A week or two ago, we witnessed the rapid expansion of the bubble:

1. My mother asked me, “XX currency can buy, your aunt Guo said that it can rise ten times.”

2. Start-up friends, no matter what line of business, all come to me to consult, “do you want ICO, how ICO?”

 

This huge bubble, if not properly deflated, will burst unimaginably. Fortunately, the supervision arrived yesterday as promised, so I don’t have to worry about my mother being cheated of money by crooks, and the entrepreneurs are back in business. Real blockchain long-term investors also have an opportunity to cover positions at a low price. Without the interference of short-term speculation, we can talk rationally about how to make blockchain value investment.

1. What is the development stage of blockchain?

Let’s start with an estimate of blockchain user penetration (approximately equal to digital currency user penetration). According to Cambridge research, there are about 2.9 million to 5.8 million people in the world using digital currency wallets (Dr Garrick Hileman & Michel Rauchs,2017). With 3.7 billion Internet users in the world (Internetlivestats,2017), the digital currency penetration rate is approximately 0.12%.

If you look at Internet user penetration, 0.12 percent is about where the Internet was in 1992.

So what was the state of the Internet in 1992?

The Internet was still in its infancy in 1992, and the WWW was just two years old. It combined hypertext with the Internet to create a global repository of information that would become the most widely used service on the Web. At that time, the NSFNET backbone network speed was 44.736M BPS.

 

It took more than 20 years for the Internet to develop from 1970 to 1992, when there were only 10 websites; From 1995, the Internet bubble gradually heated up, and a large number of websites were established. Until the bubble burst in 2000, the industry continued to develop steadily after setbacks and recovery.

 

We cannot say with absolute certainty that the blockchain of 2017 is the Internet of 1992. Driven by the benefits of currency appreciation (development funding is plentiful, talented people are involved, and social recognition is high), blockchain is growing much faster than the Internet. However, in terms of user penetration and infrastructure perfection, the current blockchain is still in a very early stage, similar to the Internet before 1995.

2. What is the main direction of blockchain development at this stage?

One of the main problems with many ICO projects in the market over the past few months is that they ignore the impact of timing on the success of the project. As we all know, blockchain technology has the advantages of decentralization, security, transparency and traceability, and its own economic incentive model, which is expected to bring significant changes to the whole society. But if someone had told me in 1992 to immediately start building an internet-based online video platform that would allow everyone in China to see videos uploaded by users all over the world, I wouldn’t have given him my money.

 

At present, the underlying technology of blockchain is still facing severe technical bottlenecks, processing speed and throughput are still limiting the large-scale commercial use of blockchain technology. Bitcoin, for example, is relatively fast. Currently, it takes us a few days to transfer money across borders through banks, while it only takes a few minutes for Bitcoin to transfer money across borders. The speed is improved because it saves the time for centralized inter-bank clearing and settlement. But compared to Alipay, which processes nearly 100,000 transactions per second, Bitcoin’s seven transactions per second is ridiculously slow. Ethereum, with its smart contracts, faces the same problem. In theory ethereum can handle more than 1,000 transactions per second, but in practice it is much slower than that, far from centralized processing speed.

 

Therefore, at this early stage in the history of blockchain, the current development is still technology-driven, and the protocol layer needs to be gradually improved and optimized. When the underlying platform is efficient and stable, and the infrastructure is perfect, the opportunity for the upper application will really come.

3. What are the most valuable areas on blockchain?

We keep making the analogy between blockchain and the Internet, but in fact, they differ in one core way: the value of the underlying protocols and applications of blockchain and the Internet are reversed. This stems from two core features of blockchain. The first feature is that zero-knowledge proofs cause changes in data ownership. In other words, the user’s personal data on the blockchain belongs to the user and does not need to be provided to the application and stored on a central server. Then services at the Internet application layer, such as BAT, the core support “data” behind the market value, will lose their original value in the blockchain field. If Baidu did not have this huge amount of user data, would the market still give it such a high valuation?

Another feature is the economic incentive model created by tokens, which places a high value on the underlying protocols. In the Internet age, no one pays for HTTP, no one pays for Email, no one pays for Google search. The dominant tenor of information and services in the Internet age is free. If the Internet is to break the barriers of information transmission, then blockchain is to break the barriers of value transmission and solve the problem of service realization. By tokens, users pay for services they use, service charge for the payment of maintenance service nodes directly, as more and more people need to use the service and buy tokens, all cash, including founding team may occupy a large part of the) can enjoy tokens prices brought about by the difference between profit (most of the total dollar amount of money is limited, Demand exceeds supply, leading to higher prices. Take Ethereum for example. Each Ethereum-based dApp needs to pay a gas fee to run, so the more applications running on Ethereum, the more people need to buy Ethereum, the higher the price of Ethereum, the higher the valuation of Ethereum.

So for these two reasons, protocols seem to be worth more than applications in the blockchain world.

4. What is the pattern of the blockchain industry at this stage?

This figure is based on the author’s current cognition. If you have different views or omissions, welcome to discuss. Wechat:liuaqiu

The blockchain 1.0 era was dominated by payment currencies represented by Bitcoin (right), while the blockchain 2.0 era started with smart contracts and gradually evolved into a comprehensive ecology (left).

  • Underlying protocols: The underlying public and private chains are currently working on performance and efficiency issues, as well as ecological layout.

  • Middle layer & Protocol Layer: Infrastructure is being actively built to provide services and interfaces for upper layer applications, such as distributed computing, token transactions, etc.

  • Upper application: This is the area with the most fraudulent projects before regulation. Only those scenarios where decentralization significantly solves user pain points are worth investing in.

Blockchain is an industry without borders. Entrepreneurs in any country are facing competition from all over the world. A few years ago, There was a gap between China’s blockchain technology and that of the rest of the world, but with the injection of capital and talent, the gap is gradually narrowing. Just this year, Chinese public chains Neo and Qtum have broken into the world’s top15 tokens by market capitalization. But if we stop there, we risk giving away the entire industry.

5. What are the main risks at this stage?

Before regulation, the benefits brought by ICOs accelerated the development of the industry, but also accelerated the bubble. According to the report of the National Internet Financial Security Technical Experts Committee, a total of 65 ICO projects have been completed in China as of July 18:

Before 2017:5

January-april 2017:8

May 2017: Nine

June 2017:27

July 2017 (as of 18th) : 16

This is very similar to the dotcom bubble two decades ago. Baidu Baike’s entry on “Internet bubble” describes it like this:

During the seven years of the dotcom bubble (1994-2000), a similar frenzy was felt in the number of websites launched. However, please also pay attention to the last column, under the froth, we also have some results:

Source: NetCraft and Internet Live Stats (elaboration of data by Matthew Gray of MIT and Hobbes’ Internet Timeline and Pingdom)

Not all is dross beneath the bubble. During the bubble’s gestation period, many giants were born: Yahoo in 1994, Amazon in 1995, Yandex and netease in 1997, Google, Tencent, Sina and Sohu in 1998, Paypal and Alibaba in 1999, baidu in 2000.

The risks of this era include social unrest and capital loss caused by bubbles; There is also the opportunity cost of giving away the opportunity to lay out the future. The over-inflated bubble and over-depressed environment will bring painful consequences to China’s blockchain industry.

6. Conclusion

In this early stage of blockchain development, investors and entrepreneurs should pay more attention to protocols and infrastructure to drive the industry with technology. At the same time, pay attention to technology maturity and market penetration, and make layout when the application layer inflection point arrives.

As a qualified institutional investor and staunch supporter of blockchain, my organization will do its best to provide support for blockchain entrepreneurs. Welcome entrepreneurs to come to exchange.

We would like to thank ICO regulation, which has protected the lives of ordinary investors, held down the fickleminded minds of entrepreneurs in irrelevant industries (at the present stage), and also given the real blockchain entrepreneurs/investors a healthy development opportunity. I believe that as the market gradually returns to sanity, the entrepreneurial environment of the blockchain industry will become more and more open. Let’s get through this together.

Common knowledge: ICO, token, blockchain relationship

ICO is not an ordinary crowdfunding method, it emerged on the basis of blockchain technology. At its core are tokens (known as tokens, or digital money when circulated on exchange markets). The value of Token is that it provides an economic incentive model that brings together the interests of service providers (founding team, node maintainers), service users (B/C users, partners) and investors. Tokens are like blood in the human system. Most tokens have a limited amount and are highly mobile. The more organs (the stakeholders mentioned above) need blood, the more valuable it becomes. Among the many usage scenarios of token, ICO is only one for investors.

Q coins are not tokens? Why are tokens inseparable from blockchain?

1. Blockchain solves the problem of trust in transactions. In the past, counterparties could not fully trust each other and needed a centralized organization to do credit endorsement, such as Tencent. Blockchain, on the other hand, has built-in trust relationships (trust is embedded in code) that allow any party to complete a transaction without trusting the counterparty.

2. Blockchain unlocks some of the benefits of centralised organisations that provide trust endorsements, which are used to motivate communities and create greater value overall.

3. The overall value of the community increases, which is reflected in the rising price of tokens and the common prosperity of the entire community.

References:

1.Dr Garrick Hileman & Michel Rauchs (2017). Global cryptocurrency benchmarking study. 

2.Internetlivestats (2017). Internet users in the world [Online] Available from: http://www.internetlivestats.com/ 

3.Joel Monegro(2016).Fat Protocols [Online] Available from: https://www.usv.com/blog/fat-protocols 

4.Jacor(2016). Where is blockchain now in comparison to the Internet History [Online] Available from: https://steemit.com/introduceyourself/@jacor/where-is-blockchain-now-in-comparison-to-the-internet-history-steemit-histo ry-in-the-making