Point from Dr. Xiao Feng: A New Phase of Blockchain- Explosion of Application Protocols
This is the keynote speech delivered by Xiao Feng, Vice Chairman and Executive Director of China Wanxiang Holding Co, Ltd, Chairman and CEO of Wanxiang Blockchain, at the 2022 Global Blockchain Summit hosted by Wanxiang Blockchain Labs where he shared his observations on the similarities and differences of the development of the Internet protocols and blockchain protocols and his thoughts on the explosion of blockchain applications.
For a video review of this insightful speech, please go to:
Dear friends, ladies and gentlemen, thank you very much for participating in the Wanxiang Global Blockchain Summit. The theme of my speech today is “A New Phase of Blockchain-Explosion of Application Protocols.” The Merge of Ethereum, namely the upgrade of Ethereum’s original Proof of Work mechanism to Proof of Stake mechanism, was finished a few days ago. This upgrade was not only significant to Ethereum but also marked a historic moment for the blockchain technologies and applications around the world. This landmark update indicates that infrastructure developments of the blockchain world is nearly finished. It is opening a new era for application.
But before we talk about the explosion of blockchain application protocols, let’s first look back on how the Internet protocol stack was built. From the 1970s to 1990s, Internet protocols took on various forms and types.
There were five major protocols at the time.
1. DECNET developed by the renowned digital equipment company DEC
2. SNA by IBM
3. OSI by a European official institute
4. TCP/IP by American scientists
It was TCP/IP who won the battle of protocols that lasted for several decades. Why is tcpip better than all those Internet protocols proposed by big companies and scholars? I think there are mainly five reasons.
Firstly, TCP/IP is demand driven. Code precedes standard code first. In other words, once the code the standard was established upon the codes that were tested by the market. It is quite different from OSI, an Internet protocol model created by a European official institute, which firstly set framework, then established standard and finally came to codes. The demand driven TCP/IP is obviously more competitive.
Secondly, TCP/IP was developed by communities and autonomous organizations in a bottom up way. It gradually established an official organization, but two decades ago, namely in the mid-1980s, it was collectively built by a group of like-minded developers and operated as a community.
Thirdly, with the agile development model, TCP/IP is able to make the best of the technical potential to iterate rapidly and response quickly to different market demands. However, OSI protocols adopted a waterfall model, which means the model is delivered to users after everything is well designed and allows no upgrades. This obviously cannot meet the demands that change rapidly in the Internet era.
The fourth reason is that TCP/IP is friendly both to developers and users. It always puts customers first.
The last reason is that TCP/IP is entirely open source. Of course, the other Internet protocols are also open source, but they are not permissionless. They are actually proprietary models that need authorization. ICP/IP needs no permission to be used, so everyone is allowed to use it and make it better.
This is what TCP/IP’s success tells us. Actually, we can see that blockchain protocols are very much the same with the Internet protocol in terms of their development ways. The development of Internet protocol stacks and that of the blockchain protocol stacks also follow the same pattern.
TCP/IP model consists of five layers. The first and underlying layer is the physical layer with cables, fiber, etc. The second layer is the data link layer like IP. Then came the network layer, the transport layer and the application layer.
The TCP/IP is built upon these five layers. Taking advantage of this model, we can also design a protocol stack for the blockchain value network.
The blockchain protocol can also be composed of five layers. The lowest one, what we call L0, is the basic layer for the protocol stack of the value network, which includes decentralized bandwidth, storage and computation. Bandwidth, storage and computation will be a fairly important foundation for the future value networks. The Ethereum foundation has declared in this road map that over the next decade, the TPS of Ethereum will reach 10 million. To reach this goal, the bandwith must increase by 100 times.
The second layer will be what we call L1. It is a protocol layer related to value clearing and settlement.
The third layer, L2, is the transaction layer. It is designed for the smooth and efficient exchange and transaction of such assets as NFT, token, etc.
The fourth layer is the data layer. Particles in this layer are used to generate data assets and digital assets. They fall into two different categories. Data asset here refers to the identity data generated from the behavior of users, individuals or agencies on the Internet and blockchain. The behavior data is identified and collected with the identities of users, individuals or agencies on the Internet and blockchain. As for the digital asset, it is a new type of asset you generate on the Internet or blockchain as a creator, including digital arts like NFT.
The upper layer will be L5, also the application layer. All the business scenarios that we are familiar with or use will finally be reconstructed on L5, the application layer. We can redo all the current business on this layer. That is the structure of the blockchain protocol stack we assume.
I personally think that Ethereum has been playing a core role in this structure. On Sep. 15, Ethereum upgraded its consensus from PoW to PoS. It marked a historic moment not only for Ethereum but also for the global blockchain industry. The road map of Ethereum announced by its founder Vitalik Buterin consists of 5 phases. The three phases, namely the Merge on Sep.15, the Surge that will break Ethereum into separate partitions or “shards” and the Verge, referring to the introduction of “verkle trees” are the most important ones. Phase 4 and Phase 5 are just optimization and iteration.
Once the first three phases are finalized, Ethereum, as the underlying value settlement layer of blockchain, will have a high performance and a flexible scalability. Together with the proven robustness and security over the past 7 years, Ethereum has grown into a robust and secure network coupled with higher TPS, which will lay a solid technical foundation to the explosion of blockchain applications.
Apart from the five phases of upgrade, there are also some new technology and protocols on Ethereum mainnet and beyond, such as sharding, layering, side chain and sub chain that collectively in the future make Ethereum securer and more robust and enable higher TPS and scalability. This will hopefully allow the TPS of the entire blockchain world to reach hundreds of thousands of TPS over the next 3 years, 1 million in 5 years and ultimately 10 million in 10 years.
If all this could happen as we anticipate, Ethereum will be the largest contributor to the value settlement of the blockchain protocol stack. Moreover, the infrastructure development of Ethereum will be ended. Built upon this infrastructure, a great number of applications will be developed, ushering in the explosion of blockchain applications.
Now let’s compare the explosion of blockchain applications with Internet applications. Let’s just take a look back at the explosion of Internet applications.
It is widely recognized that the outbreak of Internet applications can be dated back to 2010. However, the Internet model TCP/IP was established as early as 1990s. In 2000, the basic Internet business models were there but failed to be operated in a large scale and to be monetized on.
In 2020, as the mobile Internet, smart phones and especially apps, the new presentation mode of Internet, emerge, we considered that the Internet had entered into the era of application explosion. In the pre-app era, we interact with the Internet via the browsers on personal computers. But most users did not have access to such devices and failed to interact with the Internet. The apps on mobile phones made it easier for users to surf on the Internet, which contributed billions of users to the Internet business. Based on such a great number of users, enterprises can achieve a high conversion ratio and create a great commercial value with referral algorithms and customer profiles.
Taking the explosion of Internet applications as a reference, the explosion of blockchain applications may take off in 2025. This estimation is based on the possibility that the TPS of blockchain systems may reach millions. And DAO, a new way of business organization and management will operate well. That is why I believe 2025 will witness the exploding blockchain applications. First and most importantly, blockchain application protocol must be running on the blockchain. Secondly, it is the smart contracts that ensures the healthy operations of businesses. Thirdly, a decentralized governance mechanism is a must-have. Fourthly, NFTs, instead of just serving as the proof of your digital collectibles, will be the proof of your ability, behaviors, workload, contribution and your activity. With proof like that, blockchain applications will develop an effective token-based incentive mechanism, allowing all users and parties involved to get reasonable and enough incentives.
I would like to talk about two more features about blockchain protocols. Firstly, blockchain application protocols will be open-source and free for collaborations, which means everyone is able to join and use every protocol, without any permission and quit at any time. These are some features of blockchain application protocols, which I believe will also be applied to Web3.0 and DAO.
DAO will provide a major way of business organizations amidst the outbreak of blockchain applications. From the perspective of application organization, DAO has the following features.
Firstly, it is a trust-free network. Trust-free means it is built upon blockchain, smart contracts and digital wallets.
Secondly, it is an entirely transparent network, which means all the data will be publicly available. In this respect, DAO offers a more comprehensive, transparent and authentic database than traditional ones.
Thirdly, DAO is a collectively-owned network without founders and owners but initiators who do not own the network but have some appeal and clout in the community.
The fourth feature of DAO is that it is also a permissionless network. You are free to join or quit a DAO without having to ask for someone’s permission.
Also, in such a business model as DAO, there are two indispensable value assets that are equally important. One is NFT. As I mentioned before, NFT is a proof of your behaviors, activities, contributions, ability and property rights, of course. With all these recorded on the blockchain, tokens can be issued as incentives. In this regard, token is actually an incentive model as well as an exchange in DAOs, because it has certain standards and design of shares. The business model of DAOs, in this respect, is more like Play NFT to Earn Tokens. This is a possible DAO business model I suppose.
Finally, I would like to end by making a conclusion. Blockchain protocol stack is very much the same with Internet protocol stack. The lowest layer of a protocol may come down to the very same one and the upper application layer will breed a variety of protocols. There are hundreds of protocols on the internet application layer, for example. And I believe it will also be the number of protocols on the blockchain application layer in the future. Outbreak of protocols means the explosion of applications and blockchain businesses. That is why I feel so excited about the blockchain industry in 2025.
That is all for my speech. Thank you!