Browsing Tag: public chain

    Product thinking
    DeFi

    When we are “consuming” Bitcoin, what exactly are we consuming?

    June 26, 2020

    Next, we will talk about the value and risk of consensus.

    The consensus cost determines the value of a public chain, not the application. The application only affects the risk of the value, which is a very subversive view.

    For this reason, we need to further explore:

    Imagine that we have a bunch of code, such as Bitcoin code. When we ask what it’s used for, it goes into product thinking.

    Product thinking is in line with our intuition. If something has no use value, it is not worth our attention. But there is a drawback in product thinking, that is, the products we see are all provided by companies or individuals, and have a strong central directivity. This makes it seem that when we understand the product, only I interact with the product itself and the service provider behind the product. The use value of the product is mainly reflected in the product itself or the service provider. Sometimes good product development may determine the number of users.

    But Bitcoin is different.

    When we use Bitcoin, it’s not Bitcoin code or an organization that provides us with services, but tens of thousands of miners behind the code that provide services, which is quite different from the centralized products.

    First of all, the code itself is not very valuable. (Note: if there is a lot of value, the code is open source, you can copy one and provide services for free. Do you want to switch to the new code?)

    Secondly, a person is running this code and making your transfer transaction go smoothly, which is not very valuable.

    Only when the miners are big enough and scattered enough can the transfer have “value”.

    Consensus provided by miners

    It’s a little similar to the difference between ink weather and wechat. As long as ink weather is running, anyone can get the service they want by opening the ink weather app. But wechat is not, if their friends don’t use it, Tencent has a million servers there, which is of no value to you. This kind of mutual dependence between users is similar to that of Tencent Consensus depends on the same.

    Therefore, when we “consume” Bitcoin, we are not “consuming” Bitcoin code. Because this code can be copied by anyone, its own value is very low, but in the “consumption” of the consensus provided by tens of millions of miners.

    These consensus include the unity, authenticity, and non tamperability of the data on the chain, as well as the recognition of the intrinsic value of the special currency, and various expectations of the future use scenarios, which are different from the consensus thinking of product thinking.

    Consensus does not necessarily point to a certain application, nor does a certain application determine the value of blockchain.

    What’s the use of blockchain? It’s not pre-set from the beginning.

    Although most blockchain systems have initial function definitions, this function will eventually move towards abstraction, i.e. the application may exceed the designer’s imagination, only the most abstract level is the same as the preset.

    BTC value storage

    For example, Bitcoin was intended to be used for payment, but now it does not have the conditions to become payment, instead, it turns to value storage, but both of them are consistent on the level of transfer. Another example is Ethereum. The applications it advocates in the white paper have not been carried forward, while various decentralized financing and decentralized finance have developed, but these applications all use the function of smart contract.

    Those who are always looking forward to a specific application to drive the development of a decentralized system are a bit willing to give up.

    If the consensus itself has not been built, that is to say, the cost of consensus embodied has not yet come up, then the application is difficult to develop based on a single software function; and even if the subsidy is stiff, it will eventually return to the original appearance of things. Finally, it depends on the construction of consensus. The way of using the back-end to pull the front-end is crude, and the possibility of success is very small.

    Consensus building

    Let’s focus on the construction of consensus, which contents are defined by each blockchain system. For example, some are consensus of transaction data on the chain, some contain consensus of smart contract, some contain consensus of market price, etc.

    Every consensus has its intrinsic value and needs to pay a cost. Moreover, consensus does not eliminate the friction of the world and let water flow to the lower place like ordinary products; on the contrary, consensus is to form a new value and let water flow to the higher place. Therefore, the higher the consensus cost, the greater the value, which is also the special feature of the blockchain decentralized system.

    Blockchain public chain

    From the perspective of consensus cost, why is the market value of EOS less than 20% of eth?

    June 21, 2020

    Consensus mechanism is the most special thing of blockchain, which is different from the consensus in the real world. Based on algorithmic program, blockchain reaches an agreement on the transaction data on the chain, thus creating value. The value in our life is also based on consensus. Except for the exchange price, most of the consensus does not have a serious process or force, so it is difficult to quantify. What’s interesting about blockchain is that this consensus can be measured, such as BTC reference computing power index, POS passing currency holding test, dpos voting based and so on. Do these differences in consensus represent differences in value and risk?

    We believe that this is true, that is, the cost of consensus determines the value of the blockchain. According to the current BTC model, this cost is computing power. Many people may focus on the application of blockchain, and think that as long as there are enough applications on the chain, its value is the greatest, which is a typical product thinking, not applicable to blockchain. A public chain, if its consensus cost is high enough, that is, its computing power is large enough, it is indeed more valuable than a public chain with low computing power. Many people will question this sentence, saying how can the computing power maintained by the central organization represent value? In fact, this sentence confuses value and risk. Computing power determines value, and the composition and application of computing power determine risk.

    Calculation determines value

    Computing power is provided by an organization. If it can not effectively share the cost of computing power, this kind of consumption is unsustainable. Computing power is provided by the market, which is the result of thousands of rational individual calculations. Each of them tries to achieve their own economic closed-loop. As long as they still provide computing power, it shows that they can achieve the net efficiency of input-output. These people who provide computing power are different, thus effectively avoiding the situation of both damage and prosperity.

    No matter how the incentive of the public chain fluctuates, there are always people in and people out, and there will be no collective exit at the same time. This decentralized structure reduces the risk of consensus.

    If the public chain or the corresponding token has a usage scenario, it will also indirectly reduce the consensus risk. On the one hand, the consumption of tokens has been settled, on the other hand, the secondary market of tokens has a stable expectation, which enhances the purchasing power, thus bringing certainty to the computing power provider. These two aspects regulate the consensus risk of public chain, but the consensus cost always determines the value.

    Consensus risk of public chain

    According to the BTC design, when the computing power is large enough, the cost of completing 51% attack will become exaggerated. Even if the computing power attack is successfully implemented, the miner can split out of the attacked block and maintain the original consensus again. The attacker can get a block chain system without consensus, which is meaningless. Therefore, once a public chain is maintained based on a decentralized consensus, it will become very powerful. The cost of this consensus, seemingly unrelated to actual production, is the foundation of value, and production activities only reduce the risk of consensus.

    To exaggerate, even if BTC can’t be used anywhere, or no one wants to use it, its consensus cost will remain at tens of billions every year, and it still has the current value.

    Ethereum 2.0 will change the consensus mechanism from POW to POS, which has a great impact on Ethereum. This impact is mainly reflected in the evaluation of consensus cost. At present, the industry is not fully aware of this problem, but simply analyzes the impact of consensus change on application and development. I think this is putting the cart before the horse, because how much application is for a blockchain system is only a risk issue, not a value issue.

    Transfer of consensus mechanism

    The risk of maintaining value is low for the public chain with application, and potential risk may exist for the public chain without application under the same consensus cost. We need to spend more time thinking about the comparative analysis between POW and POS, and how to compare the cost of both in a framework. In fact, many people know that for a long time, even now, the number of applications on EOS is no less than eth from participants, but the market value is less than 20% of eth. Some people think that it is because heavy asset projects like usdt or defi are not released on EOS, which is incorrect. The root cause is that the consensus cost of dpos is far lower than that of pow. No matter how many applications there are, it can only appear that the risk is low under the given consensus cost, which cannot represent the high value. But for the cost comparison between POS and POW, there is no good framework, which needs more people to study and improve.