Dr. Feng Xiao, the founder of PlatON, attended the China Unicom Partners Conference:To Form A Business Closed-loop of the Internet of Things, It’s Necessary to Complement Each Other with Blockchain
From April 23 to 25, the 2019 Shanghai 5G Innovation and Development Summit which is also the China Unicom’s Global Industrial Chain Partner Conference was held in Shanghai World Expo Exhibition & Convention Center. Over 3,000 guests from world-renowned telecom operators and industrial chain partners came to the conference, and tens of thousands of people made an appointment to visit. On the afternoon of April 24, Internet of things of China Unicom invited all partners from the industrial chain of the Internet of things to hold “5G plus Internet of things (IoT)” forum to explore new ideas, new opportunities and new challenges in the development of the Internet of things in the 5G era.
Dr. Feng Xiao, Chairman and General Manager of Wanxiang Blockchain and the founder of PlatON, was invited to attend and delivered a keynote speech titled “Business Closed Loop of Blockchain and Internet of Things”. Dr. Feng Xiao said in his speech that the Internet of Things must be upgraded from an instrumental technology to an institutional technology to rebuild the business model.
I am very frightened because I am a financial practitioner. Today I stumbled into China Unicom’s “5G+IoT” forum. I’d like to start from my expertise and talk about my understanding of the Internet of Things from a business and financial perspective.
1. The business model of the Internet
Before talking about the Internet of Things, I would like to talk briefly about personal understanding of the Internet business model. The Internet has a variety of applications, but I think the core business model of most Internet companies, even those valued tens of billions of USD, is that the users’ behavior data is conveniently collected through the Internet, and then accurate customers’ needs are, and artificial intelligence matching algorithms are used for precise marketing, thus greatly improving transaction efficiency. Improving efficiency, reducing costs and improving experience is the core business model of the Internet.
We have seen varying business performance of Internet companies with tens of billions of USD mainly based on this model. There are also some Internet applications that seem to be cool, but they don’t actually form a business closed loop because they don’t fit this pattern. The characteristics of such applications are that users’ behavior data and customer portraits are not important to them, even the so-called precise matching on the Internet is not important, which may cost tens of billions of yuan a year. Until today, it is impossible to see how such applications can form their own closed loops, thereby reducing losses.
2. Business model of Internet of things
The business model of the Internet of things is very different from that of the Internet. I personally understand that the Internet of things is a data network based on things, so its core business logic is to collect device-side data. In some business scenarios, the amount of real-time data interaction between devices is very large, such as the Internet of vehicles. With the advent of unmanned driving, real-time and low-latency data exchange is a decisive factor. At the same time, there is a great need for collaborative computation among these devices. A few days ago, a concept called edge computing is hot in the stock market, indicating that everyone also saw huge market demand in this area.
I understand the Internet of things from the perspective of investment, there are huge differences between the business model it brings and the Internet business brings. The biggest difference is that it endows machines with intelligence. Because of the intelligence, people and machines can communicate equally, which lays the foundation for the advent of a new intelligent society. In my opinion, the Internet of things will play a decisive role in the process of intelligent society. The previous speakers also talked about the topic of intelligent society.
From a business perspective, there is a very critical issue in the Internet of Things, which is how to upgrade the Internet of Things from an instrumental technology to an institutional technology.
What is instrumental technology? The Internet is an institutional technology that creates many new business models and restructures many businesses. For example, WiFi is an instrumental technology from which we don’t see anyone creating a very big business opportunity in such an instrumental technology. A so-called disruptive technologies are bound to bring about great changes in the economic system and economic structure, which has been summarized by a Stanford professor who studies complex networks. The professor, who has studied complex networks for more than 20 years, has found that all economies are expressions of technology. However, these technologies that can affect the change of economic system and economic structure and rebuild some new business models are all composed of a whole set of technologies rather than a single technology. For example, cars change the way people travel. It is not just the car manufacturers that can make such a big change in the way people travel, especially the innovation of production organization, such as Ford’s assembly line, Taylor’s enterprise management revolution, the extraction of chemical petroleum energy, the hardening technology of roads and even the hourly wage system advocated by Ford. The innovation of the wage system ultimately makes people have the money to afford private cars. A whole set of innovations in technology and systems have brought about new businesses, tremendous changes in the way people travel, and all these disruptive technological synergies are going to change the economic system.
The Internet of Things has the characteristics of becoming an institutional technology. To bring about changes in economic structure, economic system, and business model, we should rely on not only the technology of the Internet of Things itself, but the cooperation of other technologies. A single technology can not achieve such a historic value, which I think blockchain is indispensable.
3. How does the Internet of Things business form a closed loop?
From four levels, I would like to explain why Internet of Things technology has to be complementary to the blockchain in order to become an institutional technology.
(1) Identification of the device
Blockchain technology can be of great help to the Internet of things in terms of identification. The bottom layer of any value networks or any blockchain-based financial systems is device identification. In the real world, in a person-based financial system, each of us has a unique identity. It is based on this identity that we can open personal accounts, where we can conduct various financial transactions. In an interconnected world, a device must first be given an immutable and trusted identity without which the capitalization of the data, as well as blockchain-based data transactions, is unlikely to happen. Blockchain technology brings the characteristics that the identity of digital devices can not be tampered with, which is the basis of the business closed-loop of the Internet of Things.
(2) Ledger system of the device
The device is generating and sending data every second. How is the data recorded? How do you measure it? There are two concepts here that I want to clarify. Distributed database and distributed ledger are very different. One might say we can solve all problems with distributed databases, but they can’t help us to capitalize and financialize the data. To capitalize and financialize device data in real time, distributed ledgers are required. Distributed ledger based on blockchain provides a bookkeeping method for data transaction, which cannot be completed by distributed database.
(3) Ownership confirmation of the device data
The asymmetric encryption algorithm of blockchain (private key plus public key) is a set of right confirmation method of digital ownership. The ownership of bitcoin totally depends on whom owns the private key. The private key is the unique confirmation technology of digital copyright.
(4) Accounting and exchange unit of device data
After the data is assetized, a clear unit of measure is required at the time of transaction. First of all, the Token in the computer language plays this role. Explained at the financial level, Token is the unit of account for data. Secondly, many algorithms based on blockchain plus cryptography also bring the privacy protection of device data. If the privacy protection of device data is not solved well, the data property rights cannot be confirmed, which is not the result of the blockchain technology itself, but causd by the blockchain-based algorithm. For example, privacy protection brought by zero-knowledge proof, ciphertext block data sharing based on homomorphic encryption , data validation and even secure multi-party computation. Secure multi-party computation refers to the collaborative computing of data between different devices after being encrypted. Data protection alone cannot bring value, which means the value of data must be reflected during the exchange and transaction. But without a blockchain-based cryptography algorithm, it can be hard to share and exchange data with confidence. In addition, blockchain technology is a set of technologies that are naturally used to help us capitalize digital assets, helping us to identify digital ownership and prevent double-spending trade. From a purely engineering perspective, Bitcoin provides a set of effective ways to prevent double-spending transactions by confirming digital ownership.
One of the biggest features of all digital stuff is that it’s easy to copy and spread with zero marginal cost. So, how to avoid the data that has been confirmed not to be diffused out with zero cost. If data can be replicated very easily, it obviously does not constitute a large-scale data market and value system. The experiments of blockchain technology over the past decade have proved that it can help us determine the ownership of data. In the Internet age, for example, you can send an email with the same content to 10,000 people and your original email is still retained. If the data becomes the value, then obviously I can only give it to one person who accepts the price. Others will clearly know the seller no longer has it and cannot get it anymore. Otherwise why should I spend money to buy your data?
Data is oil in the era of digital economy. Oil brought by the industrial economy is a kind of asset and a real fossil energy that is not only used to drive cars, but also a tradable financial assets in the capital market. So, in the era of the Internet of Things, devices generates so much data every second. The oil in the new era drives the development of the digital economy; meanwhile, it will become a very large and valuable new asset in the capital and financial market. If the business of the Internet of Things is to be closed-loop and generate companies valued tens or hundreds of billions of USD, it must enter this cycle.
In this closed-loop, there must be no lack of data capitalization and asset financialization in business logic, without which the value of the business model of the Internet of Things will be greatly reduced. As far as I’m concerned, that the closed-loop business model of the Internet of Things must follow these steps: the networking of devices -> digitization of the network -> assetization of data -> share of assets -> transactionization of shares -> financialization of transactions. Only by dividing them into standard shares can transactions be carried out conveniently. Otherwise, data trading can not form a market with good liquidity, nor is it a market with clear pricing. The transaction based on digital assets can provide very rich financial services, which is my personal opinion on business model from the perspective of business and finance.
To sum up, it is the so-called disruptive technology, which is marked by the ability to change the economic system and economic structure. This change is embodied in the creation of new business models, such as the Internet. The closed loops of all these business models cannot be created without finance. I believe the Internet of Things is also the same.
That’s what I want to share with you today. Thank you!
