Large-scale Commercial Use of Blockchain is Expected
This article was the speech delivered by Dr. Xiao Feng, Chairman and CEO of Wanxiang BlockChain, at the 4th Global Blockchain Summit (hosted by Wanxiang Blockchain Labs on Sept 12th, 2018).
On the first day of the summit, Wu Jihan shared his prediction of the trend of blockchain in the next decade. Before you know it, blockchain technology has been developing for ten years since the publication of Nakamoto’s paper in 2008. Standing on the threshold of ten years, what I want to share with you is the inspiration from the guests and the audience in the past two days. I want to predict the global trend of blockchain technology in the next few years.
Blockchain 3.0 technology can improve the performance, usability, operability and scalability of the blockchain, involving new side chains, sub-chains, cross-chains, and hierarchical or partitioning technologies. We also invited many guests to introduce the latest development in the above aspects. According to my observation, most of these technologies will mature in 2019, and the main network will go online. The launch of these new technologies is a prerequisite for large-scale commercial application of blockchain. If the existing blockchain technology cannot be greatly improved in terms of usability, operability and extensibility, large-scale commercial applications will not be sustainable. From a technical perspective, large-scale commercial applications of blockchain can be expected after 2019.
But the maturity of technology is not enough. In order to truly realize a large-scale use of Dapp and commercial applications on the blockchain, we must also prepare for it. That is what digital currency that can be truly used as payment tool, exchange medium, measure of value and store of value. Everyone thinks that BitCoin is a payment system, but it cannot meet our demand for payment, because its value fluctuates significantly. For example, a mall sells a bottle of water and accepts bitcoin payments. When wakes up the next morning finding that 20 percent of the value is gone, so it can’t be accepted. Some Japanese merchants have announced they will accept BitCoin payments after Japan made it clear the BitCoin can be used as a payment tool. But it turned out to be a big problem for the stability of the company’s balance sheet no matter it goes up or down. This affects not only the value of the item sold, but also the credit evaluation of the enterprises and the services provided by the bank to the company.·
We see the technology of stabilizing digital currencies is going to grow rapidly in the coming year or in the near future. Within two days of the convention, it was reported that New York’s financial regulator had approved two companies in the state to issue a stable digital currency backed by US dollars. I believe that if a central bank could issue a legal digital currency, the functions of digital currency as a payment instrument, medium of exchange, measure of value and store of value would be satisfactorily realized.
This is the second requirement for large-scale commercial applications. But is it enough to start large-scale commercial applications only with the above two conditions? Actually not, the third condition is also needed: the construction of laws, regulations and the supervision system. The digital economy of blockchain must be guaranteed by law and must be compliant. In this respect, there can be no decentralization.
What is the decentralization of blockchains? Decentralization is relative to the Internet. The core difference between the Internet and the blockchain is that the Internet is a centralized trust mechanism, while the blockchain is a decentralized trust mechanism, without the need to trust a third party. Is your trust mechanism guaranteed by an institution or a distributed trust system?
The second core difference between the Internet and blockchain is the incentive mechanism instead of the digital currency or the ability to issue currency. Economics has been discussing the problem of incentive incompatibilities that is not solved on the Internet under the corporate system. But on the decentralized blockchains, we have complete incentive compatibility. Without shareholders, boards and employees, conflicts of interest between them would not occur again. I think these are the two most fundamental differences between the Internet and blockchain.
This afternoon, Aaron Kaplan, a Wall Street lawyer, introduced us the latest legal progress of the US Securities and Exchange Commission on the regulation of blockchain and digital assets. At a congressional hearing late last month, the Federal Reserve suggested none of the digital currencies were currencies and subject to Federal Reserve. The SEC argues that other Token currencies except BitCoin and Ether are probably securities. This morning, it’s reported when a local court in the United States examined the issuance of Token by a company, the judge had a sentence: “All Tokens are securities.” This is the latest legal development in the United States.
When the judge wrote down this sentence, in fact, its legal construction in the United States was completed. Because in the common law system, we need to judge what is a security and what is not. Finally, we should expand the connotation of securities by case law in order to enrich the law. Although this was the verdict of the district court judge, it basically ensured that the Securities and Exchange Commission conducted its enforcement on the basis of precedent.
If the above is true, firstly, we don’t need to argue about whether a certain Token is a functional Token or a security-type Token, because the US courts, SEC, regulatory authorities and judicial system all consider it as a security. Perhaps the company will appeal, but the high probability court will not overturn the previous judgment. Although the company will appeal, the court probably will not overturn the previous verdict.
Secondly, if Token is judged to be a security, then the current laws related to security are very sound and complete. We need to do things in accordance with the Securities Law. If securities laws are to be followed, much will change in the industry — everything from issuance to trading needs to be regulated and legitimated. Aaron Kaplan has just introduced the RegA and RegD concerning Token public placement and private placement in American Securities Law. This is the laws and regulations based on the current securities in the United States. The Jobs Act clearly tells all practitioners what you can do and what you can’t do.
We can imagine how much the industry will change in 2019 as these three fundamental conditions become clearer and more mature. At this moment, I may not have the ability to tell you what will the blockchain become. But we know a wave of changes is coming.
I would also like to point out that from Vitalik’s speech at yesterday morning to today, many speakers have raised an issue — data privacy protection. This is a topic that is rarely mentioned, at least not so intensively, at the first, second and third summits this year.
Why has data privacy protection been raised to such a high level and attracted so many guests’ attention? This is all brought about by blockchains. Blockchain and encryption algorithms provide a good solution for privacy protection.
And why are people so concerned about data privacy now? This is what AI brings. Until 2016, few people cared about how their data was exposed, collected or used by others on the Internet. With the maturity of AI technology, people find the institutions that collect our data can do a lot of things with the data and make a lot of money. If it’s valuable, why should I give you my data, and what do you give me? Have you got my permission before creating the values by using my data? Can you give me some of these values? AI can’t solve this problem, though AI causes it.
How to solve this problem? Only zero-knowledge proof, homomorphic encryption, secure multi-party computation, verifiable computation and other cryptographic encryption algorithms are built on the blockchain to ensure your data sovereignty. Blockchain can turn data into assets. Because blockchain can help you confirm your rights and prevent data from being misused and double spending. Double spending is not just about BitCoin, but also about making any data registered on the blockchain impossible to abuse plus encryption algorithm.
This is why data privacy protection will be mentioned repeatedly in the blockchain technology forum in the past two days which is a new trend and trend.
It can be expected that more and more entrepreneurs and cryptographers will start to join the blockchain industry, investing more resources to study the currently immature encryption algorithms. These algorithms were proposed 20 years ago, and no one has been studying them, let alone engineering teams trying to implement them because there is no demand. But now, AI brings this requirement whose solution is encryption algorithm and blockchain.
Mr. Sun Lilin has just returned from American Cryptographic Association in the US. He describes the various requirements submitted so far to the ACA, and the papers presented at the annual conference on cryptography. Nearly 50% of the topics were related to the MPC (secure multi-party computation). The MPC is actually a paper written more than 30 years ago by Yao Qizhi, an academician at Tsinghua University. Few people have done research about this before. Privacy protection, data sharing, and the incentive mechanism on the blockchain distribute their respective values.
It’s very late, so I’ll share with you what I’ve learned in the past two days. The real reason why I chose to be the last speaker is that at this moment, I have the opportunity to say to all the participants and speakers, “thank you so much!”
See you next year.