Editor’s Note This time, we want to change the way we report. We don’t want to just write an article that reveals how to get rich in the blockchain field, nor do we want to just throw an article that 95% of the projects in this field are scams, nor can we just say “those who go along with it will prosper, those who go against it will die”, so that you can come to embrace it bewilderingly, but don’t know what to embrace. In the face of blockchain, the world’s most recognized technology, we hope to do our part in the media, give full play to the convenience of access to information, and do our best to solve the common question marks in your heart and mine one by one, so as to truly understand it and grasp it. In recent times, there have been several reports that expose blockchain scams and speculation. These statements are conservative and safe, as there are indeed many bubbles in the blockchain space. But, the first thing we found out for a fact is – that’s not the whole truth. (For ease of reading, we’ve colored or bolded key logical points and essence ideas throughout the text to make it easy for you to connect the dots between previous pieces of blockchain knowledge. The essence is in the third and fourth part. (– Looking forward to starting with you, the road of knowledge about the fundamentals and essence of blockchain, and we will go a long way together.)

First, on December 7, 2017, the price of bitcoin instantly soared to nearly $20,000, a price that was nearly 20 times higher than at the beginning of 2017.

After that, on January 10, the screenshot of Xu Xiaoping, the founder of the Zenith Fund, sharing the blockchain development trend in the group of CEOs of the invested companies circulated and quickly swept the screen in the WeChat circle of friends. Among them, Xu Xiaoping’s words are thrilling: “The blockchain revolution has arrived, and it is a great technological revolution that those who follow it will prosper and those who oppose it will die.”

Previously, blockchain had never attracted this amount of attention. 2008, a paper by Satoshi Nakamoto announced the birth of Bitcoin, a digital currency, and the underlying technology of Bitcoin – blockchain – gradually came into the public eye. However, except around 2013, when Bitcoin experienced a round of ups and downs and attracted numerous fans, the term “blockchain” has not received much attention from the public.

However, this time, the situation is really different.

1

Bitcoin has been climbing for two years

Several interviewees believe that the blockchain has received widespread attention this time around, mainly because of the soaring price of bitcoin.

1

The most direct reason for the spike in bitcoin prices is the announcement of the launch of bitcoin futures by the two major exchanges in Chicago. The two major exchanges scrambled – first, on December 1, 2017, the Chicago Mercantile Exchange Group (CME) announced plans to launch a bitcoin futures contract on December 18. Within days, on December 4, 2017, the Chicago Board Options Exchange (CBOE) announced that it would launch bitcoin futures at 6 p.m. EST on December 10, to get ahead of the CME.

Once these two pieces of news came out, the price of bitcoin jumped from near $10,000 directly to near $20,000 in just half a month, almost in a straight line. It took over 9 years for the bitcoin price to rise from 0 to $10,000, but it only took 17 days to rise from around $10,000 to around $20,000.

But what does this have to do with the blockchain? “It is the high price of the currency that continues to attract more talent and money to the blockchain sector.” Cai Dong, deputy director of the blockchain industry and development forum of the Ministry of Industry and Information Technology, member of the board of directors of the Linux Foundation Super Ledger and chairman of the China Technical Working Group, assistant to the president of Wanda Network Technology Group and general manager of the big data center and chief architect, told NetEase that right now, the headache for industry peers is that to do blockchain projects, if they do not issue coins, the attractiveness of talent is greatly reduced.

There is also a phenomenon – the original “coin circle” and “chain circle” almost no intersection, “coin circle The people in the “coin circle” have been mining in a low profile over the years, while the people in the “chain circle” mainly study the underlying blockchain architecture technology and scenario implementation. But now, the two circles are converging, with cryptocurrency circle people investing heavily in blockchain underlying projects and teams, as well as a large number of landing projects; at the same time, cryptocurrency circle bigwigs are also starting to enter the field of artificial intelligence computing, which also requires massive computing power (arithmetic), such as Bitmain, which has a monopoly on the world’s mining arithmetic, recently launched its first TPU tensor processor, the BM1680.

A closer look at the bitcoin price chart over the years reveals that the reason for this wave of bitcoin price increase is not simple and is not solely due to short-term hype and the stimulation of good news.

Currently, bitcoin is in its second major bull market ever, and it’s very different from the first wave of bitcoin price increases that preceded it.

The first wave of the bull market, which occurred in the fourth quarter of 2013, saw a rise in the price based on positive news from the Federal Reserve. At that time, more and more countries and merchants began to accept bitcoin. on November 18, 2013, after then-Federal Reserve Chairman Ben Bernanke’s positive attitude towards bitcoin was exposed by the media, the price of bitcoin stood at its first-ever high, peaking at $1,147.79 on November 30. But the good times didn’t last long, and less than a month later, on December 5, 2013, the People’s Bank of China and five other ministries issued a “Notice on Preventing Bitcoin Risks”, causing the price of Bitcoin to plummet that day. In the years since then, it has also been shaking all the way down, with the coin price never exceeding $1,000 again.

The second wave of the bull market, on the other hand, began in January 2017, with the coin price continuing to rise for another year after regaining its $1,000 high. Even after the recent plunge, the price is still above $10,000. In fact, the price of bitcoin has been on a slow climb throughout 2016, oscillating upward all the way.

The reason that caused this wave in which the price of bitcoin has been climbing – industry insiders told NetEase – is mainly the ICO. yes, the ICO that was called off by the central bank and seven other ministries in September 2017. ICOs have been called off in China, but they still exist in other countries. “ICOs never stop, they all go overseas to get it going.” More than one interviewed industry insider told NetEase Technology. A closer look at the history of ICOs, although its development in 2017The fever peaked in China in August and September, but actually received widespread attention as early as 2016. the ongoing ferment of ICOs does coincide with the higher price of bitcoin. (In the chart below, the curve looks relatively flat until 2017, but since the spacing of the vertical axis of the coordinate system is $5,000, a tiny ebb and flow is a few hundred dollars.)

And among the factors that caused the ICO to be hot for two years, technological progress is the foundation. Blockchain is divided into three kinds, public chain, alliance chain, private chain. In the past few years, the public chain of Ether and the coalition chain of Super Ledger, for example, have made great progress:

In January 2014, the Ether project was released. on March 14, 2016, the official version of Ether, Homestead, was released, marking the end of the beta version.

On December 17, 2015, the nonprofit Linux Foundation announced the launch of the Open Ledger Project, later renamed the Hyperledger Project. The project will develop an enterprise-class open source distributed ledger framework, and several IT and financial giants, including IBM, joined the project. Nearly two years later, on July 12, 2017, Hyperledger announced the official release of Fabric, its first product-level solution available for building applications.

So here’s the question, what projects have been done with the large influx of money and talent?

2

Blockchain is blooming everywhere

Netease Technology and EditorAi have conducted data statistics on blockchain projects that are publicly available on the network to understand the overview of current blockchain projects. Since 2017, EditorAi started to focus on the blockchain field and found that the startups in the blockchain field are mixed and the quality of each white paper varies, so it hopes to use artificial intelligence technology to assist in the rating of blockchain projects, and initially help more people identify the quality of projects by doing blockchain white paper text analysis with artificial intelligence technology.

EditorAi counted the top 1400 blockchain companies with transaction data from its BCWhitePaper.com database (excluding companies like IBM that have invested and accumulated blockchain technology but their main business is not blockchain, i.e. only startups are included), and the emergence time of the projects counted is from July 1, 2017 to January 19, 2018.

statistics show that the countries with the most blockchain projects are currently the United States, Russia, and the United Kingdom. Some small countries that are more developed in the field of finance and cybersecurity, such as Switzerland, Estonia, and Israel, also have a good number of high-quality blockchain startups due to first-mover advantages and policy encouragement. Mainland China does not have many blockchain projects, with only 18. However, if mainland China and Hong Kong are combined, there are 46, which can be ranked after Switzerland and before Estonia. (Figure 2)

By sector, the largest number of projects is currently in cryptocurrency, in addition to more projects in the platform and technology base categories. The most prominent industries in terms of applications are entertainment and banking, while all other industries are in their infancy. (Figure 3)

In terms of platform distribution, the majority of blockchain projects are based on ethereum’s smart contract technology. (As in Figure 4)

Then the question arises: Didn’t you say before that 90% of ICO projects are unreliable? Yes, but there are reliable ones among them.

It’s not easy to invest in reliable blockchain projects, and I’m afraid it’s not too much to use the description “crowded”.

The investment director of Legendary Ventures, Yang Linyuan, started to focus on blockchain startups in 2015, and soon found that the traditional venture capital approach in this field simply does not work. This is one of the reasons why mainstream investment institutions do not appear much in this field.

“Blockchain projects mostly use the ICO method to raise capital, and the pace is particularly fast from release to completion. To use the traditional VC process, from the project, due diligence to on the investment decision will be a set down at least a month, the yellow flowers are cold.” Yang Linyuan told NetEase Technology.

According to Yang Linyuan’s observation, more investors are participating in the name of individuals, the method of investment is also completely different – you have to mix circles, we have mutual recognition, people leave you a little coin, and investors almost no pricing power. He told NetEase: “Traditional investment, there is a set of valuation pricing model. But blockchain investment is not according to this set of rules, you can not invest in the project at all according to your pricing. The supply and demand relationship between investors and entrepreneurs has changed. Traditionally, entrepreneurs beg for investors, but blockchain projects are investors begging for entrepreneurs, and it is difficult for investors without resources and ability to bring value to the project to get a share.”

The next question is, are these blockchain projects just playing around in small areas, or will they enter life on a large scale and really affect everyone?”

3

On the eve of large-scale commercialization

The answer is the latter.

Netease Technology has learned that blockchain technology has been applied in finance, agricultural product traceability has actually landed, the future blockchain will also be applied to more areas that you would not expect.

“blockchain” this word sounds remote, not easy to understand, in short it is a distributed database technology. In the financial field of application, on the netease technology interview to understand, it can play the core role – real-time synchronization of information, this information is not bad, not missing, can not be tampered with. In this regard, micro-banking, Baidu Finance, Wanxiang blockchain have relevant applications.

Wezubank’s blockchain reconciliation system is an early case of practical application in the domestic financial sector. in August 2016, Wezubank launched an inter-institutional alliance chain, after which three banking institutions, Shanghai Huarui Bank, Luoyang Bank and Changsha Bank, accessed the system, which is mainly applied to the reconciliation between Wezubank and cooperative banks. It is a heavy workload to clear funds between partner banks, and the traditional reconciliation method is “batchVolume file reconciliation”: that is, Micro-bank and the partner bank will agree on a certain point in time to aggregate all the data of the previous transaction day and output it into a file according to the agreed format to see if the account records of both sides are consistent.

Zhang Kaixiang, chief architect of blockchain of Wezubank, told NetEase that after the application of blockchain, the project information between Wezubank and partner banks can be synchronized in quasi-real time. Up to now, the platform has been running stably for more than 1 year, maintaining 0 failures, and the number of real transactions recorded has reached a volume of 10 million.

Baidu Finance is applying blockchain technology to ABS (i.e. asset securitization, which commonly refers to selling assets that lack liquidity but have predictable income by issuing securities in the capital market to obtain financing in order to maximize the liquidity of the assets).

Xiao Wei, head of the Baidu Financial Blockchain Lab, explained to NetEase that to issue ABS, multiple parties need to be involved, including Baidu Financial, asset generators, trusts, brokerages, ratings, law firms, etc. Baidu as a technology service provider built a blockchain server BaaS (Blockchain as a Service) and introduced blockchain technology, with each participating institution in the project acting as a participating node on the blockchain. In this way, all information about the assets can be synchronized in real time to each participant, that is, each participating node on the blockchain, so that the information cannot be tampered with, and if tampered with will leave traces and be discovered by all, which ensures asset transparency.

And in Shanghai Wanxiang Blockchain JSC, blockchain technology is also applied to supply chain finance.

In 2017, Shanghai Wanxiang Blockchain JSC developed a supply chain financial services platform to optimize the receivables financing process. For suppliers, the business platform will effectively shorten the billing period, reduce financing costs, and protect sensitive information in the purchase and sale process from leakage; for financial institutions, the financial platform will effectively eliminate fraudulent trade and improve operational and risk control efficiency.

In August 2017, Xiao Feng, vice chairman and executive director of Wanxiang Holdings, specifically explained in detail to NetEase the role played by the blockchain in it. He introduced that Wanxiang Group started by auto parts, itself has an auto parts supply chain, with blockchain can avoid problems in the supply chain that originally required a lot of human and material resources to solve. For example, there is a supply chain in the production of auto parts – the host factory issued an order to the second, third and fourth-tier suppliers to break down, and then the fourth-tier suppliers will submit semi-finished products to its upper level after processing, and finally to Wanxiang to become finished products, Wanxiang then to the host manufacturer, the host manufacturer payment. All the information in between, without blockchain, cannot be fully shared. When banks provide loans to small and medium-sized suppliers, they need to conduct field investigations to understand the financial status of these small and medium-sized suppliers. But with the application of blockchain technology, there is no need for creditors to go to the company to investigate, because all the information flow, capital flow and logistics can be on one ledger, so that the bank can provide financial services to a small supplier at low cost. “In this way, the interest rate for small and medium-sized supply chain enterprises to obtain loans is reduced from 18% to 8%, and the billing period can even be reduced from 9 months to 1 month. You see how big this cost saving is.” Xiao Feng was happy to introduce.

Now this work is mainly responsible by Wanxiang blockchain CTO Luo Rongge, Luo Rongge told NetEase Technology, this blockchain-based auto parts supply chain platform is now online and running.

In the traceability of agricultural products, there are many attempts from head companies like Wanda to small startups.

Wanda Network Technology Group President Assistant and Chief Architect Cai Dong told Netease Technology that Wanda Network Technology’s Wanda deep source commodity traceability and security platform has been deployed in Sicily, Italy, which is rich in organic food production. Using blockchain technology, the platform can record information on all aspects of food production and transportation to ensure that organic food is genuine and not just “labeled” products. (Below)

In a similar vein, the startup company All-China Chain officially released its “Blockchain e-commerce for media shopping” in August 2017. Zheng Yu, the founder of the national chain, explained to Netease Technology that the difference between blockchain e-commerce and ordinary e-commerce is that the blockchain technology will be used to record the whole process of food selection, planting, spraying, fertilizing, harvesting, storage, transportation, to the supermarket and to the user, so that the information of the whole production process of food is transparent, and there will be a corresponding chip on the food packaging to store relevant information. There will be a corresponding chip on the food package to store the relevant information. The collection of this information is currently mainly by cameras and other equipment, such as the installation of cameras in the field. Zheng Yu told NetEase Technology that at present, food traceability is mainly used for relatively high-end food needs, because at the beginning, the cost will be slightly higher.

In the future, the application area of blockchain will be very wide. Baidu hopes to try the application of the field of autonomous driving, is the most unexpected.

To truly realize autonomous driving, a very large amount of data needs to be collected on the actual conditions of the road, and the car also needs to have the ability to handle each situation, which requires enough data and a good enough algorithm. Baidu is currently betting heavily on autonomous driving, and in December 2015 Baidu officially announced the establishment of the Autonomous Driving Division. But to do well in autonomous driving, the power of Baidu alone will not work, and car manufacturers need to join forces, so in April 2017 Baidu released its autonomous driving platform Apollo. if car manufacturers can share their data and algorithms, autonomous driving technology will progress by leaps and bounds.

However, the sharing of algorithms and data, the manufacturers have concerns, because data and algorithms are the very core competitiveness of each car manufacturer. Xiao Wei, the head of Baidu Financial Blockchain Lab, told NetEase Technology that because blockchain is an encryption technology, after using blockchain technology, each manufacturer can put the data into the blockchain network after encryption, and this blockchain network builds a data computing trading platform, so that each manufacturer can use all the data on this platform and can get the results they want. However, after use, the data is still there, and the people who use it do not know the data.

Xiao Wei toldNetEase, this technology is currently running through, no more problems, is being promoted to various car manufacturers, hoping to pick up more manufacturers in.

In this interview, NetEase Technology also learned more applications, please see the following table:

The actual landing of blockchain applications has long formed a trend. The most influential ones in the international arena are the R3 Blockchain Alliance and Super Ledger in the financial sector, and there are more than 10 domestic blockchain alliances. (Below)

But there is still a question: are these applications only in the experimental stage, or will they quickly enter large-scale commercial applications? Are all the basic conditions needed for rapid large-scale commercial applications in place?

4

The problem of the pioneering period

It must be admitted that there are still some problems with blockchain technology at this stage, and commercial applications also need many environmental fits, which all need time to be perfected and solved. However, at present, it seems that the rigid constraints are almost non-existent.

Cai Dong, assistant president and chief architect of Wanda Network Technology Group, told NetEase that he believes blockchain technology has great potential, but it can’t be said to be particularly mature at the moment, and there are still some technical problems, most notably two: one is the problem of fractional storage, and one is the problem of high concurrent transactions.

blockchain is a distributed database technology, which faces the problem of storing data in pieces in practical applications. In Cai Dong’s opinion, at present, although there are countless solutions to the slice storage, but there is not yet a reliable, of course, there are a number of temporarily available programs, choose some of the most commonly used features or scenarios to support, many cases they reduce the tolerance of malicious nodes so you can use a simplified consensus and data storage. However, so far are not the most ideal complete implementation.

The problem of high concurrent transactions, a block of bitcoin can only handle 7 transactions per second, the super ledger of the coalition chain can handle 2000-3000 transactions per second, but this is far from enough to deal with the existing peak transaction volume. 2017 double eleven, alipay payment peak reached 256,000 strokes per second, such a high of high concurrent transaction volume, a large number of related blockchain technology projects are currently trying to solve this challenge. It should be noted that in order to achieve the purpose of trusted computing in blockchain, that is, to prevent enough malicious nodes from being able to fake, the technical underpinnings of one of the most important blockchain technologies, the consensus algorithm, often involve the aforementioned two important challenges of slice storage and transactions, and speed also latency.

micro-bank blockchain chief architect Zhang Kaixiang, on the other hand, mentioned the problem that privacy protection technology is still immature. He gave an example to NetEase Technology, for example, multiple institutions on the same blockchain, transactions occurring between A and B, do not want C to know the details involving privacy. The current technology can solve this problem, but the solution is cumbersome, and the calculation speed has yet to be raised to the desired level.

Most of the interviewees agreed with Cai Dong’s view. However, Xiao Wei, head of Baidu Financial Blockchain Lab, has a different perspective.

He believes that there are no rigid technical constraints. He explained to NetEase Technology that blockchain technology has three characteristics – decentralization, speed, and security. According to the needs of the actual situation, there are trade-offs between these three, such as high requirements for decentralization and speed, security requirements are not so high. In a situation like Double Eleven Alipay, the requirements for decentralization are not high, and you can focus on meeting the requirements for speed and security. “At present, we have not encountered a situation where the requirements for all three are high, which requires specific analysis on a case-by-case basis.” Xiao Wei confirmed to NetEase.

In addition to technical issues, commercial applications, in the early stages will also encounter some unexpected problems.

In addition to technical issues, commercial applications, in the early stages will also encounter some unexpected problems.

In the tide of new retail, Wanda Network Technology Group hopes to build a shared commercial platform to break the status quo of the original different links changing hands many times, forming a straightforward chain of funds and goods through the upstream and downstream.

Cai Dong previously described this idea to the media: previously the ERP (Enterprise Resource Planning) systems of manufacturing, logistics and retail were fragmented from each other in the commodity circulation cycle, but now a new trusted computing architecture based on blockchain can be adopted to remove the established agency wholesale system in the middle from the manufacturer to Wanda. Specifically, the combination of blockchain with IoT and big data will open up the link from factory to store: the factory directs hot commodities predicted by big data to the store, and obtains logistics and storage services through a bidding model, while the store empowers POS terminal cash registers through blockchain after receiving payment, and instantly accounts receivable and accounts payable are recorded through blockchain smart contracts.

Cai Dong told NetEase Technology, this idea, technically no problem to achieve, before Wanda has already done in the four stores in Wanda Plaza, the effect is particularly good. After doing so, the original price of 399 yuan of goods can be reduced to 99 yuan. Once the user pays, the POS machine (with its integrated blockchain client SDK) can execute blockchain smart contracts to directly record the accounts receivable and accounts payable of the four parties to the transaction – the merchant, the brand/manufacturer, the commercial real estate manager, and the platform party – and the physical store lease payments and payments for goods can be made from “T+45” to “T+65”. “”T+65” “T+75” and other common accounting periods in the logistics field can be shortened to “T+1”.

“We can technically do T+1, but what we didn’t expect was that the financial and banking systems weren’t ready.” Cai Dong told NetEase Technology, to completely run through, need their suppliers’ systems also completely transformed, but apparently a moment can not be achieved.

“We are confident that because such problems will definitely be solved, more and more technical solution parties are gaining a deeper understanding and adopting blockchain technology.” Cai Dong said to NetEase.

From the perspective of more people, the growing maturity of the current blockchain technology can indeed be felt.

Liu Tong, the executive commissioner of China’s new cultural economy development standards research committee, was previously the chief architect of Cisco, and in 2016 when he worked at the China Heritage Information Consulting Center, the center had hoped to try to use blockchain technology to solve the folk heritage artThe problem of registration and filing of art products. But at that time Liu Tong investigated a circle found that the technology is not mature, each has its own technical standards, there are not many institutions capable of development, so they gave up blockchain technology, and adopted the traditional method.

In the past two years he feels that blockchain technology is indeed becoming more and more mature, and many companies have done a lot of investment and development research work based on open source and ethereum technology. Two years ago, everyone was talking about theories, and there were no products in place. But now there are already products being launched.

Currently, Liu Tong is doing the selection of cultural new economy pilot zones and pilot bases, and is also considering blockchain technology as the underlying support platform. “How to use blockchain technology to make a killer application in a field” is the most urgent problem he thinks he needs to solve, “technology is not the problem, the problem is the killer application.”

“In the blockchain field, there are ‘coin circle’ and ‘chain circle’, these two circles despise each other, who also despise who, there is not much communication. There is a reason for this. The underlying technology of blockchain is available, but it is not fully combined with specific application scenarios.” Liu Tong pointed out to NetEase Technology.

“When we started two years ago, no one had heard of blockchain, and it took a lot of effort to explain half a day. Now it’s much better, at least everyone has heard of it.” Zheng Yu, the founder of the national chain, feels that there is indeed a very big change, and he made an analogy: “Our requirements for blockchain now are equivalent to your requirements for Apple’s cell phone, we want 4G and big screen, but the cell phone was first developed from the analog machine and big brother, it is not perfect, but it will develop rapidly.”

On January 22, Xu Hongbo, the founder of Genda Capital, attended the DLD conference in Munich, Germany, which stands for “Digital, Life, Design”.

Xu Hongbo is one of the six authors of the global mobile Java standard and one of the world’s first experts in artificial intelligence and robotics, specializing in the field of artificial intelligence neural network computing. In addition, he is one of the 15 members of China’s “Nuclear High Foundation” Science and Technology Major Project Team.

After attending the conference, Xu Hongbo felt that the hottest field is blockchain, he said: “The blockchain now is the Internet in 1997 and 1998, although there are various bugs, but it must be the future!

And go and watch the sea, why not listen to the waves?