How Blockchain Transforms The Business of a Traditional Entrepreneur

Opinion | July 27, 2018 By:

Why engage in blockchain and why now? I will discuss some of my personal experiences, “triggers” and insights to help better understand the importance of blockchain technology.

Many people enter this industry simply because they believe that the internet has improved productivity, and blockchain has enhanced production relations. However, we need to consider a few questions in-depth prior to taking the blockchain leap: Can blockchain increase efficiency? Can it really cut costs? These are crucial questions to ask, and I am here to provide guidance from my experience.

Blockchain has brought down the cost of network effect.

A definite advantage of integrating blockchain technology is the reduction of network effect cost. In other words, network effect can be formed with blockchain where an absence in development used to lie. With background in the software industry, I can truly relate to this issue. For example, let’s first examine the software industry and how it changes after introducing a blockchain network effect.  In an earlier article, I discussed the innerworking and effects of blockchain technology on the network in detail, and the main takeaway is that there was no network effect in the software industry or traditional software industry, similar to the business model of restaurants, law firms and hospitals. The product was better, but not much difference in distribution.

The first type of model features fixed product and fixed distribution. Restaurants, clinics and law firms are all in this model, which also can achieve large scale products and distribution, such as America’s  largest healthcare provider, Mayo Clinic. A drawback of this model is placing much reliance on more employees in order to obtain and serve customers. The second type of model features scalable product, fixed distribution. Many traditional high-tech companies adopt this model, such as Boeing, Lockheed Martin, Oracle and Salesforce. The third type of model is fixed product, scalable distribution. Most media use this type, to develop traditional media newspapers. The fourth type of model is scalable product, scalable distribution. Uber, WikiPedia, DiDi, and many other internet products belong in this category.

What do these four models fundamentally explain? The cost incurred by growth. Software area for large enterprise, namely the Big-Ticket Enterprise Software circled in red line in the diagram belongs to the second type of model. This model can be scaled up on the product, but has a linear growth model in distribution, with the biggest feature that distribution and the number of people used for distribution are positively related. Therefore, above a certain scale, increased marginal costs and diminishing marginal returns becomes a challenge as growth slows down.

From 2015 to 2018, American VC firms such as Accel Partners, A16Z and Benchmark have been discussing a new business model.

Software platforms such as, GitHub 7.5 billion dollars, MuleSoft 6.5 billion dollars, and MongoDB, Etastic, Docker, Kafka, Mesos, etc. are the products that developers are familiar with, and behind them are companies worth  billions of dollars.. The growth rate of these companies is about 1 billion dollars in 4 years, which is much faster than traditional software. The reason for this is because of the network effect arising from the introduction of Community concept.

Let’s take a look at the relationship between Office Automation System (OAS) model and blockchain? Personally, I think they are the same issue, both relying on the strength of developers and the transmission of network effect to conduct novel innovation through network connection. The only difference is that OAS selects to make revenue first and Initial Public Offering (IPO) later, after Community formation, while blockchain is IPO directly without any revenue. However, IPO and Initial Coin Offering (ICO) are just different ways of financing, not necessarily related to business logic.

For example,  Docker is better  at the EOS and IPFS of blockchain area, whether in technology or in market influence. If choosing the ICO model, consider if the Docker has already turned out to be a company worth billions of dollars today? Is it possible to avoid the tragedy of the founder being expelled and the founding team leaving altogether? Moreover, under the ICO model, the huge selling cost incurred to obtain revenue can be avoided (typically over the past ten years it was far greater than the income itself). The community’s contributors also receive fair benefits and can share the wealth of technological advancement. While the IPO model benefits only a few individuals and capitals, take Elasitc is an example.

Recently, Elasitc submitted its IPO application, with expected market value of around 3 billion dollars, for which friends in the open source community are excited and look forward to. In a previous article I wrote about an acquaintance,Medcl, who has committed to promote Elastic Search in China since 2012. It can be said that Elasitc is widely used in China, with at least half of the credit made by Medcl’s contribution. We made relationships  in the community, and after that I exclusively sponsored every conference of Elasitc China Community. The earliest Elastic Base is in Dutch. The founder invited Medcl to become a partner on a startup business and promised him a large amount of share equity with the condition that Medcl went to Dutch. At that time, Medcl thought through the offer and eventually declined the invitation, leading to a passing by of a great opportunity in his life. Until 2016, Elastic established business in China where Medcl served as the technology director.

In conclusion, blockchain can bring network effect to the market through community and token incentive. A further thinking is that why are business models inherently different?

Blockchain evolves to the socialization of software.

Blockchain is a rapidly evolving field. Let us put aside the so-called public-chain disputes and consensus arguments, and look into the distant future.

As early as 1995, Barbara Hayes-Roth, a professor of computer science at Stanford University, stated clearly in the IJCAI special report: “Intelligent Agent is both the initial goal and the ultimate goal of artificial intelligence.” The concept of the Agent was proposed by Minsky, a well-known computer scientist and founder of artificial intelligence at the Massachusetts Institute of Technology. He introduced social concepts for computing systems in the book “Society of Mind.” The traditional computing system is closed to meet the requirements of strong consistency, however the society mechanism is open but isn’t strongly consistency, under which some individuals need to reach a receivable solution through certain consultation mechanisms when facing contradictions.

Minsky refers such individual in computing society as the Agent. The organic combination of such individuals constitutes computing society–multi-Agent system. Simon’s theory of finiteness is another important theoretical basis for the formation of multi-agent systems. He believes that a large structure can organize many individuals to make up for the limited ability of individual work; each individual responsible for a specific task can make up for the limited ability of individuals to learn new tasks; organized information flow between social organizations can make up for the limited knowledge of individuals; accurate social institutions and clear individual tasks can make up for the limited ability of individuals to process and apply information.

Agent is a term in artificial intelligence, which you might be more familiar if replaced with blockchain node.

Therefore, from my personal perspective, socialization of software is the ultimate goal of blockchain development. In the final state, simple rules can give rise to collective wisdom.

Thus, I believe blockchain in the future will need to meet the following requirements:

  • Autonomy: The node can automatically adjust its own behavior and state according to changes in the external environment, instead of passively accepting external stimulus, and has the ability for  self-management and self-regulation.
  • Reactive:The ability to respond to external stimuli.
  • Proactive: The ability to take actions according to changes in the external environment.
  • Social: Nodes have the ability to cooperate with other nodes or people. Different nodes can interact with other nodes according to their intentions to solve problems.
  • Evolutionary: Nodes can accumulate or learn experiences and knowledge, and modify their behavior to adapt to new environments.

In my opinion, the future of blockchain nodes are similar to the agent definition in artificial intelligence, where weakly defined agents (nodes) refer to agents (nodes) with autonomous, social, reactive, and proactive characteristics; strongly defined agents (nodes) refer to agents (nodes) that not only have basic characteristics in a weak definition, but also have mobility, communication capabilities, rationality, or other characteristics.

Blockchain will further push the development of computer science

Since starting the Lambda project, I have read more than 100 academic papers on computer science this year and learned group theory from scratch. I experienced two feelings. Although I have been in the software business for many years, I didn’t feel like I was a CS graduate until I engaged in Lambda, besides, it’s an obvious feeling that the innovation in the blockchain field requires the use of the latest and most recent papers in the computer field, and even the creation of something that can write academic papers by your own.

In cryptography, for example, in the model of the currency and Ethereum, only six tools of traditional cryptography are used: symmetric encryption, asymmetric encryption, signature, hash function, message authentication code, and random number, respectively. However, many new public-chain projects require the use of technologies in modern cryptography, such as threshold-based secret sharing, blind transmission, homomorphic encryption, zero-knowledge proof, bit commitment, etc. In our storage project, the data distribution needs to use various variants of the consistent hash, from traditional Chord and KAD networks, to Pastry, to jump-consistent hashing, and data privacy protection requires the use of proxy re-encryption and attribute-based encryption. All of these are relatively unpopular but cutting-edge within the field.

Now with the popularity of Nucpher and other projects, it has gradually become popular. Therefore, we have seen an increasing number of projects looking for academic talents, and seen professors and scientists make projects for themselves to issue coins. The upsurge of blockchain has also brought about a wave of technological change.

My friend Wang Tao has written several articles before illustrating his point of view, thinking that the blockchain is essentially a multi-living database. Recently, my partner Huang Dong has also written a comparative article on Oracle RAC and blockchain. Today, a middleware expert comes to tell me that he has followed some cross chain projects recently, which he finds very similar to the message middleware and Tuxedo we did more than 10 years ago. I think all of them are quite correct. In fact, blockchain uses a lot of knowledge in computer science. This may be the threshold.

But from my perspective, a learning threshold is indeed needed. The biggest barrier to blockchain is that it actually has a threshold of knowledge, which is higher than your range of vision, making you think there is no threshold, thus creating the illusion of “just so so”. In any area, when you come in contact with something really difficult, it means that you’re just getting started. Of course, it may not be so difficult after getting started.

So, for those who don’t have a deep understanding of blockchain, which projects should they start learning from? From my personal experience, a good white paper must be logical. For those full of mathematical formulas, the academic level of the author can be guaranteed, but not necessarily logically possible. All human knowledge is invented by human beings, and within the reach of human brain power. Therefore, I think that in this area, we must maintain awe, but we should also believe in our judgment and learning ability.

Constantly learning, not afraid of computer technology and mathematics knowledge, looking at each seemingly outstanding project normally, believe in your own judgement, all these should be the correct basics for people at traditional Internet fields to enter the blockchain.

About Lambda

Lambda is a high-speed, secure and scalable blockchain infrastructure project. Through the logical decoupling and separate implementation of Lambda Chain and Lambda FS, we provide infinitely scalable data storage capabilities to decentralized applications and achieve data integrity proof, multi-chain data cooperative storage, cross-chain data management, data privacy protection and other services. Recently, the Lambda project has obtained investments from well-known institutional investors including ZhenFund, Metropolis VC, FunCity Capital, Dfund, Bluehill, Spark Capital etc.