Blockchain use case tracking precious wine and building a community around it (Netmi Blockchain Labs)

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In my latest tour through China to find the most promising use cases for blockchain technology, I needed to come to Hangzhou. In this article I will share my learnings about the Blockchain use case tracking wine with you.

Hangzhou is one of the most beautiful cities in China. When Venetian merchant Marco Polo visited Hangzhou in the late 13th century he called the city “greater than any in the world”. If you have not been there you need to go and see the West Lake (西湖) area and the lovely surrounding parks and temples.

Besides its natural beauty, Hangzhou is also home to some of the most fascinating Chinese companies. The most well-known of these is Alibaba. Started by the Chinese internet pioneer Jack Ma, the Alibaba empire resides on the triangle of: E-Commerce, Logistics, and Finance. As a starter to understand the story behind Alibaba I highly recommend Duncan Clark’s 《Alibaba: The House That Jack Ma Built》from 2016.

With the IPO of Alibaba in 2014, a lot of early Alibaba employees got enough capital together to start to invest into new and promising startups. It is thus not surprising that in the Alibaba ecosystem also a lot of blockchain companies were born. Either founded by Alibaba alumni or financed by them.

Blockchain use case tracking wine and creating a community around it

In this article I want to reflect on what I learned from visiting NetMi Blockchain Labs, a company in Hangzhou that is developing Blockchain applications for corporates. Here are some of my learning from sitting down with Evan, the CEO of NetMi Blockchain Labs.

Lesson 1: The ban of ICOs in China was a good thing – in contrast to Europe, Chinese blockchain entrepreneurs need to earn their money with real-life use cases

The first topic I was curious about was: how did the Chinese Blockchain ecosystem change after the government stepped in and banned ICOs to protect ordinary investors, aka retail investors, from scams? Interestingly, Evan pointed out that this was even a good step, as Chinese blockchain entrepreneurs now need to think about a real business model for their companies. Simply raising money though an ICO is for most teams out of reach. Therefore, real-life use cases need to be developed. While everyone outside China is busy preparing an ICO, China already arrived at what I call the “post-ICO” area.

How can one build a serious business on top of blockchain technology?

 

With Evan, the CEO of NetMi Blockchain labs in HangZhou, China

Lesson 2: Supply chain is still one of the killer-applications of the blockchain

Evan helps me to walk through some of the projects that they were doing recently. All of them are very interesting and very well thought out. I guess this is because the goal is not to produce a marketing whitepaper for an ICO but to convince a corporate to embark on a transformative blockchain project. One of the examples we discuss in detail is the blockchain use case tracking wine.

  • Background: a large wine company is integrating blockchain technology into their century old business model – producing and selling wine.

The way it works is an interesting combination of supply chain use case, community engagement, and gamification.

  • Every bottle of wine produced gets equipped with two different QR codes
    • A first QR code visible for everyone on the outside of the bottle. This QR code acts as unique ID for the bottle and is stored in the blockchain.
    • A second, secretly hidden QR code is inside the cap of the bottle. The code is not visible unless you open the bottle. This acts as verification for the end user to prevent counterfeiting along the supply chain.
  • For every new bottle produced a digital representation of the bottle on the blockchain is generated. In blockchain language, this means a new non-fungible token is mined for every bottle. For insiders: this is similar to what Cryptokitties (a blockchain gaming project out of Canada) and Hyperdragons (project out of China) are using to represent their digital avatars in the game. Each token is different, which is different to traditional cryptocurrencies where 1 Bitcoin is worth the same as any other 1 Bitcoin. One popular standard that emerged to represent such tokens on the blockchain is the ERC721 token standard from the Ethereum community.
  • Buyers of the wine now hold a digital representation of their purchase, one unique token for bottle they bought. The token holder gets a promise from the wine producer: anytime he wants he can redeem the token for the specific bottle of wine.
  • The physical location of the wine is a professional storage facility at the site of the producer.
  • The tokens now allow for a secondary market for the wine bottles. Instead of holding the token the buyer can decide to trade the “wine” token with other users. Even a futures market is possible. Example: I’m buying a bottle of 2009 Bordeaux wine from your for 10.000 RMB in on May 1st 2020.
  • This agreement translates into as a smart contract and lives on the blockchain.

NetMi Blockchain labs is not the only one betting on the supply chain as one of the game changing use cases for the blockchain – Vitalik Buterin, founder of Ethereum, is bullish on this use case too.

Lesson 3: Integrating blockchain technology into your traditional business has many merits

Lastly, Evan helps me to understand the primary motivation of corporates in China to integrate blockchain technology into their products. “It is a mix of different factors for them to start working on blockchain technology”, Evan explains. First, there is an obvious problem such as transparency along the supply chain they need to solve where blockchain can make a difference. But that is not everything, as other factors are also in play here. Some are going to adopt blockchain technology to prove to their employees that they are also a technology company, thus helping them with their digital transformation. Lastly, the same logic applies externally – it makes a nice story for investors if you report the use of blockchain in the annual report.

To learn more about NetMi, check out their website: http://www.netmi.com.cn/index.html 

About the author

Dr. Thomas Reinbacher is former computer scientist and McKinsey management consultant and works as independent adviser in Munich and Beijing. If you want to work with me on the blockchain use case of tracking wine or other precious goods on the blockchain,  please find my contact data here http://dr-reinbacher.com

Disclaimer: This analysis on Blockchain use case tracking wine is  provided without warranty or any claim for completeness. All opinions expressed about Blockchain use case tracking wine are my own. All information on Blockchain use case tracking wine is given strictly on a non-reliance basis and under the exclusion of any responsibility or liability, in particular with regard to loss or damages and/or administrative and regulatory sanctions.

2018 Ethereum Technology Conference in Beijing – Vitalik Buterin on Casper and blockchain beyond hype

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June 3rd 2018, Beijing. At the 2018 Ethereum Technology Conference in Beijing China, Vitalik Buterin talked about how Ethereum can scale to be able to cope with real-life business use cases. In this article I would like to reflect on his talk and provide me commentary on what that means for the future of Blockchain use cases.

2018 Ethereum Technology Conference in Beijing –  the main takeaways

In a nutshell Buterin stressed the following 4 points

1) State of the Casper update for Ethereum.

Casper is one of the most promising approaches to move from energy-hungry Proof of Work POW to energy-light Proof of Stake PoS and to solve the scalability problem of Ethereum. It will allow applications that require several thousands transactions per second to run on the public Ethereum blockchain. In his talk in Beijing Buterin said that the specification for Casper is in the last phase of completion and thinks it can be finished within one or two months. This means that by August it should be clear how PoS will conceptually work in Ethereum. Then the hard part starts – taking this specification, implementing and making it work.

2018 Ethereum Technology Conference

2018 Ethereum Technology Conference – Vitalik Buterin explaining the details of the Casper update to the Ethereum blockchain

2) Implementation of Casper will take a year.

According to his talk, around 3 different teams have already started with an implementation of Casper. Being asked for the timeline, Buterin estimates that this important upgrade will need at least 1 year until it can be deployed into mainnet. Combining that with the effort to finish the specification we can expect that Casper will arrive in later Summer 2019.

3) BlockchainBeyondHype – Buterin bullish on finance and gaming use cases.

Regarding applications of the blockchain as the new computing infrastructure, Buterin sees two major industries that will find a use case soon: The financial industry and gaming. When thinking about it, this comes with no surprise, as both the products in the financial industry and in gaming have one thing in common: the products are pure digital. In the end, your account balance at your bank are digits in a database that are stored in your bank’s IT infrastructure, somewhere in the accounts module of the Bank’s core banking system. Same with gaming – most of the in-game items that gamers gather are pure digital. While it will take some time until we see real use-cases in other industries, the financial industry and gaming will be early in their adoption of blockchain technology. Besides, Buterin is bullish in the use case of blockchain in supply chain settings. For this, see my article on tracking diamonds as De Beers Sa is implementing right now.

4) The Ethereum founder is carfully managing expectations.

With blockchain at its peak hype, there is a lot of confusion about what is possible and what is simply not possible on the blockchain today. We will see more significant applications only once blockchain technology makes the next technological step change that allows for a order-of-magnitude improvement of TPS (transactions per seconds). Caspar being one of these solutions.

It is important to separate hype from reality. There are still a lot of fundamental technical hurdles to be solved, scaling the base technology is only one of them. Another one is the user-experience. For the promise of distributed Apps to become a reality, user experience needs to improve to make it possible to enable non-tech nerds to participate in the blockchain economy. One such problems is private key management. How often did you click “restore my password” on the platforms you use today? Well, there is no such think with DApps so far – you need to manage your private key by yourself and nobody will help to to recover it.

2018 Ethereum Technology Conference

2018 Ethereum Technology Conference – Vitalik Buterin answering questions from the Beijing audience

2018 Conference on Ethereum Technology – Vitalik Buterin answering questions from the audienceAfter visiting the 2018 Ethereum Technology Conference it is is clear that the good news is that all of these problems are solvable. With the underlying technology being complex in its nature, it is important that corporate leaders need to start working on use-cases now. With the Caspar update beeing one year away, how fast can you scale from pilot to production system?

About the author

Dr. Thomas Reinbacher is former computer scientist and McKinsey management consultant and works as independent adviser in Munich and Beijing. If you want to work with me on the blockchain use case autonomous driving,  please find my contact data on on http://dr-reinbacher.com

Disclaimer: This analysis on the 2018 Ethereum Technology Conference is  provided without warranty or any claim for completeness. All opinions expressed are my own. All information on the 2018 Ethereum Technology Conference is given strictly on a non-reliance basis and under the exclusion of any responsibility or liability, in particular with regard to loss or damages and/or administrative and regulatory sanctions.  

Blockchain use case autonomous driving – the car as a business entity on the blockchain

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The Blockchain use case autonomous driving

In the post “The blockchain use case for micropayments” I show how blockchains can act as a global settlement layer for payments with diminishing transaction costs. In this article, we will have a look what blockchains can and cannot do in a world of autonomous cars. For future fleet operators such as Waymo, Uber, Tencent, Baidu, Alibaba, BMW, Daimler, Tesla, etc. it is important to answer the questions: the blockchain use case autonomous driving, is it hype or fruitful symbiosis?

WHAT is this about – the autonomous car as a business entity

In the future scenario where autonomous cars are deployed on our roads we need to have answers to the following questions (not exhaustive):

  1. How will autonomous cars pay for services they use: toll roads, parking, charging, etc.
  2. How will autonomous cars get paid for services they provide: giving someone a ride, moving out of the city center to free up parking space, etc.
  3. How will autonomous cars compensate each other: incentive for one car giving way to another?
  4. How will (real-time) billing between fleet operators, car manufacturers, mobility providers, data and map providers, insurance providers, city municipalities, etc. work?
  5. How will autonomous cars authenticate riders?
  6. How will miles driven be logged properly so that the fleet owner knows how much taxes he needs to pay to the road operator in real-time?
  7. How will services inspections be logged (service history) and who owned the car before (owner history)?

It is clear that autonomous cars will become own business entities. How can blockchain technology help to make this transition?

HOW will it work – blockchain use case autonomous driving

If we cluster the 7 questions above we arrive at 4 distinct properties that are required for an autonomous car to act as business entity

  • A system to “stream” money (1-4). 
  • A set of rules (aka smart contracts) that trigger payments between the involved parties (1-4). 
  • A unique, fully digital identity (5). 
  • A tamper proof data store (6-7). 

Blockchain use case autonomous driving

Let us now dig deeper into the blockchain use case autonomous driving along these properties:

  • A system to “stream” money (1-4). The beauty of the major cryptocurrencies (Bitcoin, Ethereum, NEO, etc.) is that they allow to send value around the globe instantly. With the introduction of 2nd layer scaling technologies, “streaming” money will become a reality. One such example is the Lightning Network for Bitcoin that operates on bidirectional, secure peer to peer payment channels that are managed outside the main blockchain. The ultimate settlement of the final balance still happens on the Bitcoin blockchain but only after a large number of (micro) transactions happened on the channel. This will drastically (by orders of magnitude) improve confirmation times. Also, transaction costs will go towards zero in this scenario. Similar as with data APIs today where we moved transactional APIs towards streaming API’s, the same will happen with cryptocurrency. Right now we are in the transactional age, due to the existing transaction fees to motivate miners. In the not too distant future we will arrive at the age of “streaming” money at almost no cost.
  • A set of rules (aka smart contracts) that triggers payments between the involved parties (1-4). With many different actors providing services for the autonomous driving ecosystem, billing will become messy. Let us consider the following case: most of the cars on the road will be collecting data via its sensors and upload them to a cloud storage for processing. This will be required to make autonomous driving work to warn other cars of changing road conditions, accidents, etc. but also to update the high-definition maps that are stored on the backends. Since everyone is benefiting from this data the entity that collected it should get some kind of compensation. Things can get complicated quickly here. Is every data set worth the same? What if the same dataset was sent already by another car? If this is a premium autonomous car with the best sensors available out there, should data sets from this car be worth more? The list goes on and on. What often happens in practice is to make billing less of a nightmare, participants are compensated either based on assumptions made on a yearly basis or someone will come up with an approximation formula. It is important to know that in today’s corporate world billing is far from real-time and often happens much after the service was provided. This is where the smart contract layer on top of a cryptocurrency can help to make a real difference. A smart contract is basically an deterministic algorithm (same output at same input) which is executed by all nodes in the network at the same time. This would allow much more complicated billing algorithms to become a reality. Once agreement on the algorithm is established, the reliable execution of the contract and automatic triggering of payments to the involved parties can greatly improve billing among multiple parties. This way, every party can rely on the blockchain that correct and real-time billing will happen and saves each party from implementing their own version of the billing algorithm.
  • A unique, fully digital identity (5). Right now you need to go through a lengthy authentication processes if you want to use any of the mobility providers. Personally, I find it very frustrating that you constantly need to proof to a third party who you are, where you live, and that you have a driving licence, etc. Every single time the same process. Often, I found myself in situations where I didn’t become customer of a new mobility solution simply because of the “getting started hassle” was too big. You see a new scooter sharing service on the street next to your apartment. Super exciting! But in order to use it you need to go through a lengthy registration, one that you did 5 times before already with other mobility providers. Frustrating! Even worse, when Drive Now and Car2Go were introduced in Europe it was necessary to physically show up in one of the registration offices to become a member. One of the promises the blockchain brings along is a true digital and tamper proof identity. Instead of bringing your passport, your divers licence, a proof where you live, etc to the registration – the data resides encrypted on a blockchain and you can proof who you are by showing that you own the private key to that information. See the new scooter sharing across the street, just go ahead, authenticate with your private key, and let the sharing being instantly.
  • A tamper proof data store (6-7). An immutable database where multiple people can write, everyone can read, but nobody can change the history of the database. This would be the answer to how we proof the maintenance history of the car or how many miles we have been driving. Well, a public blockchain in its most fundamental way is exactly this. Everyone can write, everyone can read all the information, and nobody can change any of the history of the chain.
REALITY CHECK

If a new way of doing things will be adopted is never only about technology but much more about the business opportunity, the regulatory framework, and ultimately if it makes a difference to the customer. This is my initial assessment on how likely blockchain technology will be adopted for autonomous driving use cases

  • VERY LIKELY: A tamper proof data store. IMHO this is the most obvious use case that will see adoption soon. Multiple parties have interest in making this a reality (car owners, OEMs, service providers, fleet providers, etc.) and today there is a lot of manipulation going one that could easily be avoided. The blockchain acts as an “IT infrastructure” only. It is likely that this case will fit into existing regulation easily.
  • LIKELY: A system to “stream” money. 2nd layer scaling technologies for cryptocurrencies are around the corner and near to zero transaction costs will become a reality. The biggest question for this will be how legislators will continue to treat cryptocurrencies. Will it be possible to use cryptocurrencies within the existing legistlation or do we need to wait for a more friendly regulation to become a reality. And in order to make this work on a global scale, will we find a common solution in all major legistlations?
  • LIKELY: A set of rules (aka smart contracts) that triggers payments between the involved parties.  In the current discussions about smart contracts there is a lot of confusion about what a smart contract can deliver and what not. While smart contracts will make a good platform to automate complex payments, the current throughput of smart contract platforms is still several orders of magnitudes too slow to do real-time billing for data sets from autonomous that are transferred to an open cloud in the backend. To make this use case happen, we need to have another technological breakthrough (similar as lightning in payments) for the smart contracts side. In a smaller, less performance heavy setting, billing on base of smart-contracts can make sense even today.
  • LESS LIKELY: A unique, fully digital identity. A digital identity would simplify our daily life significantly. This is, however, the least likely scenario to happen anytime soon. What you need to believe that the digital identity happens is (i) governments are willing to move from traditional passports and other form of identity documents to a fully digital one and (ii) governments can agree on some sort of common standards to make it an internationally usable ID. While a digital identity will come eventually, I am sure this is something that cannot happen overnight.
Where are we standing in terms of development projects and adoption? 

Here is a list of projects that I could find that are working on the blockchain use case autonomous driving:

  • ZF Friedrichshafen AG, a German car parts maker headquartered in Friedrichshafen is working on a project called eWallet. According to their website, it is a technological transaction platform, that allows a full end-to-end integration of mobility services, vehicles and infrastructure. The goal is to enable cars to pay for services like parking or charging. The project is based on an IBM private blockchain solution. Given the private blockchain nature of this project it is unclear what kind of settlement layer is used.
  • A showcase prototype was developed by a team in Germany that goes by the name “Blockchainfirst” where a simple wallet is integrated into an BMW i3 via it’s API interface. No hardware was modified, this is a software-only solution.
  • BMW, Ford, and GM formed the Mobility Open Blockchain Initiative (MOBI) to tackle, among others, the mileage history use case  outlined above.

Instead of exploring the blockchain use case autonomous driving the Chinese internet titan Alibaba is going a different way. Alibaba is currently integrating it’s own ubiquitous payment system AliPay (> 500 million users) into cars with partners from the automotive industry. Without any ambition to use blockchain technology at all. Why should they? The big advantage of Alibaba: AliPay is already a very dominant brand, they earned the user’s trust already, and it also works as a form of credit score. On top of that AliPay already collected the identity for 500 Mio users.

Other automotive OEMs are also getting into the game and start to integrate conventional wallets, often referred to as e-Wallets, into the infotainment system of their cars. One such example is Hyundai. The Korean automaker is integrating a non-blockchain wallet into its own Blue Link infotainment system. The way it works is that a credit card is bound to the infotainment system and thus purchases are being made possible from within the car. Hyundai is teaming up with Seattle based automotive technology provider Xevo.

Summary

Autonomous driving and blockchain technology are two of the most exciting innovations of our time. With the amount of investments that went into both fields I am more than optimistic to see them making our daily life much easier within the next 5 years. It is important to understand that the future of mobility will only come to life if open ecosystems are build where fleet operators, data providers, technology providers, etc. will cooperate to provide the best service possible to the consumer.

The recent alliances in this space, for example the Nokia HERE acquisition by the German OEM consortium Audi, BMW, and Daimler and the BMW, Intel, and Mobileye collaboration show that automotive OEMs are realizing that it is not about doing everything along but to provide open ecosystems to win this game. This new way of thinking aligns well with the fundamental principles of public blockchain technology. A open system where everyone can contribute.

Let me know what you think about the blockchain use case autonomous driving in the comments below.

About the author

Dr. Thomas Reinbacher is former computer scientist and McKinsey management consultant and works as independent adviser in Munich and Beijing. If you want to work with me on the blockchain use case autonomous driving,  please find my contact data on on http://dr-reinbacher.com

Disclaimer: This analysis on the blockchain use case autonomous driving is an outside-in analysis, provided without warranty or any claim for completeness. All opinions expressed about the blockchain use case autonomous driving are my own. All information on the blockchain use case autonomous driving is given strictly on a non-reliance basis and under the exclusion of any responsibility or liability, in particular with regard to loss or damages and/or administrative and regulatory sanctions.   

Blockchain use case micropayments for mobility services (Uber, Lyft, Car2Go, Drive Now, Wundercar, etc.)

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Blockchain use case micropayments for mobility services

The automotive industry is undergoing a radical transformation. Most of the experts do agree that the future of the automobile is electric and autonomous. Another scenario that is likely to happen is that there will be a shift from the individual car ownership model to a scenario where more and more people are using cars on-demand and participate in some form of car sharing. In on of its recent reports, McKinsey and Company stated that we will see a move from “one vehicle for every trip” to a scenario where there will be “A mobility solution for each situation”. Is the blockchain use case micropayments for mobility services hype or a real opportunity? In this article, I will try to shed some light on the merits of using blockchain technology for mobility use cases.

The race is on: building mobility solutions is a software-first game

On the technology side a lot of effort goes into the development and application of technologies such as machine learning, high-definition mapping, and real-time analysis of car data. While software first startups such as Uber, Waymo, and the Chinese Didi ChuXing are pushing on AI and machine learning, incumbent companies such as Ford, GM, Daimler, BMW, and Hyundai leverage on their strong brand and powerful partnerships.

It will remain to be seen, if software-first companies will be able to learn building cars faster than hardware-first companies are learning to build highly scalable and reliable autonomous driving software. There are definitely very exciting times awaiting for us. Let us now focus on the blockchain use case micropayments and its applications in this field.

The future of the automobile is electric, autonomous, and based on mobility tokens.

With so much focus on AI, machine learning, and the electrification of the drive-train in the automotive sector nowadays, it is surprising that there are not more news about how the blockchain, as another fundamental technology innovation of the last decade, will shape the sector.

I think the first important question to answer is: what is the goal of the mobility of the future? Remember the multi-pass from the 5th element that Leeloo Dallas used in the movie to get around?

mobility-blockchain-micropatments-mulit-pass-5th-element

I think the future will be similar to this. In the end it is all about the seamless transition between different modes of transportation with a single point of payment for anything on the continuum. Who owns the customer wins. The future of mobility will be the platform that provides these service.  Micropayments will be a big part of this game. The blockchain use case micropayments – what do you need to know about it?

WHAT is this about?

Using a cryptocurrency token as a means of payment for mobility solutions (Uber, Lyft, Car2Go, DriveNow, Wundercar, etc.)

WHY this makes sense?

Processing payments can become complex and can become costly if multiple currencies and payment corridors are included. One such example are payments from a country within SEPA region to a country outside of the EU corridor. For mobility providers this is especially relevant as they often provide services on a truly global scale. As of May 2018, UBER operates in about 60 countries and 400 cities around the world. With the introduction of an own cryptocurrency token “MOV” the following problems can be solved:

  • Cryptocurrency payments are extremely cost-effective. With new technological breakthroughts right around the corner (e.g. lightning and raiden as 2nd layer off-chain transaction technologies), transferring value around the world will become as inexpensive as sending an internet package. It will be possible to send euro-cent equivalents in cryptocurrency with negligible transaction costs.  In blockchain literature this is often refereed as to “the internet of money”. With more and more people travelling internationally and mobility as a business on a global scale cryptocurrencies will enable to real-time billing of mobility services, no matter in which jurisdiction the service is consumed.
  • A second benefit a cryptocurrency can bring along is to foster an own economy around its services and products. For example, the fictitious Car2GoCoin could not only be used to pay for borrowing a car from Car2Go to go to the supermarket, it could also be used to award customers for good-behavior within the Car2Go community. One such example would be to go and refill the car, or for making useful suggestions to improve the services. This could even go so far as to let Car2GoCoin holders participate from the business success of Car2Go, by distributing a small amount of profits back to the Car2GoCoin holders. This would naturally rally a strong community around Car2Go. Which mobility provider would you recommend if you know that you will participate from each ride?
HOW is it done – Blockchain use case micropayments?

We are looking at a scenario, where a large mobility player issues its own cryptocurrency and lets users pay for services in their own ecosystem with this token. For simplicity let us call this token MOV. In reality this could be the UberCoin, the LyftToken, or the Car2GoDiamond, etc.

In order to bring the MOV token to life, roughly the following steps (including a thorough legal check and getting official approval from authorities for MOV) need to be followed

  • Step 0: Decide if an own MOV token should be issued or an already established cryptocurrency (Bitcoin, Litecoin, Ethereum, NEO, etc.) should be accepted as a form of payment. The former allows to create your own economy around the MOV token the later has the advantage that both liquidity and availability (i.e., is traded on all major exchanges around the world already) problems are solved already for you.
  • Step 1: Decide on the base blockchain the token should be created on. The most common ones are: Ethereum, Bitcoin, and China-based NEO. This will also define the “Token-standard” the MOV token will need to follow. For example, on Ethereum ERC20 is the most common one, while the NEP-5 is the de-facto standard token format of NEO.
  • Step 2: Write a smart contract that specifies the economy that you are building for the MOV token. Important parameters will be set in the smart contract: Will there be a finite supply of MOV tokens, what is the denomination of MOV like, will the economy be inflationary or deflationary in nature? How many of the tokens will be sold to the public and how many are you keeping in reserve? These are all critical questions where including an economist into the team will pay off.
  • Step 3: Start selling/issuing the token and get it listed on the major cryptocurrency exchanges. Following market dynamics the MOV token now will have an external evaluation  (e.g. 1 MOV = x USD) defined by how many people are willing to buy your MOV token idea.
  • Step 4: Start to integrate the MOV token into your systems and services. This way, users can use MOV tokens instead of fiat money (EUR, USD, RMB, etc.) to pay for your mobility services.
REALITY CHECK – Blockchain use case micropayments

The blockchain use case micropayments focuses on issuing an own cryptocurrency has to deal with two problems:

  • ACCESS: How can the user get hold of the MOV token?
  • ECONOMIC FEASIBILITY: Given the technical limitations within today’s major blockchains that yield to significant transaction costs often prohibit sending true micropayments, since transaction cots > value of micropayment

Let us turn to the graphic below to shed some light on this two limitations:

Blockchain use case micropayments for mobility providers - analysis by Dr. Reinbacher

Regarding the ACCESS problem, there are two scenarios that we need to consider.

First, if the MOV token gains a big followership it is likely that it is listed on the major fiat/crypto exchanges. In this case, users of the MOV token can conveniently buy the MOV token from these exchanges. This also means that MOV token holders need to bear the fluctuation risk. Tokens that you buy today and use to consume mobility services next month with can have a totally different valuation at the day of consumption.

Second, the issuer of the MOV token can decide to hold back a certain share of tokens (for example 20% of all MOV tokens generated) that act as a “stabilizing reserve”.  These tokens are then managed by a trusted 3rd party and sold for a fixed price at the mobility platform directly to the customer. These tokens then cannot be transferred or sold to third parties, but remain within the wallets of the mobility provider. This solved two problems: everyone gets easy access to MOV tokens and can buy them with FIAT money directly at the mobility platform without the need to register at a fiat/crypto exchange first and it does not expose the user to fluctuations in price of the MOV tokens.

Regarding the ECONOMIC FEASIBILITY problem, we need to distinguish between two cases. Refer to CASE A and CASE B in the picture above.

  • Case A: This depicts the scenario as of today. The limiting factor in most micropayment use cases is the prevailing transaction fees for cryptocurrency tokens. For example, at the year end 2017, a single bitcoin transaction cost 55 USD (https://bitinfocharts.com/comparison/bitcoin-transactionfees.html). While this was an extreme scenario at Bitcoin’s peak hype times, transaction fees are still significant as of today: about 3 USD for every bitcoin transaction. The immediate conclusion here is that micropayments do not make sense since the following equations does not hold VALUE OF TOKENS >> TRANSACTION FEES. Given the current transaction fees, use cases that require payments for tiny amounts of value are thus building what I call a “Thick Mobility Platform” (cf. Top-right part of figure). The basic idea here is in order to make payments with cryptocurrency feasible, MOV tokens remain in a wallet within the mobility token platform for most of the time. The thick mobility platform, keeps track of all users and the value of MOV tokens that they possess. An user can only “cash-out” by transferring MOV tokens from the platform to his own wallet when the value of the MOV tokens in his account is significantly bigger than the transaction fees required to transfer the tokens. While this is a fix that will work for a lot of use cases and in fact this is the architecture that most blockchain projects that use cryptocurrency as a payment are implementing it comes with a series of drawbacks. The thick mobility platform bears the same operational risk as an exchange. Thus, security and availability standards of the mobility platform need to match those of the leading exchanges. Remember the now famous Mt. Gox hack? Imagine what kind of reputation damage a hack of the cryptocurrency wallets at the mobility platforms of Uber, BMW, Daimler, etc. would have. However, this is still the prevailing architecture that we find today.
  • Case B: This depicts a (near) future scenario. While the general public has been busy with speculating about the bitcoin price in the last years, a lot of brain-power went into the design of what is called 2nd layer scaling technologies. The two most promising approaches are the Lightning Network for Bitcoin and Raiden for Ethereum. Without going into much details, the main innovation here is that not every transaction needs to be done on the blockchain. Instead, payment channels can be opened between two participants. The two participants can then perform thousands of transactions among each other and either participant can close the payment channel by writing the final balance on the blockchain. It is easy to see that the equation from before VALUE OF TOKENS >> TRANSACTION FEES is much easier to satisfy in this case as transaction fees will go near to zero in this case. This will also greatly reduce the operational risk of the mobility platform. Instead of replicating the functionality of a fiat/crypto exchange it is enough to manage a wallet that holds the fees that he mobility platform charges to its users. This is a less risky undertaking as holding a large amount of all tokens in your economy as in the first scenario.

What does all this mean for mobility providers? It is important that executives are aware of one of the biggest innovations Bitcoin and the blockchain brought along: a new global payment layer with near to zero transaction costs. This will make real-time, cross-border billing a reality.

While 2nd level scaling technologies are at the verge to gain mainstream adoption it is important to enter the game now. Are you a mobility provider and are you still only at Powerpoint level with your mobility token use case? You might be missing out on one of the greatest opportunities of the last decade. Let me know what you think about the blockchain use case micropayments in the comments below.

About the author

Dr. Thomas Reinbacher is former computer scientist and McKinsey management consultant and works as independent adviser in Munich and Beijing. If you want to work with me or have more information on that particular use case,  please find me on http://dr-reinbacher.com

Disclaimer: This analysis on the blockchain use case micropayments is an outside-in analysis, provided without warranty or any claim for completeness. All opinions expressed about blockchain use case micropayments are my own. All information on blockchain use case micropayments is given strictly on a non-reliance basis and under the exclusion of any responsibility or liability, in particular with regard to loss or damages and/or administrative and regulatory sanctions. 

Blockchain use case analysis on tracking diamonds from mine to jewelry retailers (De Beers Sa)

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Blockchain use case analysis on tracking diamonds

De Beers Sa is an international corporation with USD 6.1 bn in revenues specializing in everything about diamonds: exploration, mining, retail, and trading. Chances are high that your engagement ring comes from one of their mines. Diamonds require at least a billion years under extremely high pressure to form naturally. How can a 10 year old technology such as the blockchain make a difference here? De Beers Sa announced that they started to track diamonds on their way from the mine to the retail outlets using the blockchain. This is my blockchain use case analysis on tracking diamonds.

WHAT is this about?

De Beers Sa tracks diamonds from mines to jewelry retailers on the blockchain.

HOW is it done ?

A unique ID, a fingerprint is calculated from the physical properties of the diamond. One such ID is generated for each diamond. Physical properties of the diamond include weight, color, clarity, size, etc. When combining all these generating an ID is similar to a hash function, every single diamond will result to a different ID. Calculating the ID from the same diamond will always yield the same ID. In computer science this property is called deterministic. To illustrate, the ID 261b152862d1d614014496a63 is generated for the parameters [clarity=2, color=6, weight=245, mine=294]. This ID is then registered on the blockchain. Registered means that a transaction is written to the blockchain and that this transaction included the ID 261b152862d1d614014496a63 in on one of the fields of the transaction. The blockchain itself is a concatenation of such transactions.

Since the individual blocks on the blockchain are in deterministic order to each other, the blockchain itself takes care of the time-stamping. For example, if the transaction including the ID of the diamond was included in block 5633148 of the Ethereum blockchain we can use https://etherscan.io/blocks to check at what time this block was generated.

Blockchain use case analysis on tracking diamonds how does it work

Suppose all diamonds mined by De Beers Sa are documented this way. It is then an easy exercise to trace the diamond back from the retail outlet to the mine. Whenever a diamond shows up in the supply chain everybody can measures the physical properties re-calculate the ID and checks if that diamond (i.e. that ID) was registered before with the blockchain. If not, the diamond was injected into the supply chain from an unknown source.

WHY this makes sense?

Supply chains can become complex, especially when sourcing from different countries. The gemstone industry has an painstakingly complex supply chain. Among other ethical considerations, small-scale mining has been tainted with rumors of child labor. The industry is working on different fronts to clean up its image and rebuild its reputation. Regarding additional transparency, this blockchain use case makes sense because

  • The blockchain acts as a tamper proof digital record in this case. Once a diamond is recorded on the blockchain it will remain there forever. Due to the technical foundations of blockchain technology it is extremely hard to change these records. While you can perform a “DROP TABLE X FROM Y” to remove a database on your standard corporate IT setup, deleting the blockchain is almost impossible.
  • Not only De Beer Sa can use the information. Each supplier and even customer does not need to rely on the information given by De Beer Sa. Instead, they can check by themselves if the diamond was registered on the chain before. In current supply chains this is often not possible as the data resides in proprietary IT backends that are controlled by one company. Not so with a (public) blockchain,  where everyone can read all entries and append new information.
REALITY CHECK

Supply chain use cases have to deal with the oracle problem. How do you know if the real-word data, in this case the physical properties of the diamond, were entered correctly? Garbage in, garbage out still holds true in the blockchain age. It is true that the blockchain creates trust among participates due to the consensus algorithm that ultimately decides on a single version of the truth. That promise quickly ends when the blockchain reaches out to the physical world. In the De Beer Sa use case this is what you need to believe in to make it work

  • The personnel registering the diamonds on the blockchain are trustworthy. How can De Beer Sa prevent that wrong information intentionally or unintentionally was used as inputs to the function that generates the ID? For example, if the diamond was registered with the property “mine=281” how can we be sure that the diamond really comes from this particular mine? While the blockchain helps to minimized the required trust once registration is done, a few weak links will still remain.
  • Everyone in the supply chain needs to agree on how the ID is calculated. In complex supply chains, a few dozen suppliers are working together and aligning them on one methodology is easier said than done.
  • If the primary goal is to be transparent to end customers we are also facing the educate the customer problem. To convince customers that the diamonds of their engagement rings aren’t fake or were used to finance war, De Beer needs to educate its customers about the blockchain and why this information ca be trusted. A simple “Checked by Ethereum” sticker will not do the trick.

Interestingly, most of these points hold true for all use cases of the blockchain that deal with digital representations of real-world items. Everyone needs to agree on how the link from the trust-less blockchain to real-life works.

COST estimation (outside-in)

I would assume that the following team-setup is required to implement this use case (without integration into existing legacy IT systems)

  • 1 Experienced product owner with understanding of blockchain and the business of De Beer Sa
  • 2 Blockchain developers to (i) develop the smart contract that represents the diamond and (ii) come up with the deterministic ID function
  • 1 Diamond supply chain expert (part-time)
  • 1 Diamond measurement expert that assists in selecting the parameters to generate ID from
  • 2 front-end developers, 2 backend developers

Duration to develop pilot-use case: 4-5 months.

Blockchain use case analysis on tracking diamonds further data points
  • Idea, Pilot, or in Production: Pilot, 100 diamonds were tracked through manufacturing process to a final retailer. Plan to go into production in 2018.
  • Blockchain technology used: Ethereum (assumption)
  • Industry | Function : Mining | Supply Chain
  • First time use case was reported: May 2018
  • Link to announcement: https://www.bloomberg.com/news/articles/2018-05-10/de-beers-tracks-first-gems-from-mine-to-shop-using-blockchain
  • Included industry players: De Beers Sa (https://en.wikipedia.org/wiki/De_Beers). The De Beers Group of Companies is an international corporation, operating in 45 countries, and specialises in diamond exploration, diamond mining, diamond retail, diamond trading and industrial diamond manufacturing sectors. The company is currently active in open-pit, large-scale alluvial, coastal and deep sea mining.
  • Internal project name: Tracr
  • Related projects: Everledger  (https://www.everledger.io) – at least they started in the earlier days with a similar value proposition, now expanded to different asset classes
About the author

Dr. Thomas Reinbacher is computer scientist and management consultant and works as independent adviser in Munich and Beijing. If you want to work with me or have more information on that particular use case,  please find me on http://dr-reinbacher.com/

Disclaimer: This Blockchain use case analysis on tracking diamonds is an outside-in analysis, provided without warranty or any claim for completeness. All information presented herein is given strictly on a non-reliance basis and under the exclusion of any responsibility or liability, in particular with regard to loss or damages and/or administrative and regulatory sanctions. 

Report State of the Chinese Blockchain Ecosystem (中国区块链现状)

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As the old saying “Seeing is better than believing” goes, I set out on a 4 weeks trip to China in November 2017 and January 2018 to understand the state of the Chinese Blockchain ecosystem. With some tough real-world problems waiting to be solved in China the primary question for this trip was: if we cut through the noise, where are Chinese Blockchain projects standing in terms of practical applications for the world’s most populous country?

State of the Blockchain in China blockchain beyond hype

The trip first took us (joint work with Julian Hoelz) to Hong Kong and then to the tech hubs Shenzhen, Shanghai, Hangzhou, and Beijing. Besides more formal events, such as the 19th China High-Tech Fair, TechCrunch Shanghai, and the Swissnex China Blockchain Conference, I enjoyed and meeting and learning from Chinese Blockchain teams in their offices.
Overview on the Chinese Blockchain ecosystem: 4 weeks deep-dive into China's blockchain ecosystem
 Here are my findings.

Lesson 1: Bitcoin’s most likely path to success in China will be as a store of value.

Digital payment systems especially Alipay from Alibaba and WeChat Pay from Tencent are already deeply integrated into Chinese society. These systems are omnipresent and are used to pay rent, utilities, salaries, taxi rides but also for simple grocery items. Even watermelons on local farmer markets. WeChat Pay is fully integrated into the messenger platform WeChat (940 Mio users and processes north of 600 Mio transactions every day). While in the western world offering digital payments often requires complex tech integrations into existing point-of-sales systems, in China all you need to get starting receiving digital payments is a QR code. In the exhibit below you can see a taxi driver showing us a QR code – all you need to do is scan the QR code and money is transferred (no fees) to the WeChat wallet of the driver.

Bitcoin's likely path to success in Asia will be as a store of value but not for digital payments.

A recent report by Tencent (Mobile Payment Usage report by Tencent) shows that people in China have widely adopted a cashless lifestyle. A staggering 74% of Chinese nationals are living an almost cashless life. As a foreign visitor to China without a fully-functioning AliPay or WeChat Pay account, you will inevitable run into difficulties. For examples,  it is almost impossible to find an ATM inside Shanghai’s Hongqiao railway station (上海虹橋站) – the largest railway station in Asia.

Given that mass adoption of digital payment is already here the obvious conclusion is that it is very hard to make a case for bitcoin (or other cryptocurrencies) as a feasible day-to-day payment system for China in the near term. It is about brand, market penetration, and the user experience that matters to users which makes switching costs very high. AliPay and WeChat Pay did an excellent job here and are household brands.

Personal wealth is harder to protect in China as in other jurisdictions

However, an important factor to understand is that personal wealth is being harder to protect in China as in other jurisdictions. According to a study of Bain and Company, a consultancy, half of China’s ultra-wealthy now have investments overseas. Similar, the Chinese upper-middle class is looking into ways to protect or diversify their domestic savings and hedge themselves from possible RMB fluctuations. China has about 50% gross savings as share of the GDP compared to the US with 18% and Germany with 25%. A reasonable hedge for some seems to be to buy into bitcoin as some form of diversification and long-term store of wealth.

Lesson 2: Even Chinese Blockchain entrepreneurs have not (yet!) found profitable use cases for the technology.

One of the questions I tend to ask all the people in the community over and over again is: do you know a blockchain use-case that is running in a live production system is driving either a surplus in revenue or a significant reduction in cost for a business out there? The answer, every single time, was a resounding: No I cannot think about any. I’ve heard that company X has experimented with blockchain Y in a pilot and they found that they might realize savings — but in a production system with real customers, definitely not (yet)!

Is it too early to base your main business idea on blockchain technology ?

If no-one has cracked a use-case yet why should you try? Let’s analyze that for a bit. There are actually companies that make a tremendous amount of money from blockchain technology. Every day. It is the fiat-crypto exchanges that are the true economical winners in the current cryptocurrency boom. They make money off the difference they create between buy and sell orders. If you buy cryptocurrency X, the price will be slightly higher than if you want to sell at the same time (in traditional exchanges this is called “spread”). But one can argue that exchanges are not really advancing the state of the art of blockchain technology.

Panel discussion on Chinese Blockchain ecosystem: It is still early for entrepreneurs - no one has built a blockchain-based solution that has real impact on the bottom line of a balance sheet

The real question is what is the next big use-case beyond exchanges? If the internet was about aggregation and platform based business models (AMZ, FB, DiDi Taxi) the blockchain is about true peer-to-peer sharing models. Instead of taking existing business models and “porting” them onto the blockchain entrepreneurs will not only need to be radical in the deployment of a new technology they also need to radically rethink how business is done today. It is, for example, not about integrating blockchain into an ecommerce App, it is about rethinking how ecommerce is done today.

Seasoned entrepreneurs are moving into the game

A seasoned entrepreneur who sold a very successful business to Alibaba recently started a new blockchain business in Hangzhou. The team’s aim is to replace Alibaba entirely with a secure distributed ecommerce system where the trust between buyer and seller is provided by a proprietary blockchain consensus algorithm. The important learning is that, yes it is still early for blockchain entrepreneurs but it is now to start developing the first mass-market business models for blockchain technologies. Rethink the status quo!

Lesson 3: National Chinese Blockchains are on the rise.

The past decade brought along the rise of the mega platforms. The dominant players in this field have upended entire industries though the platform business model. A platform business is in the center between buyers and sellers and the dominant business model is to take a cut on the value that is exchanged. With Facebook, Google, and Amazon in the US and Alibaba, Baidu, and Tencent in China the EU is definitely lagging behind in the platform age. How will that game evolve in the blockchain age?

Where do you want to have your medical records stored?

Will US citizens be ready to have their medical records stored in a Chinese blockchain where large part of mining infrastructure or even nodes are controlled in China, or vice versa? The two options this could play out are (i) a globally distributed infrastructure where power is distributed equally or (ii) national infrastructure, e.g. dedicated Chinese blockchain solutions, where a country is controlling its own blockchain infrastructure. One argument against the first option is the current situation in the bitcoin network where the most miners and thus voting power about the truth in the network is concentrated in China.

Citizen IDs on the blockchain in Guizhou province

Digital identity is identity information of individuals, organizations, or things that are stored in electronic form based on a private-public-key infrastructure. Identity services will be inevitable to make blockchain business models a success. What if you want to offer a service exclusively for people aged 18 or older (car rental)? What if you are obliged by local law to know the identity of your customers (selling alcohol, cigarettes, adult content)?

The Chinese startup Onchain, backed by the investment giant Fosun develops blockchain solutions for local governments in China. One curreny project with the local Government of GuiYang aims to create a blockchain based service for identity verification. With citizens identities on the blockchain becoming a reality in China, who will build the national counterweights for the US and the EU?

Lesson 4: Peer-2-Peer protocols are back and will be the key enabler for a distributed web.

P2P sounds like a throwback to the 90s where people were downloading music from the internet with Napster, eDonkey, and Bittorrent. What all these have in common is that they rely on a P2P network – a distributed architecture to share large files. When you were downloading a song back then the download did not happen from a central server, instead the download happened through peers in the network. This is different to YouTube where streaming happens from a central server.

Why are Peer-2-Peer protocols relevant for the Blockchain at all? Isn’t that a thing from the past?

In a simplified view distributed applications need 3 technology layers.

  • The first and the oldest is the blockchain as a distributed ledger and trust provider. The global bitcoin blockchain is such an example.
  • Second are smart contracts, computer programs that are executed by every single node in the network. This layer represents rules and conditions to settle transactions.
  • The third layer are P2P protocols to enable exchange of large files between nodes.

China’s Peer-2-Peer pioneers are turning to Blockchain technology

Even two world-class pioneers of P2P systems I met in China, Mr. Wu of Xiami (one of China’s most successful P2P streaming application, later sold to Alibaba), and Rong Chen (early internet pioneer at Microsoft in the 90s), are turning their interest to blockchain technology. Both are workingon P2P technology and operating systems that will make real-life applications on top of the blockchain stack possible. Imagine a powerful P2P data exchange layer coupled with a digital currency and a set of smart contracts to enable micropayments – this is when the vision of distributed applications are becoming reality.

Lesson 5: The Chinese Blockchain sector is professionalizing quickly.

Besides the noise of ICOs and bitcoin price rallies it is easy to see that the Chinese Blockchain sector is professionalizing quickly. What was once the Wild Wild West is becoming more structured:

  • Serious entrepreneurs are building their next big thing based on Blockchain technology.
  • Professionals from traditional venture capital and investment banking are entering the Chinese Blockchain space and bring the rigor of their profession into the game.
  • The bar for Initial Coin Offerings (ICOs) is rising quickly as the first early ICOs are failing to deliver promised results or find a viable business model.

Investors are learning the ropes

ValueNet Capital is a venture fund focusing on Blockchain in BeiJing. Their blockchain investment team comprises a dozen specialists to perform due diligence on the next deals. Lastly, it is important to understand that China never banned ICOs entirely – it was a important step to protect the naive retail investors. The government is in general very supportive when technology can solve real problems and Alibaba, Baidu, and Tencent are already invested.

Lesson 6: The EU is seriously lacking behind.

Time to catch up! Having zigzagged through China, visited industry conferences, stealth startups, long-term entrepreneurs and state-sponsored research parks it is easy to come to the conclusion that China’s massive push into AI and blockchain is very much contrasted with the prevailing skepticism about blockchain technology in Europe.

Time to have a factual debate how Europe can leverage Blockchain for its citizens

We need to have a factual debate in Europe with industry and government leaders about the importance of the blockchain as the next computing infrastructure. This debate should not get distracted by the noise from Initial Coin Offerings (ICOs) and roller coaster like cryptocurrency valuations. We are on the verge to open a new chapter of computing infrastructure – a chapter after the platform business model and this time it is important not to be left behind another time.

About the author:

Dr. Thomas Reinbacher is a computer scientist and management consultant and works as independent adviser in Munich and Beijing. If you want to work with me please find me on http://dr-reinbacher.com/

This research was joint work with Julian Hoelz. ©  Thomas Reinbacher. Disclaimer: All information presented herein is given strictly on a non-reliance basis and under the exclusion of any responsibility or liability, in particular with regard to loss or damages and/or administrative and regulatory sanctions

Interview with Sonic Zhang of ValueNet capital on the future of venture capital and ICOs

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I visited Sonic Zhang, founder of ValueNet capital and his team in Beijing in December 2017. We (joint work with Julian Hoelz) talked with Sonic about how he and his team is evaluating deals in the blockchain space. How to cut through the noise and find the next big unicorn?

Can you tell us a bit about the history of ValueNet capital?

Sonic Zhang: Sure. We started out as an exchange. With the regulatory actions of the Chinese government this year, we shifted our focus from the exchange business to an venture fund. As a such, we are focusing only on investments in Blockchain technology.

I guess that is an interesting transitions. Running and exchange and running a venture fund is quite a different business to be in. In this world of hyper-innovation, where new investment opportunities come thick and fast, how do you keep track about what is going on in the space?

Sonic Zhang: That is true, running an exchange and a venture fund are two different things. For both businesses it helps a lot if you know the most  important players in the field. It is the network we have that we carried over from the exchange business to the investment business. For example, we have a network of partners we work together. They help us to find the best deals in their geography. Our local team then does the 2nd level due diligence on this preselected set of investment opportunities.

For the deals you are willing to do what are the parameters that need to met in order for ValueNet Capital to invest?

Sonic Zhang: That differs from deal to deal. But let me mention three things that we think are the most important ones. First, it is the team that is behind the projects. I think about it the following way – has the team worked together in the past or is it a random set of people that came together to do an ICO “gig” together. A more extreme point of view could be: if they raise 30 million USD, will the team be tempted to “run away” with the ICO proceeds or are they one something bigger, one a mission to solve a real, large scale problem? For this we also tap into all communication channels (Telegram groups, slack chats, reddit post, etc.) that are available and ask questions and observe the communications.  Second, we favor to invest in products or technology that has been around prior to the ICO mania. Having a solid and well-thought white paper is one thing, but having an actual minimum viable product (MVP) that demonstrates the feasibility of the product is a much better proof point that the project can succeed. And lastly, I think it is something that is very similar to traditional VC investment: how scalable is the idea? For example if a project is tackling the energy market in one country, how easy is it to copy this to other countries. The question is are you going to build a local taxi company or are you aiming to build the next Uber. By following this approach we make sure that we only invest in the absolute best projects. One of the investments that fulfills all three parameters that I outlined, is the Australian-based Powerledger project.

It seems as if the wild-west times are slowly but surely over. How do you think will the sector evolve?

Sonic Zhang: The future is always hardest to predict [laughs]. I believe we will witness a revolution about how new businesses are funded. The idea of ICOs as a funding vehicle where everyone can attract funds for an idea from all parts of the world is very powerful and will ignite innovation. This has some interesting implications. I think that the competition between new ideas is going to rise. If you are doing and ICO today, it is not a Silicon Valley or a Beijing Zhongguancun thing anymore, it is a truly global thing. With an ICO, you are entering a global competition.

Sonic, thank you so much for your time!

sonic zhang valuenet capital

 About Sonic Zhang:
  • Sonic Zhang graduated from University of Sydney with a Bachelor degree in Engineering in 2011 and a Master degree in Project Management in 2012.
  • Sonic is the Co-founder and Global Director of 20 Nations League of Blockchain (B20, http://www.b20.io), an international NGO focused on bridging blockchain and cryptocurrency communities worldwide.
  • He  is also the co-founder of ValueBank Group, a global network of fiat-crypto exchanges, with a crypto wallet and payment solution.
  • In his latest project, he founded ValueNet Capital (http://valuenet.capital), where he is focusing on investing in blockchain startup. He currently resides in Beijing, China.

More information about ValueNet Capital can be found on their website: http://valuenet.capital

About the Author

Dr. Thomas Reinbacher is computer scientist and management consultant and works as independent adviser in Munich and Beijing. If you want to work with me please find me on http://dr-reinbacher.com/

Interview led by Dr. Thomas Reinbacher and Julian Hoelz © Thomas Reinbacher. Disclaimer: All information presented herein is given strictly on a non-reliance basis and under the exclusion of any responsibility or liability, in particular with regard to loss or damages and/or administrative and regulatory sanctions

Use cases of Bitcoin in the long tail of international trade – an interview with Quora top writer Joseph Wang

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Follow me on a visit to HongKong in November 2017 to visit Joseph Wang, co-founder of Bitquant Research Laboratories and top writer on Quora (2014-17) about use cases of Bitcoin. A conversation about the meteoric rise of Bitcoin and the different perception of cryptocurrency in Asia versus Europe.

Joseph, Bitcoin just climbed above $ 8,000 today [editor’s note: the interview was conducted on November 20th 2017]. Many people in Europe remain skeptic whether this is justified, and whether there is any value at all in a currency you can’t buy anything for. Where do you see the value of Bitcoin?

Joseph Wang: The market for bitcoin is certainly overheated right now and a lot of the recent price surge is driven by pure speculation. We might see a correction of that soon when speculators try to cash in. For now, Bitcoin remains a high return high volatility asset, but the introduction of Bitcoin futures by the Chicago Stock Exchange, the CME, NASDAQ and others might smooth that out in the future. Anyway, I believe the big, the unique value of Bitcoin lies not in it being an object of financial speculation, but in its capacity to store wealth and to facilitate international trade.

Let us expand on that thought. The Bitcoin community has long been split between proponents of making it fit to use as digital money, thus increasing its scalability, and those who argue for its main function being the store of wealth, much like “digital gold”. Could you please explain why you believe it’s the latter?

Joseph Wang: Sure. So I’m certainly not speaking for the whole world, but for Asia, and for China especially, the question of digital money or mobile payment has already been answered. In China alone, WeChat Pay has 600m active users and AliPay has 520m. There’s just no need for another digital payment solution. However, there is a huge need across the Eastern hemisphere to have an alternative global currency that, from a state’s perspective, is outside US control, and from a citizen’s perspective, is outside the local government’s control and independent of the sometimes shaky local fiat currency. Bitcoin fulfills all of these characteristics. People are flocking to it as a new, global store of value because it is scarce, yet easily movable and divisible, and thus transferable across borders. And that, to me, explains a huge part of the attraction of Bitcoin apart from the recent buzz and the speculation. If Europe needs a mobile payment solution, other blockchain settlement implementations can do the job. And WeChat Pay, AliPay, Paypal or Transferwise for that matter have shown that people don’t necessarily need a blockchain to pay for their coffee or send money home.

You also mentioned Bitcoin’s capacity to facilitate international trade as a second major advantage. What excites you about use cases of Bitcoin in international trade?

Joseph Wang: First of all, for full disclosure, at my company Bitquant we are funding loans using Bitcoin to promote trading goods between Africa and China. Now, to your question, I see huge benefits in blockchain technology, and thus in Bitcoin as its major and most trusted means of settlement, in enabling direct commerce between people of different countries that to-date just does not exist?

And why is that? What hinders people to engage in direct commerce and how does blockchain help here?

Joseph Wang: By establishing trust through technology. To-date it has been very difficult to do business with someone you don’t know, have never met personally, and might or might not ever meet again. So you rely on middlemen to provide that trust, i.e. extend credit and facilitate the transaction. That’s what banks are for and why they’re so central to our economies. However, a bank will not facilitate what is not profitable to it. So the keyword here for me is “the longtail of international trade”. Bitcoin enables this longtail. I’ll give you an example of what we do at Bitquant: Through bitcoin, we provide trade finance to buy coffee from farmers in Tanzania and sell directly in China, avoiding banks and other distributors in the traditional supply chain, and distributing the gain to the farmers. Now the banks don’t lose anything because today they don’t engage in these forms of small, direct commerce as transaction volumes are low and their transaction cost would be too high. But for the individual farmer this small extra can make a big difference, and on a combined scale, the longtail can amount to substantial added value.

In Europe, there is a large movement towards more locally sourced food. Consumers want to know where they’re buying from, and in China, the same is true. So blockchain can help a lot to make this happen.

Joseph Wang: Exactly. Again, big corporates can manage their supply chains perfectly well with a centralized system. But blockchains allow the longtail, the farmers in my example, to build up a reputation that you are a legit coffee seller. And the consumer can access the record on the blockchain to check exactly what batch of coffee she got.

This is a very good example for how blockchain technology can actually expand and not cannibalize commerce. On the whole, how do you evaluate the maturity of this technology and what needs to happen?

Joseph Wang: We are still in the early days. Many liken the situation to what the Internet was in the nineties, and while I believe adoption will happen much faster this time, it’s not far off. So far, the only business making money off blockchains are the exchanges. But this is bound to change as the sector is professionalizing rapidly. As much as the investment and trading side will mature through bitcoin being listed on major exchanges and the issuance of tokenized securities only open for accredited investors, the business building side will expand as libraries and templates for smart contracts will be published and open sourced to provide the link between the business-minded and the technology-minded people. And then we will see real, profitable business enabled by the blockchain.

What else do you see necessary to promote real Use-cases of Bitcoin and blockchain technology?

Joseph Wang: I think the point is exactly that no centralized effort by any state is needed, or possible. To the contrary, I think both Bitcoin and Ethereum are key drivers in leveling the playing field for international business.

How is that?

Joseph Wang: By competing for cryptocurrency trade volumes and for blockchain-enabled businesses. While Hong Kong, as one of the traditional financial hubs of Asia, has proven to be very open and friendly about cryptocurrencies, Singapore has adopted a very proactive stance on ICOs (Initial Coin Offerings), what they see as an equity vs. a utility token and how they are going to be treated legally. Thus the blockchain scene in Singapore is thriving, attracting both talent and major capital inflow to Singapore. Other hotspots for ICOs include the canton Zug in Switzerland, Gibraltar and Estonia. Note that all of those are relatively small countries that are suddenly sensing a seat at the big table for this new way of doing business. This is why I started Bitquant in Hong Kong to help promote and aid in the development of this exciting new technology!

Joseph, thank you so much for your time!

About Joseph Wang:
  • Joseph is a physicist by training with a bachelor’s degree from the Massachusetts Institute of Technology, Cambridge, and a PhD in astrophysics from the University of Austin, Texas.
  • Prior to founding Bitquant, he spent over 6 years as Vice President of front office quantitative analytics and equities derivatives teams at JPMorgan Chase, responsible for infrastructure coding of pricing libraries used through all asset groups.
  • Today, Joseph is the Chief Science Officer at Bitquant Research Laboratories, a financial technology startup in Hong Kong, where he focuses on the development of scalable and “one-stop shopping” open source trading systems which can be used by individual investors, small hedge funds, and family offices.
  • His current research involves investigating the valuation of bitcoin options, and research in the dynamics of the upcoming RMB equity option market.
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More information about Bitquant and use cases of Bitcoin can be found on the website: http://www.bitquant.com.hk. Joseph is also one of the top writers on Quora about Bitcoin with a total of 35.5m answer views https://www.quora.com/profile/Joseph-Wang-9, and code geeks can check out his source code at https://github.com/joequant/bitquant

About the Author

Dr. Thomas Reinbacher is computer scientist and management consultant and works as independent adviser in Munich and Beijing. If you want to work with me please find me on http://dr-reinbacher.com/

Interview led by Dr. Thomas Reinbacher and Julian Hoelz © Thomas Reinbacher. Disclaimer: All information presented herein is given strictly on a non-reliance basis and under the exclusion of any responsibility or liability, in particular with regard to loss or damages and/or administrative and regulatory sanctions

SmartMesh Blockchain: A global network without the Internet – a discussion with the founder Henry Wang

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I visited SmartMesh Blockchain in Beijing to talk to the team team around internet protocol scientist Henry Wang, founder and CEO of SmartMesh foundation in December 2017. Henry has been working on offline communication technology since the year 2013. He launched the p2p social app YueNi (约你) an offline social networking app similar to Firechat. We (joint work with Julian Hoelz) wanted to learn from the team why they think that the internet needs to be augmented with a pure P2P, mesh-organized network.

Let’s start with the basics. Why do we need a new internet?

SmartMesh: We believe that if the internet was conceived today, it would have been a P2P network that connects smartphones and it would be much safer, cheaper, and faster compared to what we have today. With the current penetration of smartphones, i.e., 2.3 bn smartphone users as of today and a smartphone penetration rate of about 60% in 2022 [4], there is a real opportunity for a mesh network that transfers data and value from one phone to another – without relying on the internet as a central coordinating backbone. This is the type of network we are going to create with SmartMesh.

That is interesting can you tell us a bit about the underlying technology of the SmartMesh Blockchain?

SmartMesh: Sure. It all starts with the multi-year research from our Senior Research Scientist Paul on ad-hoc networks. Dr. Paul Gardner-Stephen is a senior lecturer at Flinders university and worked on robust mesh networks to provide connectivity to people which are living in parts of the planet where there is no cellular coverage at all. Another use case are regions with frequent connectivity outages caused by a natural disaster, e.g. earthquakes. His papers give a good scientific introduction to the protocol, but one of the key design decisions was to build an own network layer and thus be independent of IPv4 or IPv6 used in the internet today. The developed mesh technology has already been deployed at Efate, a pacific island located east of Brisbane, Australia. In this case, the technology was able to provide connectivity to people that normally did not have access to a cellular network. Even if internet access is present, smart mesh technology offers a resilient, decentralized, and self-healing way to communicate with higher near-field communication speed and bandwidth than provided by the internet today.

Why is that important for the advancement of Blockchain technology?

SmartMesh: We believe that our technology is important as an underlying enabler for the Internet of Things (IoT), one of the major use cases for blockchain technology. Billions of things in the IoT will need to communicate in locations where access to the internet is not available or too costly to install a gateway. Also energy consumption is important for these kind of devices especially if they are deployed outdoor and rely on battery power. Together with our SmartMesh Blockchain token we are going to couple connectivity with a means to perform payments without the need for the internet to be present. The mesh network we envision is such that people that are willing to share their own mobile phone as nodes in the global mesh network are rewarded in crypto tokens. In order to make this P2P micro-payment possible we need to overcome the current limitations of blockchain technology. We are planning to build on concepts similar as the Lightning network and the Raiden Network. For example, someone with internet access can resell to others who need it.

Are there any other interesting projects that your team is working on we should know about?

SmartMesh: Yes actually there is. We have a new team that is backed by SmartMesh, called MeshBox that is working on a hardware device. MeshBox is not only a router where nodes can connect but also serves as a content server to store and transfer content. We are confident that MeshBox will support a superior access for nodes in the Smart Mesh.

Thank you so much for your time!

More information about SmartMesh Blockchain: More information about SmartMesh on their website: https://smartmesh.io, Code geeks can check out the source code at https://github.com/SmartMeshFoundation. For the scientists: The rationale behind the Serval network layer for resilient communications by Paul Gardner-Stephen, Andrew Bettison, Romana Challans and Jeremy Lakeman, Journal of computer science http://thescipub.com/PDF/jcssp.2013.1680.1685.pdf 

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If you are interested to learn more about the Chinese Blockchain ecosystem, check out the report: State of the Chinese Blockchain Ecosystem 

About the Author

Dr. Thomas Reinbacher is a computer scientist and management consultant and works as independent adviser in Munich and Beijing. If you want to work with me please find me on http://dr-reinbacher.com/


Discussion led by Dr. Thomas Reinbacher and Julian Hoelz © Dr. Thomas Reinbacher. Disclaimer: All information presented herein is given strictly on a non-reliance basis and under the exclusion of any responsibility or liability, in particular with regard to loss or damages and/or administrative and regulatory sanctions

Elastos Blockchain: The return of the P2P protocols – an interview with Rong Chen, founder of Elastos

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We (joint work with Julian Hoelz) visited Rong Chen, founder and chairman of the Elastos foundation, and his development team in Shanghai in November 2017. We sat down with Rong to discuss the next technological frontier that needs to be captured in order to make the distributed web a reality: Operating systems and peer-to-peer protocols for the Elastos Blockchain.

The technology stack for the distributed web is made up of blockchains, smart contracts, peer-to-peer protocols and the distributed applications that run on top of that. While we have seen a lot of progress being made on blockchains and, recently, smart contracts we have yet to see how the peer-to-peer protocol layer will be built. The field, however, is not new at all. P2P protocols became hugely popular in the late 90s with the rise of Napster, eDonkey, and Bittorrent. Information exchange between distributed nodes in today’s blockchain systems (Bitcoin, Ethereum, Neo, etc.) is often limited to settlement information only, large scale data exchange is not yet possible. This is where P2P protocols come into play.

Can you tell us about the motivation behind Elastos?

Rong Chen: I think the internet as we know it today is broken. Broken from a cybersecurity point of view. For example, according to Kaspersky Labs, on peak days we can see about 1500 individual Distributed Denial-of-Service (DDos) attacks every day. Some of these attacks last a whole day. What worries me is that we are now moving to build really safety-critical applications on top of this “broken” infrastructure. Let us take autonomous cars as an example: how can we make sure that our loved ones are not hacked when they are being shuttled in an autonomous car? That was one of the triggers for us to realize that we will need a paradigm shift in networking for this class of applications. Instead of relying on the classical Client – Server architecture, over the past years we have developed an operating system for the distributed web: Elastos

And Elastos will be an operating system that is run by distributed nodes, is that correct?

Rong Chen: Yes, Elastos runs on virtual machines by distributed nodes. Elastos has three fundamental pillars. First, there is the Elastos runtime which allows developers to build truly distributed apps on the one side and on the other side abstracts away any direct access to the network from the application. This is a key concept to make the network secure. There is no need for concepts such as drivers or sockets, apps are prohibited by design to directly access the network. Network access is managed only by the runtime. Second there is the the Elastos Peer-to-Peer (P2P) Network, a set of P2P protocols that will enable efficient data transfer between distributed nodes, such as video and audio streaming or text messaging. The third pillar is the Elastos Blockchain interface to public and private blockchains. This will allow Elastos computers to access services such as settlement or identify verification on blockchains. We are collaborating with the teams of existing blockchains to have interfaces to their systems.

Can you tell us in what stage of the project you and your team are? Were you able to build a prototype of the three pillars that you mentioned?

Rong Chen: Elastos has a long history. I started working on the concepts on Elastos as early as 2000 upon my return from the US. In 2013 Foxconn came onboard as an investor. In 2015 we had a first version of Elastos running on two different devices: An ARM Cortex A7 based Banana Pi and on a home router, we called the Elastos Smart-Router. Last year we were porting it on a Smartphone and the popular Raspberry Pi 3. Our team is currently working on finishing the blockchain integration. Since January 2016 all our code can be found on Github. In 2017 we created the Elastos foundation and we are in the last stages of preparing for an Initial Coin Offering of our Ela token. Tokenizing the foundation will keep it independent and in the hands of the users, thus helping us realize our vision of a truly distributed web?

Since you witnessed the rise of the internet when you worked for Microsoft in the 1990s, what gets you excited about the distributed web when you compare today to the times back then?

Rong Chen: I think we are living in very exciting times. The internet we developed in the past decades is not up for the new challenges that will emerge from the mass-scale deployment of safety-critical applications, such as the autonomous cars we discussed. Blockchains will provide identity authentication and settlement, and now is the time for a paradigm shift to a much more robust network on top of that, a network without DDoS attacks, a network where nodes have no direct access to the communication channel but an operating system will manage that. That new type of network will be distributed and I hope that Elastos will play a key part in this. I would like to invite the international community to come and check out our project. When was the last time you could contribute in building something that big? I was at the first Linux conference by Linus in Seattle in the early nineties, and I remember how excited I felt back then. I feel now is a similar time.

About Rong Chen:

  • Rong Chen graduated from Tsinghua University, Beijing, in 1982.
  • MS degree from University of Illinois at Urbana-Champaign in 1987.
  • Rong was a Microsoft veteran in the early days of the internet from 1992 to 2000. He collaborated in the development of a wide portfolio of projects at Microsoft, for example OS research, IE3 ActiveX, Ole Automation, ECOM, .NET.
  • Rong founded his own company Kortide Corp in 2000 following his long-standing dream to create his own operating system: Elastos. After 17 years, Rong believes that the smart-web powered by the blockchain is the future for Elastos. He established the Elastos Foundation with partners in June 2017.
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More information about Elastos Blockchain on the website: http://Elastos.org, Code geeks check out the Elastos Blockchain github at https://github.com/Elastos

About the Author

Dr. Thomas Reinbacher is a computer scientist and management consultant and works as independent adviser in Munich and Beijing. If you want to work with me please find me on http://dr-reinbacher.com/

Interview led by Dr. Thomas Reinbacher and Julian Hoelz © Thomas Reinbacher. Disclaimer: All information presented herein is given strictly on a non-reliance basis and under the exclusion of any responsibility or liability, in particular with regard to loss or damages and/or administrative and regulatory sanctions