe that in a few years there will be central banks issuing digital currencies. When the central bank joins the issuance of digital currency, the form of digital currency is basically formed. As a currency, it can have exchange rates, but it must not fluctuate significantly.
Currencies other than stable digital currencies are investable assets that can fluctuate significantly. BitCoin is now up and down a lot, which shows that it is not a currency, but a successful investment tool.