Original title: Blockchain vs. Internet, where is the innovation?
Introduction: Recently, there have been a lot less references to the blockchain revolution. We rarely hear the term “blockchain is about to overthrow the Internet”. This seems to imply that blockchain technology (encryption technology) is entering a rational state. In the development stage, if you look at Gartner’s technology maturity curve, the blockchain is entering a bubble and disillusionment stage. Like the concept of “cloud computing” that disappeared from the previous maturity curve, the blockchain seems to be becoming an IT Industry infrastructure. In the era of digital economy, this article attempts to sort out the internal relationship between blockchain (encrypted Crypto and blockchain are regarded as equivalent concepts in this article) and the Internet.
In the era of digital economy, all digital services are supported by databases. Different from traditional centralized databases, encryption technology opens up a new way to build and maintain databases. The performance is that encrypted digital services are built on a decentralized database protocol operated by a community of network participants.
In the past few decades, the Internet has transformed from an early highly decentralized technical architecture to an architecture controlled by several powerful Internet giants (Google, Facebook, Microsoft, Apple, Amazon, etc.). Obviously, these Internet giants created technology monopolies, led to various restrictions on developers, and ultimately hindered innovation.
Encryption protocol is essentially an open source protocol (ps that are not open source protocols are pseudo-blockchains), designed to break this highly centralized architecture and provide developers with a level playing field and various applications It can be built on these open and unlicensed agreements.
Information technology innovation cycle
The history of the Internet
Fundamentals of Encryption Technology
The potential of encryption technology
Related application indicators
1. Information Technology Innovation Cycle
New computing platform supports new applications
Source: Chris. Dixon, what is the next calculation (2016).
· The new computing platform supports new applications. The new computing platform provides new and unique features, enabling developers and entrepreneurs to redesign the entire industry.
· The paradigm shift in calculation. In the 1980s, the personal computer era made it possible to create personal tools such as Word, Excel and other desktop applications. In the 1990s, the Internet connected these computers by providing a global information distribution network, turning previous personal tools into collaborative services, such as the search engine Yahoo, the social network Facebook, and email. In the era of mobile Internet, smart phones have made these services more mobile and ubiquitous, adding cameras and GPS functions, and mobile Internet giants such as Snapchat and wechat have been born.
· Crypto encryption is a new computing platform based on Internet native finance. ** After 2000, the emergence of crypto assets represented by BTC crypto assets made financial transactions with e-mail-like efficiency. A jointly maintained open database facilitates the trading of these encrypted assets. As the native technology of the Internet, encrypted applications can be distributed globally from the first day. Applications such as Coinbase and Binance also make these encrypted asset transactions more convenient.
Always like a toy at the beginning
Source: Carlota Perez, "Technological Revolution and Financial Capital" (2003).
· The next big thing is always like a toy at the beginning. Each new technology has to go through the early stage of application to the investment stage before entering the mainstream application stage. At this stage, venture capital participates in speculation and drives technological innovation, attracting a large number of talents and capital to this emerging market. After years of development, this technology may be recognized by the public and become the mainstream.
· A new computing platform always performs well in one aspect, but bad in others. Initially, the new technology could not meet the needs of users, like a toy. Generally, people tend to underestimate the speed of innovation on new computer platforms. For example, in the beginning, smartphones were regarded as small and slow computers, but now they are capable of most computer operations.
· We are still in the encrypted "toy" stage. The new function of encryption technology is an open and global database that can be collectively maintained, thereby eliminating the need for a trusted third party. The transaction processing capabilities of encrypted networks are still subject to various performance limitations. But what we often overlook is that even in the early days, encryption technology has attracted some of the best developers from the Internet to participate.
Open source software promotes innovation
Source: Github Octoverse.
· Open source software promotes innovation. The open source software movement is a technology wave initiated by a group of researchers in the 1980s. Today, 97% of companies use open source software. For example, Android is built on Linux, the most popular open source operating system. In 2018, IBM acquired Red Hat for $33.4 billion, and Microsoft acquired Github for $7.5 billion last year.
· Open source software benefits the entire technology industry. Anyone can participate in the contribution and improvement of open source software. This open source movement promotes rapid technological innovation, and developers can seamlessly integrate existing software into their products and services.
· Encryption technology can achieve global open source development coordination. The open source movement replaces the coordination and economics of traditional enterprises to encourage the development of open source software. Encryption technology can directly implement software monetization from the agreement. Embedded economic incentives can promote the enthusiasm of open source developers. We have also noticed the vigorous development of open source on a global scale.
Open Source Contributions in US and the Rest of World
Source: Github Octoverse.
2. The history of the Internet
The Internet was originally just a research project, and the original intention was to create an open and decentralized communication network.
Source: Brian McCullough, "How the Internet Happened: From Netscape to iPhone" (2018).
The Internet was originally a research project, with the original intention of creating an open and decentralized communication network. The project was initially funded by the government and academia. The goal is to create a communication network without any single point of failure. The commercial Internet is built on this network architecture.
The Internet is everywhere because the underlying network is open and decentralized. Open communication standards provide a shared technical infrastructure for global information transmission. Anyone can join in a permissionless way, communicate with the application or deploy the application to the global network.
· Encryption is an open financial communication network of the Internet. ** Encryption can achieve global financial infrastructure without a single point of failure. Anyone can deploy and use various financial applications on the shared infrastructure. The open financial infrastructure truly enables unauthorized innovation.
The early Internet protocol was just a communication channel
Source: Wikipedia, Internet Protocol Suite.
· The early Internet protocol was only a communication channel. The protocol defines the communication standard between computers on the Internet. These TCP/IP and other protocols are used in all Internet communications to ensure that information can be transmitted quickly and reliably. Different types of information require different protocols: Web request (HTTP), email (SMTP), voice (VoIP), etc.
· Internet protocols are restricted because they cannot store state. Internet protocol can transmit information, but cannot store information. This means that communication can never be based on previously sent information. Communication through these protocols lacks context.
· Before the encryption protocol, any meaningful activity on the Internet required the participation of a third party (Google, Facebook, etc.). ** The ability to record information (status) is a prerequisite for building Internet applications. For a long time, many private companies have participated in the maintenance of these databases used to communicate via the Internet protocol.
Internet protocols require private third-party databases to maximize their potential
Source: Ben Thompson, Aggregation Theory (2015).
The Internet protocol requires private third-party databases to maximize their potential. All Internet services rely on the ability of third parties to store data from previous activities. For example, if you do not access the previously established contacts, you cannot maintain a record of the user's social network.
· The huge potential of aggregated data. The private database records activities on the Internet. This data is filtered and sorted to create a user-friendly application. The better the user experience, the more users the service attracts, which in turn collects more data. This model has led to a positive cycle-A few technology companies have become de facto data monopolies.
· The encryption protocol stores data in a collectively maintained database. ** The encryption protocol can be used as an open database for the application. It does not aggregate data at the company level, but aggregates data at the agreement level and becomes a shared infrastructure. Both applications and users can take advantage of the same data storage source and benefit from it.
The data monopolist becomes the gatekeeper of the Internet
Source: NFX, "Network Effects Handbook: 13 Different Network Effects" (2018).
· Data monopoly has become the gatekeeper of the Internet. The Internet was originally a decentralized network, but now it has actually become a network controlled by a few large technology companies. Google and Facebook now directly affect more than 70% of all Internet traffic. Because of this impact, start-up companies will spend 40% of the VC funds raised and spend them on traffic giants such as Google and Facebook to acquire new customers.
· Network effect, users find that the product is superimposed on some valuable services. The giant Internet technology company (GAFA) is able to provide its users with a network of billions of related counterparties (users, suppliers, customers, service providers, etc.). In addition, because they have accumulated user data, they can more easily provide a better user experience.
· Monopoly has stifled innovation on the Internet. These technology giants have tried to compete, which can diversify the Internet market. But today, most of these companies control what the Internet is good at. As a result, users are losing their right to choose.
The lack of a native payment layer sets limits for possible business models on the Internet
Source: Connie Chan, "Advertising Is Not Enough" (2018).
· The lack of a native payment layer places restrictions on possible business models on the Internet. Nowadays, companies usually focus on the attention economy or wallet economy. The former is usually a data market (Facebook, Twitter, Snapchat) that emphasizes interaction and profit through advertising, while the latter is usually a content and product market that is profitable through transactions (Amazon) and/or subscriptions (Spotify, Netflix). The main source of income has been quite concentrated.
· Traditional payment methods will harm the user experience on the Internet. More and more advertisements make many applications and services difficult to use. The precise positioning of advertisements can also damage the privacy of users, and they are usually malicious software plug-ins. The subscription-based revenue model locks users in a large number of service products, and monthly or annual subscription plans may harm the rights of users-many people often forget to cancel their subscription even after they no longer use the product or service.
3. API economy
Leading technology companies are platforms
Source: Scott Kupor, "Startups, Platforms and Innovation" (2019).
· Leading technology companies are platforms. They are two-way markets that connect users and services. The platform is developed because of network effects and user-generated content. For service providers, the platform can help them acquire users at low cost. For users, the platform is responsible for providing the docking of high-quality service providers.
· The platform is a capital-efficient business model. Uber is the most valuable taxi company without a car. Airbnb is the largest hotel service without any real estate. Spotify is a music market, and all content is produced by artists. Youtube is the largest video streaming service, without self-produced content. Platforms improve the efficiency of capital use, and most of the great Internet companies in the past are platform-based.
The platform relies on network effects and user-generated content to survive without rewarding its users. The typical life cycle of a platform is to raise VC venture capital funds to acquire users and enhance its network effects. In turn, users of the platform will make the service more attractive to new service providers and users. Once the platform has reached a large enough scale, the company can lie to win-permanently withdraw the commission for platform activities.
The relationship between the platform and the third party can change over time
Source: Chris Dixon, "Why Decentralization Is Important" (2018).
· The relationship between the platform and the third party will change over time. Successful platforms often follow a pattern similar to the above figure in the application process. As the S-curve of platform applications increases, their control over users and third parties has also grown steadily. When the platform reaches the top of the S-curve, their relationship with its network participants changes from cooperation to competition.
· Centralized platforms start with recruiters and eventually become value squeezers. At the beginning, the platform needs to recruit users and third-party supplements, such as developers, companies and media organizations, to make the services they provide more valuable to users. Once the platform reaches a critical scale, the natural path for business development is to compete with its partners for market share.
· Platforms naturally tend to stifle innovation. From a third-party perspective, the transition from cooperation to competition makes it difficult for both parties to maintain a sustainable business partnership. A typical example of this kind of platform risk is Spotify's antagonism with Apple, in which Apple is accused of unfairly promoting its own music service in the App Store.
The application relies on the API access of multiple other service providers to achieve its core functions
Source: Martin Casado, "The World Through API" (2018).
· The core function of the application depends on the API access provided by multiple other service providers. ** The application does not run in isolation. Instead, they usually connect to the database APIs of multiple external service providers.
· Modularity is mutually beneficial for technology companies. It is often impractical to build many functions from scratch, which is why companies tend to rely on other service providers to implement many of their core functions.
· Encryption protocols replace traditional APIs by providing cheaper and more reliable services. API access is expensive to maintain. For example, Uber paid $58 million for the right to use Google Maps between 2016 and 2018. The API provider's right to unilaterally change data access rights brings inherent platform risks to third-party application developers. But if it is built on top of an encryption protocol, developers don't have to worry about sudden changes in data access permissions. The open infrastructure eliminates platform risks for third-party developers.
4. The foundation of encryption technology
Encryption protocol is the new Internet infrastructure
Source: Emre Tekisalp, "Understanding Web 3-User Controlled Internet" (2018).
· Encryption protocol is the new Internet infrastructure. The encryption protocol adds the open data layer to the current Internet protocol suite. The business logic previously executed by the company can now be programmed directly in the protocol. The encryption protocol is owned, maintained, and operated by a network of online participants (not a centralized company).
· The encryption protocol is an unlicensed platform that developers can build on. Developers can now build their applications on the shared data layer through APIs that are not controlled by centralized companies. Applications and users have equal access to shared data storage.
· The encryption protocol provides developers with complex building blocks. The shared programmable data layer makes developing applications faster and saves money. In addition, it eliminates the platform risks inherent in centralized platforms.
Over the past ten years, cryptocurrency has evolved from a geek forum post to an asset class recognized by large institutions
Source: Nathaniel Popper, "Digital Gold": Bitcoin and the dissatisfaction of trying to reshape the currency and the inside story of a millionaire (2016).
Over the past ten years, cryptocurrency has evolved from a geek forum post to an institutional asset category. The Bitcoin protocol specification was originally published in 2008. Since 2013, venture capital has made major investments in encryption technology. The launch of Ethereum in 2015 attracted the attention of many developers and opened a window for the development of encrypted applications.
· The Internet should have a native payment layer. Similar to the "404 not found" error on a web page, there is a "402 payment required" error in the Internet error code specification. In the 1990s, the creators of the Internet expected the Internet to integrate a digital payment layer, but they have been unable to solve the technical problem of maintaining a global database without a trusted third party.
· Encryption converts payments into Internet data packets. Similar to the way that the Internet enables the transmission of unauthorized information, Bitcoin enables the transmission of unauthorized values. Any device connected to the Internet can freely participate in the Bitcoin network.
The Bitcoin protocol provides economic incentives for its participants to maintain a global open database
Source: Satoshi Nakamoto, Bitcoin: Peer-to-Peer Electronic Cash System (2008).
The Bitcoin protocol provides economic incentives for its network participants, enabling them to maintain a globally open database. BTC network participants (miners) compete for the right to verify transactions in the Bitcoin network. By honestly updating and maintaining the database, each participant will receive Bitcoin rewards.
· The Bitcoin protocol is a solution that bypasses intermediaries. Without a trusted third party, funds on the Internet become safe, and cross-border transactions become very efficient.
· Eliminate the friction inherent in traditional financial infrastructure. All banks need to maintain their own internal transaction database. Bitcoin provides an alternative solution by acting as a single, shared and open transaction database. In fact, now we can all send and receive funds globally as efficiently as email.
5. The potential of encryption technology
Ethereum can create smart contracts
Source: Ethereum, the next generation of smart contracts and decentralized application platforms (2014).
· Ethereum can create smart contracts. Smart contracts are embedded in the Ethereum blockchain. The pre-programmed function of smart contracts can help anyone realize interactions and transactions.
· Developers are aware of the potential of programmable currencies. Bitcoin is considered a calculator that can perform simple functions, while Ethereum is more like a computer that can implement arbitrarily complex transaction logic execution.
· Smart contracts expand the design space of encrypted applications. Smart contracts are the building blocks of applications and can be deployed on the global and open data layer. Because the software simply compiles humans into a machine-readable format, developers can deploy any formal ideas under these constraints into the application.
Ethereum's programmability leads to explosive growth of smart contract development
· The programmability of Ethereum has led to explosive growth in smart contract development. The open financial tool DeFi (for loans, derivatives, exchanges, etc.) does not require a trusted third party, and is a financial program that users can interact with. The open market for core Internet infrastructure (storage, computing, video transcoding, content delivery, etc.) allows any user to directly provide and use computing resources from other network participants.
The crypto world provides unparalleled opportunities for developers and technology entrepreneurs. Encryption technology provides developers with a tool that can rebuild financial and Internet infrastructure from the ground up. The future potential of applications, coupled with the monetization of new open source software, has attracted more and more developers to enter the field.
· The next generation of Internet applications will be built on top of encryption protocols. The unique functions provided by the encryption protocol enable the construction of some new Internet applications. Similar to the way that Internet entrepreneurs build new business products on top of the open Internet protocol, encryption protocols allow developers to redesign existing industries and establish a whole new field.
Decentralized applications use encryption protocols for their core functions
· Decentralized applications use encryption protocols for their core functions. Similar to the way traditional Internet companies rely on third-party API access, applications built based on encryption protocols can also achieve similar access functions without bringing platform risks.
· Developers can build without platform risk. Developers can minimize their infrastructure risks without relying on third-party APIs. Unlike the current application development environment, encryption protocols generate economic incentives to prevent data silos. Instead, developers have created protocols that can be easily integrated with other protocols and applications for economic motivation to increase traffic and the use of their own protocols.
The modularity and composability of encryption protocols have led to rapid innovation. Since developers can deploy applications on top of the existing back-end infrastructure, how to create a compelling user experience becomes the main difference between applications. For example, a decentralized banking service can be effectively constructed by creating a user interface that connects to the relevant native encrypted finance (such as exchanges, lending and/or derivative products).
Augur: Agreement on the prediction market
Source: Augur, a decentralized Oracle and prediction market platform (2018).
· Augur: It is an agreement used to predict the market. The Augur protocol allows anyone to create, trade and verify the results of prediction markets. The prediction market can be used to bet on events, predict the possibility of future events, and hedge risks.
· Augur provides an inexpensive global access to any financial market. Anyone with an Internet connection can participate and create the Augur market. The agreement contains built-in economic incentives to encourage network participants to operate the market at the lowest possible cost.
· Decentralized applications are based on Augur's functions and provide a user interface for consumers. Decentralized applications can pick interesting markets for users and filter them. Since transaction execution and settlement occur directly in the agreement, users can participate in the Augur market without relying on a trusted third party to keep their assets. Users do not have to rely on the security of a single company, but can benefit from the global network security of the underlying protocol.
Value creation and value acquisition will be transferred from the company's shares to the Token of the agreement
Source: Joel Monegro, "Fat Protocols" (2016).
· Value creation and value acquisition will be transferred from the company’s shares to the agreement Token. Encryption protocols can perform many value-added functions previously performed by centralized companies.
· Encryption protocols gather value by charging fees for the functions they provide. Since encryption protocols can create better services (cheaper, faster, and more secure) for consumers, they are likely to capture most of the value in all financial activities that occur on the Internet.
· The encryption protocol represents a major revolution in the field of information technology since the Internet. Encryption protocols may become ubiquitous in the same way as TCP/IP or SMTP, which are the protocols that all major Internet applications rely on today. However, compared with TCP/IP or SMTP, encryption has a shared underlying protocol, which may enable them to obtain relevant economic benefits in all future traffic.
6. Related application indicators
Monthly downloads of Truffle, the Ethereum development framework
Source: Truffle.com, Developer Suite download.
Daily transaction fees paid on the Ethereum network
Source: Etherscan.io, the daily gas fee used by Ethereum.
Daily transaction count on Bitcoin/Ethereum network
Source: Bitinfocharts.com, "Daily Bitcoin/Ethereum Confirmed Transactions".
Number of registered users on Coinbase per year
Source: Alistair Milne, Coinbase data.
ETH locked in a decentralized financial protocol
VC venture capital funds enter the crypto industry
Source: Coindesk, Blockchain Venture Capital.
Different types of currency assets holding value
Source: Marketwatch, "All Global Currency Aggregate Chart" (2017).
Global Internet, Smart Phone and E-Commerce Penetration
Source: Benedict Evans, "The End of the Beginning" (2018).
Source: Fortune's Andreessen Horowitz injected US$300 million into cryptocurrency funds; Yale University and Bloomberg raised US$400 million to invest in cryptocurrency funds; Fidelity entered digital assets; Intercontinental Exchange ICE participated in investment in Bakkt, etc.
Source of this article: Consensus Future