Dr. Feng Xiao, Founder of PlatON: I see a 5 trillion dollar market for public blockchain
Previously, Dr. Xiao Feng, the chairman of Wanxiang Blockchain as well as the founder of the blockchain project called “PlatON”, personally led his core team to release the next-generation global computing framework — PlatON at the Distributed 2018 Conference in San Francisco. At a small meeting, Dr. Xiao Feng talked about his latest thoughts on the development of blockchain technology and the prospect of the industry, involving the new business boundary, possible occurrence of breakthrough on business mode and public blockchains value brought by blockchain technology.
The Physical World Vs. The Digital World
Blockchain is the new era Columbus ship to discover the “new world”.
Some people said that blockchains subvert something, but I don’t think so. I think blockchains create a new world. It’s just like Columbus went to discover a new continent, which brought Europe accumulation of wealth in hundreds of years and consequently created the modern Europe.
Blockchain is like Columbus’s ship, but what it brings us is neither a new discovery of the physical space nor a new America, instead it’s a new discovery of the digital space.
Here, the relationship between digital space and physical space is neither substitution nor subversion. They are parallel universes. We can create and explore new wealth in digital space that is much larger than the wealth of the entire human society in physical space. That’s of course called digital assets.
Blockchain Vs. “Blockchain Plus”
Blockchain has not yet reached the stage of “blockchain plus”.
People often ask what are the functions of blockchains? My point is that it’s too early to ask this question at present. It should be understood as follows: blockchain comes first and then comes “blockchain plus”; the original pure application of blockchain comes first, and then the technology will be used in various industries in the physical space to bring respective transformation in the future.
Observing the development of the Internet in China from 1999, when Jack Ma founded Alibaba, to 2010, the Chinese government began to officially launch the national policy of “Internet plus”. It’s hard to imagine a traditional department store in 1999 or 2000 reinventing itself with Internet technology. However, in the Internet era, e-commerce enterprises such as Taobao have expanded to the current scale, which has exerted great pressure on the offline traditional business. Only then do they realize the power of the Internet.
Blockchain is same. Our current work is to develop the blockchain technology and explore the original business mode.
Blockchain Vs. Distributed Business
Blockchain Technology brings a new frontier of business.
As I’ve already said, blockchains are not about subverting or replacing offline businesses or businesses in physical space. Blockchains bring a new business boundary, which we call “ Distributed Business “.
The business intermediaries we are familiar with now will be replaced in the blockchain era, and people will experience the point-to-point, decentralized and reorganized business forms. I call it the Distributed Business Mode. In distributed business, intermediaries will not disappear. They take other forms instead. Mathematical algorithms have replaced all business intermediaries, trust intermediaries and credit intermediaries.
Compared with 100 million people, the marginal cost of applying a mathematical algorithm by one person is zero, which brings infinite possibilities for business development.
We can see that great changes have taken place from the industrial economy era to the information era. In the stage of industrial economy, any enterprise has its boundaries, and when it grows to a certain scale, uneconomic phenomena will occur. Because in an industrial economy, the marginal cost increases as business expands, which consequently amounts towards an uneconomic and cost-ineffective boundary.
Facebook, the famous Internet company, serves 2 billion people and Tencent serves 1 billion people. Under the industrial society and economy, it is hard to imagine that any business entity can serve so many people and the company will collapse in the end. But the Internet can help a company or a business entity to serve 2 billion people because its marginal cost is close to zero.
Blockchain is very different from the Internet. After all, the Internet has a centralized business organization, and part of the cost should be extracted. No matter Google or Didi in China, the intermediate cost between the two sides of the transaction will be extracted, which is still the cost.
When blockchain removes this intermediary, the marginal cost is closer to zero. In theory, when the development of public blockchain technology is mature, there may be a business organization or a public blockchain that can serve 7 billion people. Everyone only earns a penny. Unlike in the industrial economy period, it is no longer necessary to improve its profit margin as far as possible to ensure that the company is in a comfortable living state. Blockchains bring us infinite possibilities for business development.
App Vs. DApp
The Internet turns business modes into platforms while blockchain doesn’t do that.
In the Internet era, we call application App while the application is called DApp in era of blockchains. App and DApp fully illustrate the very important difference between the Internet and blockchains.
Originally, a centralized organization charged intermediary fees, while DApp had no intermediary fees charged by any centralized organization at all.
Not long ago, I saw a travel writer who built his own DApp on Ethereum and published his own book about European tourism. He has issued 10,000 tokens, each of which costs only 1 USD. Tencent has a listed company called China Literature, which is an Internet reading platform. Many authors put their works on this platform, and then readers pay to read. After all, China Literature is a commercial company or an intermediary organization, which draws a large amount of money. The money originally is for the authors paid by readers. This mode of operation is called App. Compared the App, what the European writer did on the Ethereum mentioned earlier was called DApp. That’s the big difference between the Internet and blockchains in business.
The Internet has brought platform-based business organizations such as IBM and Weibo, while blockchains deconstruct all businesses which finally becomes a completely de-neutral business model.
Information Vs. Energy
Information economy is “the conversion between energy and information”.
In the design of blockchain consensus mechanism, energy conversion is indispensable. Without the conversion between energy and information, the security of the system will be reduced, so the existence of PoW consensus algorithm is reasonable.
If a consensus mechanism has nothing to do with energy, but only information, a lot of security problems will appear.
In the real economy, the energy consumption of any financial system is very high. The annual energy consumption of a country’s financial system is no less than that of a blockchain system. Blockchain does not rely on any intermediary, but the offline financial system needs laws, law enforcement, police, courts and even prisons. We have a whole set of things to make sure that people trust Banks and trust intermediaries.
When we talk about the energy consumption of PoW, we forget to compare that the real financial system and the real social system also use energy.
Governance vs. Algorithms
Any management over the blockchain by attempts of human interference and election campaign is not considered connected with blockchain.
Blockchain opens up a new world, a digital world. Blockchain constructs the underlying technical framework of digital economy.
In the digital economy, the only universal language is code. The governance mechanism in the digital world can only be the mathematical algorithms.
It’s hard to believe that in the digital world, machines and machines, or people and machines, can communicate in English and Chinese. Therefore，any management over the blockchain by attempts of human interference, election campaign or separation of powers, is not considered connected with blockchain.
Blockchains governance relies on mathematics instead of human inference.
Blockchains Vs. Killer Apps
“Killer” Apps may not occur in the blockchains industry.
Some people ask whether there are killer Apps in blockchains? My answer is no.
Blockchains shouldn’t manage the applications with hundreds of millions of registered users and tens of millions of daily active users. However, blockchains focus on point-to-point applications, so that everyone can issue tokens and do what they enjoy, which are different from the aforementioned applications based on the Internet.
There are 100 million DApps in each public blockchain. Each DApp creates a value of 100,000 USD, so that the total value of the whole public blockchain is 10 trillion USD.
Killer Apps can’t occur on the Blockchains, and they don’t require the speed of TPS performance as high as 200 KB per second.
If someone asks which blockchain will become the future Alibaba, Facebook or Google? This level of market value can only be created by the public blockchain, which means there’s no DApp can become a company like Google, Facebook, Amazon, Alibaba or Tencent.
DApp Vs. Public Blockchains
The company of five trillion USD value may emerge in the blockchain industry.
GE, the most typical representative of industrial manufacturing companies around the world, was excluded from the Dow Jones Index in the past few weeks. GE has a market capitalization of over 6,000 billion to 700 billion USD, which is the largest company in the industrial manufacturing.
Companies with a market value of 1 trillion USD in the field of Internet are appearing, while industrial companies can only have about 500 billion USD.
Companies with a market value of 1 trillion USD in the Internet era are appearing. After 10 or 20 years, blockchains will definitely have some projects with 5 trillion USD value. Why? I reckon it’s because of the extensibility of its business. The industrial enterprises serve up to 50 million people, which is the capacity boundary. In addition, Internet companies serve up to 1 billion people, while blockchains may serve up to 5 billion people.
From the industrial manufacturing to the Internet and then to the blockchain, the market value of enterprises will show a trend of rapid growth.
Digital Economy vs. Digital Currency
Digital accounting is needed in the digital economy era.
Why do companies with a value of 5 trillion USD appear? Go back to the fundamental question of why blockchains are needed.
With the increasing digitalization of human beings and the rapid development of digital economy, the digital world and the real world will become completely different worlds. In the digital world, the digital economy needs a whole set of digital accounting methods whose core is a set of digital account system.
In digital accounts, the unit of account can only be digital currency, not be legal tender. The digital wallet on the blockchains cannot record legal tender, because legal tender is not programmable, which means we cannot program USD, RMB or Euro to run them automatically by intelligent contract.
Some people believe that the circulation of bitcoin or other digital currencies is predetermined, so it may cause deflation. The person who holds this view does not know what digital currency is at all. They still have the mode of thinking based on legal tender.
We know that the legal tenders have their denominations, and any issuance of new currency will add to the number. Whereas the bitcoins do not have a denomination, rather there are 21 million of them in total, with each coin able to be divided into one million-trillionths. The issuance mechanism of digital currency is different fro that of legal tenders because it won’t cause deflation. With the price of each bitcoin rising to 100,000USD or even 1 million, you can still buy your pizza with it by divding the coin into more equal parts.
Digital currency takes the rise of currency price and the increase of currency value as the issuing mechanism, thus driving the development of economic activities on the public blockchains.
So there are 100 million Dapps on a public blockchain, and each DApp creates an economic value of 100,000 USD. Therefore, the entire public blockchain is a 10- trillion-USD economic entity. How much money does it need? It must be several trillion USD.
The currency value of a public blockchain depends on the total economic value created by the DApp. The currency value of the public blockchain should be matched with the economic value in accordance with a mature currency theory.
So my conclusion is that there will be a public blockchain worth 1 trillion or even 5 trillion USD.