Original author: Meng Yan
In November 2013, Vitalik Buterin published the first version of the Ethereum Whitepaper. Afterwards, people often regarded this as the starting point of the “Blockchain 2.0” era. However, at that time, it was actually the emergence of Ethereum that separated “blockchain” as a separate technology from “digital currency”. In other words, Bitcoin, as “Blockchain 1.0”, was retroactively recognized, and the blockchain as an independent field should be counted from November 2013, making it exactly ten years now.
Blockchain and digital currency should be regarded as two different industries because their goals and value propositions are very different. The digital currency industry, commonly known as the “coin circle,” has created a unique parallel world where virtual digital assets are created, a free financial market is built, and profitable transactions take place within it. Due to its rules and values that are incompatible with the real world, the coin circle rarely or completely disregards its impact on the real world or the physical economy. The blockchain industry, on the other hand, is fundamentally different and aims to transform the physical economy and impact the real world. Therefore, people in this industry refer to themselves as the “chain circle” to differentiate themselves.
Blockchain was once seen as a disruptive technology on par with AI and held high expectations. However, truth be told, after ten years, the results have been disappointing, and it can be considered a typical case of a promising start followed by a decline. Not only have there been no groundbreaking achievements, but some projects that were once highly anticipated, such as the supply chain management system developed by IBM in collaboration with Maersk and the blockchain-based stock trading system of the Australian Securities Exchange (ASX), have ended in dismal failure. Some well-known projects that were originally centered around blockchain have also abandoned it and returned to traditional architectures. These failures undoubtedly severely undermined people’s confidence in the blockchain.
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Where did the problem lie? Does blockchain still have a future? What should be the next step?
I started learning and researching blockchain in 2015 and initially identified myself as a member of the chain circle. Starting from the end of 2017, I gradually shifted my focus to digital assets. However, personally, I identify more with the value proposition of the chain circle and hope to see this new technology, blockchain, have an impact on a broader real world, create tangible value visible to the naked eye, and gain more recognition from ordinary people. Therefore, on the occasion of the tenth anniversary of the emergence of blockchain as a field, I would like to briefly share my views.
Let me begin by saying that blockchain is indeed still in its early stages. Many people compare blockchain with AI, electric vehicles, and cloud computing, which were technologies that were popular a decade ago, and they see how much progress has been made in those areas while blockchain seems to have done nothing. But this comparison is really unfair because those fields are actually old wine in new bottles, whereas blockchain is truly a nascent and completely new field. Specifically, blockchain is an algorithmic solution to a theoretical problem in the field of distributed computing and social collaboration: how to generate and propagate trust without relying on authority? This problem has troubled humanity for thousands of years, but it was not until the Bitcoin Whitepaper was published in 2008 that a viable solution was suddenly presented. In other words, the blockchain industry is still in the first decade after the theoretical breakthrough. If we take a look at the most popular technological industries today, such as chips, the Internet, AI, electric vehicles, and new energy, we will know that their theoretical breakthroughs happened several decades or even over a hundred years ago. When they were in their teens, they might not even have products or the qualifications to draw lessons. In comparison, blockchain has at least achieved some things and accumulated some lessons. Therefore, blockchain is indeed still in its infancy, and we should approach it with more patience.
However, despite this, there have been many unsatisfactory aspects in the development of the blockchain industry in the past decade, and many detours have been taken. If these detours were not taken, the blockchain industry could have developed better than it is now. Some of these problems are objective and cannot be solved by the blockchain industry alone, but there are also many subjective problems that are worth summarizing and learning from.
The first problem is that the blockchain industry has blindly applied the technical tools and ideas of the cryptocurrency industry, leading to serious “rejection reactions” in the implementation of real-world applications.
There is no doubt that the cryptocurrency industry has always been at the forefront of blockchain technology applications. However, technologies like Bitcoin and DeFi are extreme means to solve extreme problems. The libertarian digital jungle environment in which they exist is very different from the real world: everyone is anonymous, but everything else is public and transparent, digital identities can be created and discarded at will, code is law, and there is no law outside of code. These rules and ideas, which are not only incompatible with the real world today but also unlikely to be accepted by mainstream society in the future, have permeated all aspects of blockchain technology. When the blockchain industry brings these technologies into the real world, it did not carefully study and discuss within the industry which parts can be learned from and which parts need adjustment. As a result, serious impedance was encountered in the implementation.
The second problem is that the emphasis on value propositions was misplaced and the pitch was set too high, without finding the right position.
The core ideology of the cryptocurrency industry is decentralization and consensus. When the blockchain industry started, it uncritically copied this value proposition and propagated it everywhere, placing unrealistic “decentralization” as the main value proposition. It immediately took on a revolutionary posture of replacing and subverting traditional architectures, making enemies on all sides, and it was difficult to gain user understanding and support. The proposition of decentralized consensus can only be widely recognized under the condition that the central authority is acting maliciously and everyone knows about it. In the field of digital currency, this condition is partially met, but in most fields, this condition is not met. In other words, in most cases, the traditional trust mechanism based on trusted third parties has not exposed serious problems, but is trusted by users because of its flexibility and maturity. In this case, trying to exaggerate the risk of centralized malfeasance and then attempting to completely replace the traditional architecture with an immature new architecture, naturally users will not buy it.
In addition to practical considerations, from a logical perspective, “decentralization” and “distributed consensus” should not be the core value propositions of the blockchain industry. As mentioned earlier, the essence of blockchain is to solve the problem of how to confirm facts and generate and disseminate trust without relying on authoritative trusted third parties. In the application scenarios of digital currency, facts are determined by a majority vote. However, in most industry applications, facts are either determined through negotiation among relevant parties or authorized by regulatory authorities, and it is almost never up to a group of unrelated people to vote and determine. Therefore, the core value proposition of the blockchain industry, which aims at industry applications, should not be “decentralization” or “distributed consensus”.
The third issue is being caught up in the basic question of “to have coins or not to have coins,” wasting a lot of time.
For a long time, there has been a debate in the blockchain community about whether pure blockchain applications must have coins. This is a very meaningless debate because the conclusion is very clear and has been discussed long ago: blockchain applications must have coins.
Why is this the case? Firstly, blockchain applications are fundamentally about solving trust issues, and in the business field, 99% of the application scenarios related to trust are related to money. Without money on the chain, there is no need to solve any trust issues, let alone the necessity of using blockchain. Secondly, a core capability of blockchain is to program payments. With this capability, many application scenarios can be greatly improved. Without this capability, the significance of using blockchain is greatly diminished. Thirdly, blockchain needs to solve the incentive problem, and there must be money on the chain for that.
All of these are very obvious reasons. However, because in some countries and regions, governments and the public are very averse to activities such as “issuing coins,” many people in the blockchain community have been trying to comply with the so-called concept of “coinless blockchain” under restrictions. They actively weaken blockchain into a slow and expensive crippled database, and naturally achieve nothing after a long time of effort.
In fact, having coins on the chain does not mean that one has to “issue coins.” It is entirely possible to introduce central bank digital currency (CBDC) or compliant stablecoins, which can also bring out the value of blockchain. Instead of wasting time exploring the impractical concept of “coinless blockchain,” it is better for everyone to work together to fully communicate with the government, regulatory authorities, and the public, clarify interests, and achieve the on-chain integration of compliant digital currencies as soon as possible.
The fourth issue is not fully exploring the potential of “tokens.”
“Tokens” is a term coined by Mr. Yuan Dao and me in 2017, corresponding to “tokens” in the blockchain. At that time, our observation was that although blockchain could do other things, it was only exceptionally good at one thing: managing and programming tokens. Therefore, the expansion and exploration of blockchain applications largely reflected the expansion and exploration of the potential of tokens. From another perspective, the core value of blockchain is to solve the trust problem, and trust requires a credential as a carrier. In the real world, licenses, seals, badges, signatures, bills, currency, and contracts are trust carriers, while in the digital world, blockchain tokens are the best trust carriers at the current technological level. On-chain tokens have unparalleled advantages in verification, circulation, transactions, and programmability compared to other trust carriers, making them able to demonstrate the value of using blockchain very well. Therefore, tokens should be at the core of blockchain applications.
However, from the practice in the blockchain community in recent years, this has not become a widespread consensus. Many blockchain projects have a severe lack of understanding and application of tokens, resulting in the use of only a few very basic token standards, such as ERC-20 and ERC-721, and then complicating the business logic. This reduces the comprehensibility and functionality of the solutions.
The fifth issue, the lack of industry practices to address data privacy concerns.
In the cryptocurrency industry, users are anonymous, but all the data and transaction history behind each address is public and transparent. This is contrary to the real world, where users need to provide their real identities for business activities and be subject to regulations. However, their business data and activities are considered private and do not need to be disclosed unless under special circumstances. This creates a contradiction between the attitude towards privacy of blockchain technology originating from the cryptocurrency industry and the needs of the real world. How to address this contradiction in industry blockchain applications is a fundamental question that determines whether blockchain can be implemented. However, some projects in the crypto space not only avoid addressing this issue directly but also try to persuade users to accept the concept of data privacy in the cryptocurrency industry, which is both unreasonable and impossible. Of course, I am aware that some projects are dedicated to solving this problem, each with their own methods, but there is no industry-level standard practice, and there is little horizontal discussion on this issue. It can be said that without addressing this problem, blockchain will have no chance of being implemented in the real economy.
There are certainly other reasons why blockchain applications in the industry have not been implemented for a long time, but I believe the above five points are the most worthy of attention.
Based on the analysis above, I have the following suggestions for the crypto industry to achieve breakthroughs in the future:
First, view blockchain as a solution to specific problems rather than a “blockchain revolution”. It should integrate and coexist with traditional architectures instead of aiming to replace and disrupt them. A pragmatic analysis of the real demands for trust in application scenarios should be conducted, without exaggerating the risks of centralized malfeasance. Problems that can be solved by centralized solutions do not necessarily have to be put on the blockchain. Problems that can be solved by cryptography do not necessarily have to be solved using blockchain. Allowing blockchain to play a role in key positions is more conducive to its healthy development than trying to dominate all aspects.
Second, actively promote the integration of central bank digital currencies (CBDC) or compliant stablecoins onto the blockchain. This is a crucial step for the implementation of blockchain applications. Instead of getting caught up in the value debate surrounding CBDC, it is important to recognize that the promotion and adoption of CBDC will encourage millions of users to establish and accept sovereign identity, and it will facilitate the integration of regulatory technology and blockchain. This is the most important foundation for widespread blockchain applications. Once this is achieved, everything else will follow suit; if not, the crypto industry will stagnate for a long time.
Third, deepen the understanding and research of tokens and unleash their potential as soon as possible. Developers in the domestic blockchain industry need to move away from the misconception brought by the term “tokens” and realize the rich expressive capability and programmable potential of tokens as trust carriers. However, it is also necessary to prevent the extreme approach of “tokenizing everything.”
Fourth, in the short to medium term, the breakthrough still lies in financial, trade, and payment-related applications. The main value proposition is to express, circulate, trade, program, and regulate assets, highlighting efficiency advantages and weakening ideology, striving to achieve breakthroughs in these aspects as early as possible. Without breakthroughs in these directions, it is difficult for blockchain applications in other fields to take off.
Fifth, solving the issue of protecting privacy information is one of the most important topics. Discussions should be conducted throughout the industry and relevant standards, practices, and tools should be formulated.
Sixth, serious consideration should be given to how to incentivize users to adopt blockchain solutions. Blockchain is a new tool, and compared to mainstream technologies, the benefits it brings to users are not initially obvious. It is necessary to achieve network effects before its significant advantages can be demonstrated. For this type of technology to develop well, it is important to clarify the question of “who are our friends and who are our enemies” and gain as much support as possible, such as learning from the internet and the cryptocurrency industry and considering subsidies for early adopters.
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