Cai Weide: The old blockchain thinking is facing elimination

This article is sourced from "Caijing" magazine, authored by Cai Weide.

According to reports from foreign media on February 1, 2021, IBM will shut down its Hyperledger blockchain department, with 90% of employees leaving, while IBM's main focus is now on blockchain research and development (R&D), with many related businesses being canceled. The reports stated that IBM no longer considers blockchain as its main technology product.

Many people were quite surprised by this, as IBM was still celebrating Hyperledger in December 2020, with many institutions from both domestic and abroad participating. Everyone was promoting the Hyperledger system. Below is the original English news report [1]:

According to four people familiar with the situation, IBM has cut its blockchain team down to almost nothing. (Original: IBM has cut its blockchain team down to almost nothing, according to four people familiar with the situation.)

"IBM is undergoing a major reorganization," said a source at a startup that has been interviewing former IBM blockchain staffers. "There is not really going to be a blockchain team any longer. Most of the blockchain people at IBM have left."

(Original: "IBM is doing a major reorganization," said a source at a startup that has been interviewing former IBM blockchain staffers. "There is not really going to be a blockchain team any longer. Most of the blockchain people at IBM have left.")

This news was released by CoinDesk, and several other major media outlets have shared or commented on it. IBM quickly denied the authenticity of the report, stating that the Hyperledger business is doing very well; however, it did acknowledge that the company is reorganizing its blockchain department, and that Jerry Cuomo, the head of the company's blockchain division, now has other responsibilities.

Anyone who has worked in the U.S. knows that a departmental reorganization represents significant changes in personnel or business. This reorganization of IBM's blockchain department must indicate something significant. It may take time to understand the extent of the reorganization.

IBM's Hyperledger has always been the leader in enterprise blockchain, and the reorganization of the leader brings important information to the industry: when technology fails to keep up with the times, it will be eliminated.

Hyperledger Missed Three Golden Opportunities

Let’s review the history of Hyperledger. For the sake of the readers, I will also highlight the public's focus at that time.

·December 2015: IBM Enters the Blockchain Field

In December 2015, IBM announced the launch of the Hyperledger project, causing a stir in the industry, with many teams looking to Hyperledger as a leader.

At that time, the industry's focus was whether blockchain was a useful tool. After nearly nine months of debate, the conclusion was that it was useful. The Bank of England was the first to propose Central Bank Digital Currency (CBDC), guiding global public opinion. IBM's timely launch of the Hyperledger system in December 2015 indeed capitalized on the momentum, leading the development of blockchain worldwide.

·2016: A Cognitive Misstep

In 2016, IBM made a cognitive misstep that led to strategic difficulties later on. Senior researchers at IBM believed that the entities participating in blockchain were all trustworthy, so there was no need for Byzantine Generals' Problem protocols. Based on this idea, they abandoned the Byzantine Generals' Protocol in favor of a database consistency protocol. However, such a system means that if one person cheats, all participants are deceived. This is also a characteristic of weak chains, and the Hyperledger system degraded into a weak chain.

At that time, the industry's focus was on defining different types of blockchains, such as public chains, consortium chains, and issues related to the architecture, functionality, and performance of these chains. Many entities proposed their blockchain designs, mostly emphasizing system performance, such as transactions per second. The Bank of England proposed a CBDC model, economic model, and CBDC operational mechanism, once again capturing global attention.

·2017: Hyperledger Uses Kafka Centralized Software

IBM's second issue was using Kafka as a consensus mechanism, which is an important tool in databases and cloud computing. However, this consensus is essentially an atomic broadcast mechanism, a centralized mechanism, causing the Hyperledger system to degrade not just into a weak chain, but into a pseudo-chain, meaning it is no longer a blockchain.

On June 1, 2017, I met with IBM's global vice president from New York in Beijing and directly mentioned this issue, stating that it was a serious problem that would have future implications. In 2019, JPMorgan Chase publicly announced that Hyperledger is not a blockchain, which had a significant impact.

At that time, the industry's focus was on CBDC experiments, with central banks in Canada, Europe, and Japan leading the way. The experimental results indicated that there was still a significant application gap for blockchain. Concurrently, regulatory sandboxes were making significant progress abroad.

·2018: Hyperledger Missed a Golden Opportunity

In 2018, IBM announced the issuance of a stablecoin, which was IBM's most successful strategic move since 2015, making IBM a pioneer in compliant digital stablecoins. This was a golden opportunity for IBM to promote Hyperledger vigorously.

The problem was that IBM automatically abandoned its own Hyperledger system and instead used Stellar to issue digital currency, thus losing a golden opportunity. At that time, many issuing entities were using public chains, and IBM followed suit by adopting a public chain. This was a major strategic misstep. Later, IBM also announced that its stablecoin would use Hyperledger, but it was too late; this opportunity was given to Stellar.

By doing this, IBM essentially told everyone that Hyperledger was not effective. It’s like a patient going to see a doctor, only to find that the doctor has the same illness. When the patient asks the doctor if he takes the medicine he prescribes, the doctor says he does not.

In this situation, would the patient take the medicine prescribed by the doctor? IBM vigorously promoted Hyperledger but did not use it itself. Can’t a consortium chain handle digital currency? Facebook's chain is also a consortium chain and issues and processes digital currency.

At that time, the industry's focus was on CBDC, with many countries discussing it, not just financial or technological powers (such as the European Central Bank, the Bank of England, and the Bank of Japan); other countries also joined the experiments, including South Africa. The UK, Canada, and Singapore even released a joint CBDC research report. The U.S. was the first to raise the issue of regulatory sandboxes.

·2019: Hyperledger Again Missed a Golden Opportunity

In June 2019, Facebook's Libra white paper emerged, shocking the world, and everyone began to seriously study blockchain, with many countries listing blockchain as a national strategy. The International Monetary Fund (IMF) deemed this impact unprecedented.

Regrettably, IBM did not leverage the event of Facebook issuing a stablecoin to vigorously promote Hyperledger and compete with Facebook's blockchain. Since Hyperledger is a consortium chain, it should have loudly proclaimed that Hyperledger is far ahead of Facebook's plans in terms of regulation and security. At that time, Facebook's chain had not yet been developed, while Hyperledger had already been developed, absolutely leading Facebook's system.

At that time, Facebook's plan was still based on a public chain and lacked regulatory mechanisms. This was equivalent to giving Hyperledger a golden opportunity to lead the world.

The industry's focus had shifted from CBDC to the upcoming stablecoins issued by private companies and the potential major reforms in financial markets. The response from many central banks was strict regulation and immediate development of CBDC. Everyone was paying attention to the discussions at Facebook's congressional hearings in the U.S.

·2020: Hyperledger Missed the Third Golden Opportunity

In 2020, central banks and banks around the world were learning about digital currencies, engaging in a new currency war, digital finance, and digital asset trading. Whether in New York, London, Hong Kong, Singapore, Beijing, or Shanghai, everyone was studying and researching very seriously.

However, at the end of 2020, what did the leader of Hyperledger talk about in front of the media [2]? He was still discussing the design advantages of Hyperledger, such as the open-source community and Amazon adopting Hyperledger. Why not take the opportunity to vigorously recommend using Hyperledger for digital currencies?

This was the third golden opportunity, as many countries around the world were researching digital currencies and stablecoins, and IBM was the first organization in the world to propose a compliant stablecoin team (in 2018).

At that time, Hyperledger was still focused on internal system issues and traditional IT applications, failing to realize that everyone was no longer concerned about these but rather focused on the new currency war, leading to a disconnection between Hyperledger and market demand.

However, at that time, Hyperledger could still exert effort, although it was clear that the system needed an update. It is very regrettable that the team did not take advantage of the third golden opportunity to update the system.

The industry's focus was no longer just on stablecoins but on the new currency war, competition for world reserve currencies, major reforms in financial markets, and the regulatory framework of the Financial Action Task Force (FATF) travel rule. This travel rule was developed based on the U.S. Bank Secrecy Act.

What is the Technological Symbol of Hyperledger?

Recently, I asked many people what the technological symbol of a well-known blockchain system is. Many responded that Bitcoin's symbol is the UTXO model, digital wallets, and consensus mechanism POW; Ethereum's symbol is its account system and smart contract platform. But what is the technological symbol of Hyperledger?

To become a technological symbol, it must have technological originality (not copying or learning from others' technologies); it must be useful; and the reputation of the technological symbol must be as loud as the system's name. However, scholars I encountered found it difficult to identify the technological symbol of Hyperledger.

Some said that Hyperledger's symbol is the consortium chain, while others said it is the development method (modular development, pluggable systems). However, these are not original technologies of Hyperledger, as other systems have them. For example, Beihang Chain developed the consortium chain earlier than Hyperledger, and the pluggable system is traditional software engineering technology.

Even Facebook's latecomer Diem chain (2019) has its technological symbols.

Core Technology Must Be Original

The most critical components of a new technological system cannot be outsourced or developed using open-source software from other teams. Open-source software can be used in supporting systems, but using open-source code in core components means there is no core technology.

The core of a blockchain system is its ledger system, consensus mechanism, and transaction mechanism. However, the core of Hyperledger version 1.0 actually used the open-source Kafka software, indicating that the core technology of Hyperledger is not original. Analyzing from this perspective, using Hyperledger software is equivalent to using a ledger system and smart contract system centered around Kafka.

For example, the symbol of Facebook's blockchain system includes "coin and chain separation," "coin abandonment to protect the chain," "decoupling of consensus and transactions," "embedded regulation," and "one chain with multiple coins," all of which differ from traditional blockchain characteristics and are mostly original technologies. These new features enable Facebook's system to surpass previous systems, including Bitcoin, Ethereum, and Hyperledger.

The World Continues to Progress; Blockchain Must Keep Innovating

The table below compares Facebook's innovations with the recent highlights publicly shared by Hyperledger [3]. While Hyperledger's highlights are indeed impressive, they remain focused on issues from several years ago (2015-2016) and do not cover the latest focal points, such as the new currency war, banks issuing stablecoins, and digital asset trading. In contrast, Facebook's highlights are aligned with the industry's focus in 2020. The world has changed, but Hyperledger remains stuck in the thinking of several years ago.

| Hyperledger | Facebook Blockchain System | |-------------|---------------------------| | Highlights | Permissioned membership system; functionality, performance, scalability, trustworthiness; data management; modular software development; database query capabilities; digital key and identity protection | | | Decoupling of transaction and ledger mechanisms, decoupling of transaction processes, decoupling of chain and coin, one chain handling multiple assets, decoupling of consensus and transaction mechanisms, embedded regulation, new smart contract language | | Main Applications | Traditional enterprise applications, such as Shouyuan | Stablecoins, new currency wars, digital asset trading, regulatory technology |

The market has a keen eye and will only adopt progressive technologies. The digital currency shock in 2019 brought about new regulatory models and market operating methods, inspiring the Facebook team to transform their blockchain architecture. In April 2020, Facebook announced some new ideas that, on the surface, seemed no different from traditional ideas, but in fact, there were significant differences. The Facebook incident presented two major new mainstream routes: transactional and regulatory, such as:

• Consortium chains are the ones that issue and operate stablecoins, not public chains (regulatory);
• Embedded regulation is a fundamental subsystem of blockchain; without this system, there is no need to consider issuing digital currency (regulatory);
• Transactions must be scalable and complete (transactional).

The Hyperledger team has been observing the development of Facebook's stablecoin. The IBM team is filled with talent and could quickly update Hyperledger to compete with Facebook's blockchain system. However, they have not proposed corresponding new ideas, missing three consecutive golden opportunities.

My Chinese team has also proposed a new blockchain architecture. Our next-generation chain not only decouples transactions and ledgers and implements parallel consensus (these are technologies we originally developed in 2016), but also includes STRISA, embedded regulation, and Blockchain Data Lake (BDL). Times are progressing, and we can only continue to innovate.

The author is a national specially-appointed expert and a professor at Beihang University.

[1]https://www.coindesk.com/ibm-blockchain-revenue-misses-job-cuts-sources

[2]https://www.ledgerinsights.com/hyperledger-birthday-interview-with-ibm-blockchain-jerry-cuomo/

[3]https://developer.ibm.com/technologies/blockchain/articles/top-technical-advantages-of-hyperledger-fabric-for-blockchain-networks