[TRANSLATION] Why Dangdang’s former CEO Li Guoqing’s first step in Blockchain is doomed to failure

Co-founder of China’s leading E-commerce company Dangdang (as Amazon) Mr. Li Guoqing recently claimed his participation in Blockchain, as CEO of CRYSTO’s dApp. The striking news has drawn people’s attention to content blockchain. Bull market at the beginning of 2018 witnessed the birth of content projects. Many failed with trials, and left us with precious experience for the latter participants.

EOS’s founder BM established Steemit in 2016 and has been trying to work on everything by his own for quite a long time. Steemit aimed to challenge social network oligopolies such as Twitter/Facebook by encouraging content production via writer incentive system. Steemit adopted BTS’s blockchain technology — Graphene technology — and reached high level in trading performance and user experience, but it also failed quickly.

In the past, people failed to recognize the value and significance of blockchain. Interviews with Mr. Li tells that CRYSTO is built based on blockchain technology, with dApps to distribute contents. Their perceptions of blockchain are as follows. 1. The nature of blockchain is finance 2. Blockchain community is built around data traffic incentives model 3. Every dApp has a profit model.

From my point of view, Mr. Li is still using the traditional Internet thinking to evaluate the trend of blockchain, which I do not agree. The possibility of whether Blockchain can generate value without breaking the current Internet game rules is in doubt. Afterall, a horse carriage cannot turn into to a Tesla, no matter how it gets refitted.

Business Model in Internet Age

The birth of Internet brings a package of new business model, and I believe ‘earning profit’ stands as the core value of an enterprise.

Blockchain altered traditional business model of value creation. To understand it more easily, let’s make a comparison. Before Internet, when I had some commodities, people would come to me and look for what they need. It simply involves supply and demand relations, without algorithm network. No matter whether the commodities originated from Guangzhou or Guangdong wholesale centre, they all need to be purchased from National wholesale centre. But with Internet, the trading mode changed.

For example, Netflix earns profit from user subscriptions. Through Internet, Netflix can recommend stream media contents to users according to user behavior analysis. The advantages of Internet are obvious. First, it increases efficiencies and saves time used for contents search. Second, Internet eliminates agencies cost. The Internet model is prevalent nowadays. We receive the advertisement recommended to us on TikTok and Wechat moments every day. When we think about how to create and capture the value in Internet Age, a keyword will come to fore — Data.

So, what is the Internet business model?

Internet is the distribution of unsymmetrical information

Internet model means to obtain user behavior data (information) via free services/products provided, through which to acquire commissions, earn advertisement, information distribution, and ranking fee accordingly.

For example, can you believe Wechat’s core profit comes from recommending erotic novels to users? By inserting the link to erotic novel websites in the middle of advertisements posted in Official Account Articles. Often, the first two pages are free, with seductive words and plots to attract users to pay for further reading. Advertisers will earn 10% from these ads, while Wechat gets 90%。

The core of Internet is data. Data owners such as BAT in China and FAANG in the U.S. became oligopolies, since data brings huge profits. Why should data be shared? Tim Berners-Lee, the father of the World wide Web believes that the Internet has followed the “long tail effect”, which is a vital rule. It allows a variety of companies to survive, but “the long tail effect ultimately failed.” Tim Berners-Lee also pointed out that there are many “data islands” in the Internet today, which deviates from the original intention of the Internet.

The oligopolies we see today grew from seizure of data. The previous free circulation of data complied with the Internet effect, which aims to strengthen the superior and eliminates the inferiors. Under current Internet model, there is no end to competitions. The only result is to generate super-oligopolies. No wonder the CEO of Meituan-Dianping Wang Xing saids many years ago — Internet is a war without end. But luckily, blockchain will break the ingrained game rule.

Fat Protocols

The original Internet model is based on Thin Protocols, also known as TCP/IP/HTTP, etc. It formed the foundation of Internet and generated huge value. But ordinary users barely had ideas of its existence. The actual value of the protocol is captured by Apps such as Google/Wechat/Uber which we daily use, and these Apps’s demand for data created the ‘data island’.

By contrast, blockchain is an open-source network based on protocols. In blockchain, the advertisement fee of traditional Internet is substituted by tokens, which will create huge value through its circulation. In other words, blockchain is based on protocols, and token connects with the protocols and circulates in the network. While users join the network, they become nodes and manage personal data via token exchanges. This is what we call the ‘distributed network’, and blockchain projects earn profits from the protocols.

The nature of blockchain lies in the distribution of circulation value

The inherent feature of blockchain certainly is not finance. Let’s think about this, if we say blockchain’s nature is finance, as similar to the Internet, then what are Google and Facebook’s role? The opinion that blockchain is the next generation of Internet is a déjà vu. Like Internet, blockchain is not omnipotent, and both of their core value is connection. But the difference is, based on blockchain’s feature of value distribution, its core part must lie in protocols instead of finance. Finance is merely an apparent form that helps us easily understand blockchain’s basic functions. For instance, Netscape browser was brought to the market in 1994, and people got to know Internet through it. But can we simply say that web browser equals Internet? Apparently not.

The future of blockchain depends on Fat Protocols, which means dApps/Apps will not be as important as in Internet. dApps are small applications, the data of which is too fractional and long tail to generate huge decentralized applications, but the protocols are valuable. Since blockchain aims to exchange values, which is different from the Internet, therefore, the so called ‘innovations’ built based on the obsolete internet thinking will fail. To put it simply, inventions or creations that will generate huge values must subvert the established thinking.

Quoted from the famous U.S economist Paul Krugman in 2001, “By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.” But those who were born in the 90s had seen a fax machine? I strongly doubt that. Krugman’s thinking is based on a traditional view. The reason why everyone is still competing for the existing market is because data traffic available is inadequate. When a technology has already been applied to every aspects of the market, with no further incremental market to expand to, that is when blockchain steps in.

Killer in blockchain

As we already mentioned, what enables blockchain to transgress the Internet is the open-source protocol, token circulation, and value-oriented network. Thus, the undergoing blockchain projects will be built based on protocols, instead of dApps/Apps. Killer must rely on a distributed trust. In other words, centralized institutions are no longer needed, and they will be substituted with distributed network driven by algorithms. To put it more straightforward, within blockchain network, trust is built by network consensus instead of people consensus.

On the other hand, everytime we witness a large-scale industry upgrade, we can see that the technology update comes together with the update of hardware system. For instance, the invention of mobile phones catalyzed the burst of mobile Internet technology and Apps. The rule also applies to blockchain. However, current hardware system cannot reinforce the future development of blockchain. For instance, bitcoin relies on CPU/GPU for token mining. We can regard it as the fact that early stage blockchain applications relied on Internet infrastructure. When the updated protocol will be introduced, the smart hardware will connect the mining machine with data.

For instance, if Hyperion, as a MapChain project, creates a wallet that can be embedded in smart devices, and the devices can include more than mobile phones, like AR/VR devices, projection equipment or Bluetooth earphone with GPS; then Uber and Airbnb’s basic functions can be substituted. Ordinary users who need to book a car or accommodation can request smart contract through wearable GPS devices, and the network will finish the whole operations automatically, such as to book different time slots according to users needs. It also applies to restaurant or hotel booking, etc. Therefore, Dianping or Didi will no longer be necessary in blockchain network. What remains is the huge long tail based on protocols.

How to understand long tail? Let’s imagine a situation that a landlord requested the smart contract and uploaded his property onto Hyperion Mapchain. He/she offered the property to everyone in the world for rent during specific time slots. Why we say Airbnb is no longer needed? Because through blockchain network, the data request is open-source for everyone to join at anytime, instead of using a single platform to coordinate. The value of data will be generated through token circulation via Hyperion network.

App/dApp is only a part of protocol value. The future of blockchain is generated by the integration of fat protocol with smart hardware (mining machine), instead of mobile phone, but rather wearable devices that free our hands. Long tail means more than 10 million dApps will be generated on Hyperion MapChain. Each dApp can work as an endless long tail. According to the calculation based on traditional Internet model, each dApp values approx. USD 100,000. But with Hyperion MapChain the total value will be more than 1 trillion USD. Those who can achieve distributed trust network with the easiest method will be given the pass to the next stage. Then what is distributed trust? — Consensus.

Therefore, the essence of blockchain is not data traffic but data itself, since data traffic is unpredictable and it does not capture value within the data. While blockchain aims to capture the value of data by reaching consensus.

Let’s get back to the topic, if adopting traditional Internet thinking to develop blockchain is doomed to failure.

The origin: (轉載)恕我直言,李国庆先生的第一步已经注定了最后的失败

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