"Chain Circle" Ten-Year Reflection: What Problems Exist in Blockchain Currently? What Should Be the Next Steps?

Source: Meng Yan's Thoughts on Blockchain

In November 2013, Vitalik Buterin published the first version of the Ethereum white paper. In hindsight, this is often seen as the beginning of the "Blockchain 2.0" era, but at that time, it was actually the emergence of Ethereum that separated "blockchain" as a distinct technology from "digital currency." In other words, Bitcoin, as "Blockchain 1.0," is a retrospective label; blockchain truly became an independent field starting from November 2013, marking exactly ten years now.

Blockchain and digital currency should be viewed as two distinct industries because their goals and value propositions are very different. The digital currency industry, commonly referred to as the "crypto space," has created a unique parallel world where virtual digital assets are generated, a free financial market is constructed, and profits are traded within it. Due to its rules and value system being at odds with the real world, the crypto space rarely or completely disregards its impact on the real world or the实体经济. In contrast, the blockchain industry is fundamentally different, aiming to transform the real economy and influence the real world; thus, people in this industry refer to themselves as the "chain space" to distinguish themselves.

Blockchain was once regarded as a disruptive technology on par with AI, but to be realistic, the results over the past decade have been disappointing, exhibiting a typical case of high expectations followed by low outcomes. Not only have there been no world-shocking achievements, but some projects that were once highly anticipated, such as the supply chain management system developed by IBM in collaboration with Maersk and the ASX's on-chain stock trading system, have ended in failure. Some well-known projects that originally centered around blockchain have also abandoned it, returning to traditional architectures. These failures have undoubtedly severely undermined people's confidence in blockchain.

Where do the problems lie? Does blockchain still have a future? What should the next steps be?

I began learning and researching blockchain in 2015, starting as a standard member of the chain space. Since the end of 2017, I have gradually shifted my focus to digital assets. However, personally, I resonate more with the value propositions of the chain space and hope to see this new technology impact the broader real world, create visible value, and gain recognition from more ordinary people. Therefore, as we mark the tenth anniversary of blockchain as a field, I would like to share a few of my thoughts.

First, let me acknowledge that blockchain is indeed still in a very early stage. Many people compare blockchain to AI, electric vehicles, and cloud computing, which are technologies that were at the forefront a decade ago. They have achieved significant accomplishments, while blockchain seems to have done nothing. However, this comparison is quite unfair because those fields are essentially old trees bearing new fruit, while blockchain is genuinely a newly sprouted field. Specifically, blockchain is an algorithmic solution to a theoretical problem in distributed computing and social collaboration: How can trust be generated and disseminated without relying on authority? This problem has troubled humanity for thousands of years, but it wasn't until the Bitcoin white paper in 2008 that a feasible solution was suddenly provided.

In other words, the blockchain industry is still in the initial years following its theoretical breakthrough. If we look at the chip, internet, AI, electric vehicle, and new energy industries, which are currently the hottest technology sectors, we will find that their theoretical breakthroughs occurred decades or even a century ago. When they were in their teenage years, they might not have even had products or the qualifications to summarize lessons learned. In contrast, blockchain has at least produced some tangible outcomes and accumulated some lessons. Therefore, blockchain is indeed still in its infancy, and we should approach it with more patience.

Nevertheless, the chain space has had many unsatisfactory aspects over the past decade and has taken many detours. If these detours had not been taken, the chain space could have developed better than it currently has. Some of these issues are objective and cannot be resolved by the chain space itself, but there are also many subjective problems that are worth summarizing and learning from.

The first issue is that the chain space has rigidly applied the technical tools and ideas from the crypto space, leading to severe "rejection reactions" during practical applications.

Undoubtedly, the crypto space has always been at the forefront of blockchain technology applications. However, technologies like Bitcoin and DeFi are extreme measures for solving extreme problems. The "cypherpunk" libertarian digital jungle environment they exist in is vastly different from the real world: everyone is anonymous, but everything else is publicly transparent; digital identities can be created and discarded at will; code is law, and outside of code, there is no law. These rules are not only incompatible with the real world today, but they will also likely never be accepted by mainstream society in the future. These rules and ideas permeate every aspect of blockchain technology. When the chain space brought these technologies into the real world, there was no serious industry-wide research and discussion on which aspects could be borrowed and which needed adjustment, resulting in significant resistance during implementation.

The second issue is that the value proposition was misplaced, and the tone was set too high without proper positioning.

The core ideology of the crypto space is decentralization and consensus. When the chain space started, it uncritically copied and promoted this value proposition, using unrealistic "decentralization" as the main value proposition, adopting a revolutionary stance aimed at replacing and subverting traditional architectures, creating enemies on all sides, and struggling to gain user understanding and support. The idea of decentralized consensus can only resonate widely under conditions where central authorities are known to be malicious. In the digital currency field, this condition is partially met, but in most fields, it is not.

In other words, the traditional trust mechanism based on trusted third parties has not exposed serious problems in the vast majority of cases; rather, due to its flexibility and maturity, it is more trusted by users. In this context, exaggerating the risks of centralization and then attempting to completely replace traditional architectures with an immature new structure will naturally not win user acceptance.

Beyond practical considerations, from a logical standpoint, "decentralization" and "distributed consensus" should not be the core value propositions for blockchain industry applications. As mentioned earlier, the essence of blockchain is to solve the problem of how to confirm facts and generate and disseminate trust without relying on authoritative trusted third parties. In digital currency application scenarios, facts are determined through majority voting. However, in most industry applications, facts are either determined through negotiation among relevant parties or by authorized institutions; it is almost never the case that a group of unrelated individuals votes to determine facts. Therefore, the core value proposition of the chain space, aimed at industry applications, should not be "decentralization" or "distributed consensus."

The third issue is that there has been a long-standing fixation on the primitive question of "whether to have tokens or not," wasting a lot of time.

For a long time, the chain space has debated whether pure blockchain applications must have tokens. This is a very meaningless debate because the conclusion is quite obvious and has long been discussed: blockchain applications must have tokens.

Why is this the case? First, blockchain applications are essentially about solving trust issues, and in the business field, 99% of application scenarios related to trust issues involve money. If there is no money on-chain, then there is no trust issue to be resolved, and thus no necessity for using blockchain. Second, a core capability of blockchain is programming payments. With this capability, many application scenarios can be significantly enhanced; without it, the significance of using blockchain is greatly diminished. Third, to solve incentive issues, there must also be money on-chain.

These are all very obvious points. However, because in some countries and regions, governments and the public are very averse to behaviors like "issuing tokens," many in the chain space, under this constraint, have superficially catered to the so-called idea of "tokenless blockchain," actively weakening blockchain into a slow and costly crippled database, resulting in achieving nothing after much effort.

In reality, having tokens on-chain does not mean that one must "issue tokens." It is entirely possible to introduce CBDCs or compliant stablecoins, which can also leverage the value of blockchain. Rather than unrealistically wasting time exploring what a "tokenless blockchain" is, it would be better for everyone to work together to fully communicate with governments, regulatory authorities, and the public, clarifying the pros and cons, and achieving compliance for digital currencies on-chain as soon as possible.

The fourth issue is that the potential of "tokens" has not been fully explored.

"Tokens" is a new term I coined with Mr. Yuan Dao in 2017, corresponding to "token" in blockchain. Our observation at that time was that while blockchain could do some other things, its best and most proficient capability was managing and programming tokens. Therefore, the expansion and exploration of blockchain applications largely reflect the expansion and exploration of the potential of token applications.

From another perspective, the core value of blockchain is to solve trust issues, and trust requires a certificate as a carrier. In the real world, licenses, seals, badges, signatures, bills, currency, and contracts serve as trust carriers, while in the digital world, blockchain tokens are currently the best trust carriers given the technological level. Moreover, on-chain tokens possess unmatched advantages in verification, circulation, trading, and programmability compared to other trust carriers, effectively demonstrating the use value of blockchain. Therefore, tokens should become the core of blockchain applications.

However, from the practices of the chain space over the past few years, this has not become a widespread consensus. Many blockchain projects have a serious lack of understanding and application of tokens, often using only a few very basic token standards, such as ERC-20 and ERC-721, while complicating their business logic. This has reduced the comprehensibility and functionality of solutions.

The fifth issue is that there has been no industry practice proposed to address data privacy issues.

In crypto applications, users are anonymous, but all data and behavioral histories behind each address are publicly transparent. This is the exact opposite of the real world. In the real world, users need to participate in commercial activities under real names and accept regulation, but their commercial data and behaviors are private and do not need to be disclosed unless there are special circumstances. As a result, the attitude of blockchain technology, derived from the crypto space, towards privacy issues creates a contradiction with the demands of the real world. How to handle this contradiction in industry blockchain applications is a fundamental issue regarding whether blockchain can be implemented. However, some chain space projects not only fail to confront this issue but also attempt to persuade users to accept the crypto space's perspective on data privacy, which is both unreasonable and impossible.

Of course, I am aware that some projects are dedicated to solving this problem, each with its own methods, but there are no industry-level standard practices, and even horizontal discussions on this issue are scarce. It can be said that without addressing this issue, blockchain's integration into the real economy is absolutely hopeless.

There are certainly other reasons why blockchain industry applications have long struggled to be implemented, but I believe the five mentioned above are the most noteworthy.

Based on the above analysis, if the chain space wants to achieve breakthroughs in the future, I have the following suggestions:

First, view blockchain as a solution to specific problems rather than a "blockchain revolution." It should coexist and integrate with traditional architectures rather than aggressively aiming to replace and subvert them. We should analyze the real needs for trust issues in application scenarios realistically, without exaggerating the risks of centralization. Problems that can be solved by centralization do not necessarily need to go on the blockchain. Issues that can be addressed with cryptography do not necessarily require blockchain. Allowing blockchain to play a role in critical areas is more beneficial for its healthy development than expecting it to solve everything.

Second, actively promote the integration of central bank digital currencies or compliant stablecoins on-chain, as this is a key step for the implementation of blockchain applications. We should not get lost in the details and debates over the values of CBDCs; instead, we must recognize that the promotion and application of CBDCs will encourage billions of users to establish and accept sovereign identities and will drive the integration of regulatory technology with blockchain. This is the most important foundation for the widespread application of blockchain. If this is accomplished, everything else will follow; if it is not, the chain space will remain stagnant for a long time.

Third, deepen the understanding and research of tokens to quickly unleash their potential. Blockchain developers in China need to learn to overcome the misleading connotations of the term "token" and recognize the rich expressive capabilities and programmable potential of tokens as trust carriers, while also preventing the extreme notion that "everything can be tokenized."

Fourth, in the short to medium term, continue to focus on financial, trade, and payment-related applications as core breakthrough points, emphasizing the expression, circulation, trading, programming, and regulation of assets as the main value propositions, highlighting efficiency advantages, downplaying ideology, and striving for early breakthroughs in these areas. Without breakthroughs in these directions, it will be difficult to develop blockchain applications in other fields.

Fifth, treat how to solve privacy information protection issues as one of the most important topics, engaging in discussions across the industry and establishing relevant standard practices and tools.

Sixth, seriously consider how to incentivize users to adopt blockchain solutions. Blockchain is a new tool, and compared to currently mainstream technologies, the benefits of blockchain solutions for users are not immediately apparent. It is only after achieving network effects that significant advantages can be demonstrated. For this type of technology to develop well, it is essential to clarify "who our friends are and who our enemies are," and to gain support from as many people as possible, such as learning from the internet and the crypto space and considering providing subsidies to early users.