Latest Point from Dr. Xiao Feng: What is the Application Value of Blockchain?
As we all know, the development of blockchain applications have been carried out in full swing in recent years. How to use blockchain and maximize its value has become a hot issue. If we want to understand the value of blockchain application, it is better to look at it from a historical perspective.
So first of all, let’s review the development of basic technologies over the past 100 years.
At the end of the 19th century, the communication technology, such as electricity, telegraph, telephone, radio, etc. were invented by great inventors, including Edison, Nikolai Tesla, Marconi, etc. In this era, these technologies were concentrated in the US. Benefiting from this, the US was able to establish its position as a global economic overlord at the end of the 19th century.
These communication technologies and electrification technologies are what we call CT technology. Except what were mentioned above, mobile communication, 5G, for example, is also part of the communication technology.
In the 1970s and 1980s, a new round of infrastructure revolution took place again. We call it the information technology revolution. In the middle of last century, information technology emerged, indicating that a new and revolutionary cycle of technological innovation began. Information technology includes computers, operating systems, software tools, the Internet, and IoT.
These basic technologies have further developed in the early years of this century. We call this round of new technological revolution Data Technology Innovation. The innovation of data technology contains what we are going to discuss today, such as blockchain, cloud computing, artificial intelligence, cryptography, encryption algorithm, genetic engineering, etc. I personally think they all belong to data technology.
The basic technology has experienced the above-mentioned three phases of major, inventive and innovative development over the past 100 years, followed by three tremendous upgrades of the industrial structure.
At the end of the 19th century, with the development of those CT technologies, we stepped into the Electrification Age. Many famous enterprises were founded at that time, such as GE, IBM, and AT&T. Then, based on the information technology revolution that occurred last century, the industrial structure had again been upgraded. IBM, Microsoft, Intel……many of today’s star IT enterprises were founded. At the beginning of this century, with the iteration between IT technology and data technology, the new star companies like Google, Tesla, have evolved. And yes, Microsoft still keeps its superstar position.
These are changes of the industrial structures brought about by the invention and innovation of basic technology over the past 100 years. Well then, let’s take a look at how the enterprises have experienced its own ups and downs in the process of such a leap in industrial structure.
There are four enterprises I would like to talk about.
The first one is GE. As we all know, GE has declined today, with its market value of more than $600 billion at its best time to only tens of billion dollars now. In fact, if you look back at GE, you will find that its core business failed to upgrade in the 1970s. It has always stayed in the age of electrification. And then you know, under the pressure of Wall Street, Jack Welch was appointed CEO to GE. What strategies did he take?
First, 6 Sigma was adopted to improve the efficiency. At the same time, they turned to industrial finance. By the time Jack Welch left office, more than half of GE’s profits came from its financial business instead of its original core industrial businesses. The 2008 financial crisis completely exposed its structural problems. The core business failed to be upgraded, leading to fatal problems in the operation.
For IBM, there is this book called Who Says Elephants Can’t Dance, telling the story of how IBM, an old company born in the 19th century has upgraded from electrification to informatization during the 1970s-1980s. The “elephant” learned to dance eventually, which means it successfully upgraded to the information age. Obviously, IBM did an excellent job in the era of information.
The third one I wanna talk about is Microsoft. In this century, this star enterprise from the age of information technology once had some trouble in operation. Fortunately, Bill Gates quit in time and Microsoft, led by the new management with expertise in digital technology, successfully upgraded to the digital age and continued its former glory. Its value increased from the bottoming 300 billion to 1.3 trillion US dollars.
Besides, IBM is also embracing the digital era by changing its management this year and especially by acquiring an open-source software company last year at a hefty cost.
In a digital era where algorithm services are commonly delivered through cloud and APIs, you may be shocked to find someone selling AI algorithms wrapped up in a hardware. But that’s exactly what IBM did, launching AI-powered machines known as Watson. It’s what companies did in the information age, I mean selling their capabilities through hardware. What you should do now is to offer cloud services or deliver algorithm services through APIs, instead of making a real-world machine. Obviously, IBM is insisting on an old model that should have long remained in the information age, and this partly explains why it’s performing poorly over this decade.
In the digital age we have Microsoft, which has made a perfect transition. We also have Tesla, a digitalized newborn just like Microsoft in the era of information technology. By now Tesla is worth over 200 billion dollars. This number is bigger than the combined total of five to six traditional automobile enterprises — excluding Toyota, of course.
By studying the changes of basic technologies, industrial structure, and businesses over the past century, we may come to a tentative conclusion that any industry and company must upgrade and transform itself on the basis of and in parallel with the advance of fundamental technologies.
Well let’s get back to blockchain applications now. Blockchain is a basic technology underpinning the whole digital world. But how to actually upgrade our industrial structure or business models using blockchain technology?
I figured out two paths.
For one path, I’ll call it reconstruction or innovation. Tesla has been a good example. Leveraging a set of digitalized technologies, Tesla has reconstructed the whole automobile industry, one of the most brilliant products of the industrial revolution. Automobiles are not greatly changed, except that the way to make them is not like what it used to be.
A traditional automobile usually consists of 30,000 parts, while electric-powered ones only have 3000+ parts. The physical structure doesn’t seem to matter now. An electric car is not complexly made on its physical structure; the core value lies on its software and system powering the automatic drive. Tesla shows a typical way to reconstruct something traditional. Today we find reconstruction quite necessary for many items that grew out of the industrial revolution.
Another example is Ethereum, something completely new and innovative. It is through reconstruction or innovation that blockchain can make the best of its value and power as a digitalized technology.
The other path I call it improvement and even continuation, which means just continuing or improving the old industries and structures. There are also many cases for this one. For example, blockchain has already been used for storage and traceability, which is an attempt to improve the traditional industry in terms of its side effects, instead of a total revolution. Blockchain used in the supply chain management is another typical example of continuation and improvement, which will see side-effect improvement instead of revolutionary and explosive growth.
So we should realize, for blockchain, a basic technology, to unleash its greatest application value, it must integrate with all kinds of technologies to bring in innovation.
What we talk about is not a single technology, though it can also create values. For example, when you use blockchain for storage and traceability, you are only using the distributed database. If you go further to build a decentralized business organization, you will employ the blockchain network. If you want to leverage the decentralized programmable feature in your business, you will use smart contracts. If you involve privacy computing into your business, you will use cryptography technologies.
Eventually, if your innovative business is equipped with economic and incentive models, it involves many crypto technologies.
Blockchain is the core basic technology of digital economy. Tapping into its largest potentials requires integrated innovation. Focusing on one feature may create some values but cannot maximize the values.
Apart from integrating blockchain technologies for innovation, to build new business models in the new digital economy, we should integrate blockchain with many other digital technologies, as I mentioned before. Only with this integration can you create many valuable business models in the innovative digital economy.
For example, you may need the Internet or IoT. They enable you to collect numerous data at an extremely low cost. The greater the number of the data, the more valuable it will be. A small number of data is useless. Besides, cloud computing helps you conveniently store and compute the data at a very low cost.
For data on blockchain, we can at least trust them, even if there is no trusted third parties, at a very low cost. Cryptography, or privacy computing algorithms, makes sure the privacy of the data is well protected. Finally, AI with various application algorithms is good at analyzing and using the data. The digital economy comes right from the integration of these digital technologies.
Let’s go back to our topic today, what is the greatest value of blockchain applications? It’s neither storage nor supply chain finance but rebuilding and innovating production relations. To achieve this value, you need to put smart contracts, privacy computing, AI and many other technologies together.
We all know, in terms of platforms, business models can be divided into 3 types. The first is the most typical model in the industrial revolution or the electrification age, the unilateral platform.
On this kind of platform, you connect customers through unilateral sales channels and pursued scale effect. You want products to be as standardized as possible so that you can sell the same product to more customers. Creating scale effect with unilateral platforms is the solution in the electrification age and the most typical business model of the industrial revolution.
The information age gave rise to bilateral platforms. Cases in point are Uber and Didi. Bilateral platforms bring network effect to business.
Moving into the digital age, supported by a series of digital technologies we have just mentioned, we shifted from bilateral business platforms to multilateral business platforms. They have attracted all kinds of participants, who may not be related to each other, neither in stock rights or investment. But all participants come together, aiming to build an ecosystem.
What multilateral platforms contribute to business is an ecosystem. So it’s an evolution from scale effect to network effect, then to ecological effect. It is the ecological effect that can nurture a sustainable and dynamic business.
So a sustainable and dynamic business relies on multilateral platforms. Blockchain is such a platform that allows all stakeholders to cooperate smoothly at a very low cost to create ecological effect and rebuild production relations. That’s the greatest value of blockchain applications.
*This is the keynote speech delivered by Dr. Xiao Feng, CEO of Wanxiang Blockchain, at the 2020 China-Singapore Blockchain Leaders Summit.