A large crowd gathered at 500 Startups in San Francisco on Thursday, November 30th to listen to Chen Rong, Li Jun, Da Hongfei, Jeb McCaleb and Duncan Davidson give their thoughts on the future of blockchain technology. Each member of the panel is the founder of their respective projects, giving them a unique perspective on where blockchain technology is headed.
Moderator Chris McCann kicked off the night by introducing the schedule of the evening and passing the floor to Chen Rong, founder of Elastos. Rong is a professor of Cyber Intelligence Economy & Blockchain at Tsinghua University. He was one of the earliest Microsoft employees from 1992 – 2000 and also founded a company called Kortide which was invested in by Foxxconn and Tsinghua University.
Rong began by showing a phone that he developed that is Android 5 compatible but is written completely in C++. Rong’s team translated all Android Java framework and class libraries into C++ for security, explaining that Java apps cannot run 100% of application functionality and need to resort to the linux level for certain processes. This opens the door to DDOS attacks, middleman attacks, viruses and so forth. The C++ approach prevents applications from having direct access to the internet, whilst still allowing access from phone to phone and smart routers using a technology called ‘reflections’.
This was all developed before Rong discovered blockchain. Rong explained that Elastos is taking this concept and using blockchain to create a new internet that would allow apps to run in an isolated environment and submit destination universal unique IDs through the Elastos P2P network, which will find the destination and relay all messages. There would be no more usage of IP’s and the Elastos blockchain would function as the trust zone to ensure the programs and data remains secure.
Next to speak was Li Jun who is the co-founder of Onchain and the co-founder and chief architect of Ontology. Jun has had 16 years of experience in the financial industry and was previously the technical architect of the Chinese Financial Futures Exchange.
Jun began by clarifying the relationship between Onchain and NEO. Onchain is a private company that builds enterprise level blockchains for governments and businesses, and they share a founder in Da Hongfei. Onchain has just announced its first public platform, Ontology, which is a distributed trust network. They key word being ‘trust’.
Jun said that when he observed all the different ways we can establish trust, he realized it was a very long list. He then went about dividing them into three dimensions. The first was technology, such as digital signatures, digital certification and biometrics. This is method of trust is good, but perhaps not perfect as the connection between the digital world and the real world is still very weak. The second dimension of trust is the legal system. Your property, for instance, is tied to your identity by the trust established by the legal system. The third dimension is community. For example, one person could verify another identity and vice versa.
Ontology is basically infrastructure to create an ecosystem of trust through a network of blockchains. Multiple blockchains are required because each trust scenario has a different governance model and method of consensus. Furthermore, there will be many modules that will be required for the ecosystem to flourish, and whilst there are many great blockchain developers, Li Jun believes we need to be able to bring in great minds from all across the technology industry. Many of these developers and engineers are prevented from working with blockchain because of a lack of preexisting know-how or cost. Ontology is designed to build a bridge to help bring those teams into the blockchain industry, regardless of whether they have a background in blockchain technology or not.
In a sense, Ontology will be like a market place for trust services. Anyone can build a trust module on Ontology and users can pick and choose the ones that are most suitable for their given scenario. When you need to prove your identity to the bank, they require different information to when you need to prove your identity to your doctor. By providing a system that allows applications to easily access and verify this information from different sources, Ontology will enable businesses and organizations to improve efficiency, reliability and cut down on costs.
Da Hongfei was next to speak and introduced NEO by comparing it to Ethereum. Hongfei said that he does not define NEO as a ‘blockchain’, but rather as a ‘open network for the smart economy’. In the future, Hongfei believes the world economy will be more transparent and inclusive, and it will also be easier to establish trust. At the moment, he speculates one half of the cost of doing business is spent on establishing trust, which NEO aims to reduce.
In comparison, if you open the Ethereum website you will find that they call themselves a ‘blockchain application platform’, and their mission is to ‘build unstoppable applications’. Other key words for Ethereum are ‘anti-censorship’ and ‘anonymous’, which is in stark contrast to NEO who want to be compliant ready. Hongfei noted that although many applications are running on Ethereum and many of the tokens are heavily traded, there are very few people actually using these apps for real world use. NEO aims to change all that.
On the economic side, the first difference is the token model. NEO is the first blockchain to use a duel token system that separates stake from utility. Holders of NEO own a stake in the blockchain and can vote on consensus nodes and transaction fees. This is referred to as the ‘governance’ token. GAS on the other hand is the utility token, which will be used for transactions on the network and paying for the deployment of smart contracts. Hongfei pointed out that the advantage of this system is that when you need to pay for a transaction, you’re not reducing your stake in the network. For instance, if a user owns 1% of the Ethereum network and needs to complete a transaction, they will be required to spend some of their stake, which reduces their position and is almost a penalty. This is not the case with NEO. If you hold 1% of the network, you’ll always own 1% of the network, and you’ll also generate GAS block by block to pay for your daily transactions.
Furthermore, the transaction fees on NEO are quite different to Ethereum. On the Ether network, every transaction is required to pay a small amount of Gas. On the NEO platform, the first 10 GAS of any transaction is free, meaning users can deploy simple smart contracts and send money without being charged a fee. The cost to deploy a dApp however is quite high, meaning the business deploying the application is paying the bulk of the costs, and it is free for users.
Finally, Hongfei mentioned that the NEO Council are holding 50% of the total token supply, which is worth about $1.5 billion today. NEO are using these tokens to fund projects and foster the growth of the NEO ecosystem.
Jeb McCaleb, founder of eDonkey, Ripple and Stellar then took the floor to introduce the Stellar project. Jeb described Stellar as an ‘internet level protocol for payments’, which aims to link financial institutions to one another. The reason this is important is because all the different payment networks around the world do not interoperate, meaning transactions are complicated, expensive and require a lot of middle men.
Whilst solving the problem may be be complicated, Jeb used email as an example of the financial system today. In the early days of email, it was very easy to send an email from one person to another if they were on the same mainframe. It was also relatively simple to send an email to someone on the same local area network. These two actions could be compared to handing someone cash or sending money from one account to another within the same financial institution. However, once users started trying to send emails between local area networks things got very complicated. Users had to specify the route a message would take through the network, and if one of the machines failed then the message would get lost. This changed in 1992 when SMTP or ‘Simple Mail Transfer Protocol’ was introduced, which allows anyone who uses the protocol to send a message to anyone else.
This is fine for emails, however it is a little more complicated for money. A user can send the same email to two people, but a user shouldn’t be able to send the same $10 to two different people. The blockchain solves this problem by allowing users to write transactions to the ledger, meaning that if someone attempts to send the same $10 twice, we can see that the money has already been sent once and deny the transaction. However there are still three remaining issues.
The first issue is that users need to be able to hold any kind of asset, whether that be dollars, euros, yen, or any other kind of currency. Stellar solves this by using ‘anchors’, which allow a user to put a digital representation of money held by a financial institution as a token on the network. The second problem is working out how to make financial systems interoperable. The way Stellar approaches this issue is by creating an order system on the network. For example, one user may put up a sell order of $100 for €80. If another user wants to send euro, they can go through this order, which is atomic and nobody is caught holding currency they didn’t want. The third issue is network scaling. Stellar uses SCP (Stellar Consensus Protocol) which was designed by Professor David Mazières of Stanford University. SCP doesn’t use mining and is very quick, with transactions confirmed in less than five seconds. It is also very cheap and has a flexible trust model that allows users to choose which validator nodes they would like to use.
Jeb finished by saying that the creators of the internet had no idea about the innovations that would come later such as Wikipedia or AirBNB, and Stellar feels the same way about its platform. They are building an open and inclusive financial network which will allow more people to participate in the economy, and they are very excited to see where that leads.
The final presenter was Duncan Davidson who is the co-founder of Bullpen Capital and was the managing director of VantagePoint Ventures. Duncan noted that he is not a technologist, but an investor, and he loves what is happening in the blockchain space. Duncan took two companies public during the 1990’s, so he knows what it’s like to be living in a bubble, and he absolutely believes that we are living in one right now with many different blockchain models being tested. He related a story from a conversation he had with Disney when they asked him “What will be the information super highway?”, to which he replied “the internet”, which is a “network of networks”. The skepticism he was met with back then is exactly the same skepticism he receives when he talks about the future of blockchain.
However, Duncan said he is excited about the innovation that is going on in the blockchain space and all the different models being tested by various projects. Some are going to win and most are going to lose, and this is exactly the type of activity one would expect from a bubble. Duncan noted, though, that all the great technology in human history came in a bubble such as railroads, cars and the internet. If a new technology comes along and doesn’t have the level of craziness we’re experiencing now, it’s never going to ‘make it’. A lot of money is going to be made and a lot of money is going to be lost, and Duncan said he will be sitting on the edge trying to pick out the good projects.
After Duncan’s talk, Chris moved the event onto the Q&A session. The first question put to the panel was one concerning regions and ecosystems. As the blockchain world is often compared to the dawn of the internet, Chris asked the panel if they believe that regional ecosystems will emerge, such as the dominance of Baidu and Alibaba in China, or Google and Facebook in the West. The panel was in general agreement that blockchain is better compared to the internet infrastructure than the ecosystems that are built on top of it, and the very nature of blockchain allows it to be cross border. Chen Rong did add however, that at the very top layer of certain services may require compliance with individual regions, such as KYC, but the main infrastructure layers can still be utilized globally.
The next question was about communities, with Chris asking for the panel’s thoughts surrounding the community aspect of blockchain and all the different groups being built around the world. Da Hongfei took the lead on this answer saying that the keys to building a community are communication and transparency, but you also need to have really good technology at the foundation. Jeb added that Stellar spends a lot of its time in places like Nigeria and Indonesia where payments are not as easy as they are in the West, so focusing efforts where the pain is greatest can also be really valuable in building a community.
Chris then asked the panel about consensus mechanisms. Proof of Work is a dominant consensus mechanism as it is currently used by Bitcoin and Ethereum, but new models such as Proof of Stake and Byzantine Fault Tolerance have also emerged. The question put to the panel was, do they feel one dominant consensus model will become the standard, or do they feel that we will continue to use competing models? Li Jun addressed the question first giving an answer the panel largely agreed with. Jun said that despite the fact that Proof of Work is slow, inefficient and requires a lot of resources to run, there are still reasons to use it. In this same line of thinking, he believes that as different blockchains are built for different scenarios, developers will always be required to choose the consensus model that is best suited to their specific application. Duncan provided an additional viewpoint from a business perspective. He pointed out the cost of mining one Bitcoin currently is 20 barrels of oil, and if the rate of Bitcoin mining continues to grow at its current pace, it will consume 100% of the world’s energy grid by January 2020. For this reason, he feels that it is necessary to explore cheaper and more efficient consensus mechanisms than methods that aren’t sustainable.
Moving forward, Chris then asked how the panel thought that fiat currencies will interact with cryptocurrencies in the future. This question drew varied answers from the panel. Hongfei initially said that he didn’t really have any good current examples of how fiat interacts with digital currencies, except for Tether which may have its own set of problems. Jeb spoke about how Stellar are working to make an easy onramp for users who need to get currency into the Stellar system. Jun mentioned he didn’t really think of blockchain as dealing with ‘currencies’, only ‘digital assets’. Duncan had a different viewpoint to all three, stating that he believes that governments are never going to give up control of currency, so cryptocurrencies are going to be adopted for machine to machine payments, citing an example of a smart car paying a parking garage for a parking spot.
The final prepared question that was put to the panel was, if one would like to get into blockchain, what is the best way to get started and become involved in projects? Hongfei gave a few examples of areas he feels will boom over the next few years, which are decentralized exchanges and cross chain protocols. Jeb said that although blockchain is a new technology, the process of getting started is still the same as any other technology start up. Duncan pointed out that historically speaking, it’s not the first or the best project that succeeds in any niche, citing that Facebook was the 240th VC backed social network. He encouraged people to get involved as early as possible because in an industry growing as fast as blockchain, being six months ahead of the next guy is a massive head start. Finally, Rong urged developers to go back and look at the fundamentals of computer science, stating that if you do, the opportunities presented by blockchain will be clearly obvious.
Questions were then opened up the floor. The first audience question was for Da Hongfei, in which the audience member asked for his thoughts on the Qtum project. Hongfei said that the founder of Qtum, Patrick Dai, was a personal friend of his. He heard that Qtum were thinking about moving from using the Ethereum virtual machine to developing their own X86 virtual machine and will probably end up developing their own ecosystem, taking a similar route to NEO.
The next audience question was about Ontology, asking if Li Jun could expand upon the Ontorand consensus mechanism. Jun reiterated that Ontology was not a single blockchain but a network of blockchains, and that Ontorand was a method of randomly selecting consensus nodes.
Following this, Jeb was asked what the incentive for banks to hold Stellar tokens would be in the long term. Jeb explained that as it is very difficult to trade some of the smaller currencies, such as Thai Baht to the Brazilian Real, Lumens will act as a bridge currency so it’s not necessary to have a market from Thai Baht to every other currency in the world. There could just be a Baht to Lumens market and a Lumens to Real market. Thus, banks would need to hold Lumens to be able to facilitate the trades.
The last question was from a lady who was working on a digital health start up looking to integrate blockchain. She noted there are a lot of different models to consider from a business and technology point of view, and wondered what the best way to approach and sort through the different projects would be. Duncan addressed the question first and said the first thing she should consider is that digital health is tough because there is a lot of government intervention. Jeb noted that Stellar has a partnership program, so if she was looking to deploy a token on the Stellar network, they were always free to apply for funding. Jun asked the audience member to think about the trust issue that they are trying to solve. If there is no trust issue, they needn’t use blockchain as the centralized model will work better for them.
Chris thanked the panel and everyone for attending, encouraging the audience to stick around to talk to the panelists and each other. Finally, Stellar announced they were giving a gift of 500 Lumens to everyone in the audience, putting a QR code on the monitor for attendees to claim.