Dialogue: Token is the Key to the Next Generation Internet Digital Economy

Author Bio

Meng Yan, Vice President of CSDN, in charge of CSDN content, community, and blockchain business.

Reprinted from Official Account Blockchain Camp

[Author's Note]

On November 27, the price of Bitcoin broke through $10,000. Meanwhile, what state is China's blockchain industry in? In short, it is in a period of ideological chaos before dawn. Zweig described the chaotic ideological state of the Germans after the defeat of World War I in "The World of Yesterday":

"Hundreds of such small bubbles rolled in the fermented pond, neither causing an explosion nor leaving anything behind, just turning into a foul gas, clearly exposing the rotting process in the unhealed German wound."

Using such words to describe today's Chinese blockchain industry, although not quite appropriate, is somewhat similar in spirit.

The Struggle of Routes

The notice issued jointly by seven ministries and commissions on September 4th cut a severe knife to the Chinese ICO cancer that had begun to grow malignantly at that time. However, this cut also accidentally injured some healthy forces. At the same time, there was no further liquidation of previous acts of fraud, pyramid schemes, and illegal fundraising in the name of fake blockchain and ICO. Thunderous force and destruction of jade and stone alike were in front, while spring breeze and rain, and sentimental looks were behind. This kind of confusing move has aroused doubts in the industry for more than two months.

• Is cryptocurrency legitimate or not?

• What can blockchain do besides speculating on tokens?

• How much value does a blockchain without a token have?

• Where is the "right path" for blockchain applications?

• Where is the boundary between good and evil for blockchain tokens?

• How can the blockchain industry lacking ICO form a value loop?

Around these various issues, the so-called "chain circle" and "coin circle" have conducted a lot of discussions. As for the results of the discussion, it can be said that everyone holds their own opinions, viewpoints stand like forests, and consensus is hard to find. You can randomly participate in a blockchain technology or industry seminar, provided that the participants are frank and do not engage in superficial harmony or polite perfunctoriness, you can clearly feel the collision of viewpoints, the struggle of desires, and the depression of repression. The painful rot or vigorous transformation process of the entire Chinese blockchain industry in the unhealed ICO wound is clearly exposed.

However, while part of the rot is unavoidable, transformation and sublimation are inevitable. The route that Chinese blockchain will take in the future is brewing and emerging in this discussion.

The route issue is the primary issue for the development of Chinese blockchain. In today's blockchain world, there are those who are at a loss, those who are ready to go, those who are forging ahead, and there are also many who are playing tricks and fishing for profits in troubled waters. However, today's blockchain is only at its very beginning, the great way has not yet appeared, and it is unknown who will win. No matter how much money you earn today, how many people you fool, if the route is wrong, money can become no money, and people can become no people. Conversely, no matter how difficult you are today, as long as the route is correct, no money can become money, and no people can become people. The success of blockchain giants ten years later will definitely not be because of how many bitcoins are in their wallets, but because they embarked on the correct route today.

The correct route for Chinese blockchain can neither be the illegal road of fraud, pyramid schemes, and crazy speculation, nor the road of no return from emptiness to emptiness without connecting to entities. It can neither be the road of decentralized fundamentalism that is rebellious and starts anew, nor the road of adhering to conventions and abolishing one's own martial arts. The path of Chinese blockchain must fully utilize the revolutionary and innovative nature of blockchain, while fully serving the real economy and real industries. It must be able to interface with China's realistic system and lead economic and social progress.

To explore the correct route for Chinese blockchain, more rational and organized discussions are needed, as well as the participation of more experienced and far-sighted people. Among the domestic blockchain experts I have communicated with, Mr. Yuan Dao is one with particularly profound views.

Who is "Mr. Yuan Dao"

The real identity of Mr. Yuan Dao is Chen Sheng, the founder and chairman of 21Vianet Data Center, China's largest carrier-neutral IDC operator. On the other hand, he is one of the earliest advocates of blockchain in China and a thinker. Neutral IDC requires him to be calm, conservative, and steady as Mount Tai, while blockchain requires him to be innovative, subversive, and passionate. Therefore, he likes to say that he has two hats. When he wears the "neutral IDC" hat, he is Chen Sheng. And when he takes off the "neutral IDC" hat and puts on the "blockchain" hat, he prefers to use the name "Yuan Dao".

Mr. Yuan Dao paid attention to the development of Bitcoin very early, and began to pay attention to the blockchain technology behind Bitcoin in 2013. In early 2014, he began to unite people with lofty ideals in the official industry to layout the blockchain industry, and took the lead in translating "blockchain" into "区块链", initiating the development of the domestic chain circle. With the support of the Zhongguancun Administrative Committee, 21Vianet, as the chairman unit, initiated the establishment of the Zhongguancun Blockchain Industry Alliance in 2016. Currently, Yuan Dao is keeping a low profile preparing for a global blockchain infrastructure platform startup project that unites "multi-stakeholders" - Palliums (referred to as Bo Lian, Pallium literally means cerebral cortex, which is the most important sign of humans as advanced mammals. The cerebral cortex is like an extremely complex biological supercomputer, which can be called the "mother of invention and creation, father of abstract thinking". Behind this sentimental project name, Bo Lian, there should be a big layout hidden). Regarding blockchain, he thought early, thought a lot, and saw through it. His thinking on some issues really gave me a feeling of enlightenment. However, many of his views are not popular, and I feel that if these views are just kept to himself, it would be a pity. Today's Chinese blockchain industry needs a voice with depth, so with his consent, I conducted several rounds of dialogue with him and organized the recording into a series of texts, aiming to discuss with the entire community, and work together to walk out and create the righteous path for Chinese blockchain.

1. Token is not a substitute coin, it is a pass (Tong Zheng)

Meng Yan (hereinafter referred to as Meng): When I communicate with people about the development prospects of blockchain, one of the most frequently asked questions is, besides speculating on coins, are there any other ways to play with blockchain? Put another way, can blockchain be without coins? This is actually a very deep question. How do you see it?

Yuan Dao (hereinafter referred to as Yuan): Yes, this question is actually a core issue of blockchain. Blockchain originated from Bitcoin technology, but around 2014, experts in the fintech and IT industries extracted blockchain as a Bitcoin supporting technology and established a separate theory. This naturally caused the dispute over the separation and combination of chain and coin. Regarding this issue, two views naturally formed. One is that they can be separated, such as Hyperledger supported by Linux Foundation and IBM using Fabric. The other is that chain and coin cannot be separated.

Meng: Technically, they can be separated. Several projects in Hyperledger default to no tokens, and they are still genuine blockchains, so of course, blockchain can be without coins. Conversely, Tencent's Q Coin, and the C Coin issued by our CSDN, are certainly not tokens on the blockchain, so the separation of chain and coin is technically indisputable. But from the perspective of business logic, if there are no coins on the blockchain, how much value does it really have? This is the real question.

Yuan: To discuss issues, we must first define the vocabulary clearly. Today, two words with different meanings are vaguely mixed. One is cryptocurrency, generally translated as "encrypted digital currency", referred to as "digital currency". The second is "token", widely translated as "substitute coin" (Dai Bi). In daily speech, people often just say the word "coin", for example: "Does your blockchain application issue coins?". So exactly is the "coin" here "cryptocurrency" or "token"? The semantics are vague. In fact, these two things are different. Cryptocurrency originated from Bitcoin, and its purpose is to serve as currency for Internet payments. Where did the token come from? We networking people are not unfamiliar with this word. In network communication, the original meaning of token is "token, signaling".

Meng: Yes, I remember before Ethernet became the universal protocol for local area networks, IBM once promoted a LAN protocol called Token Ring Network. Each node in the network takes turns passing a token, and only the node holding the token can communicate. This token is actually a kind of right, or proof of stake.

Yuan: Very correct. Blockchain tokens are widely recognized thanks to Ethereum and its ERC20 standard. Based on this standard, anyone can issue custom tokens on Ethereum, and this token can represent any rights and value. Now using tokens as proof of rights for ICO is a common practice. From this, we also realize that in fact, cryptocurrency is just a special kind of token. Issuing cryptocurrency on a platform that can run tokens is as easy as pie. But translating token directly as "substitute coin" (Dai Bi) is definitely wrong. Translating cryptocurrency as "encrypted digital currency", although cumbersome, is accurate in meaning, while translating token as "substitute coin" can be said to be completely wrong. Because what a token represents can be proof of all rights and interests, not just currency? On the contrary, the practical application of tokens, non-"substitute coin" type applications will probably go far ahead of substitute coins. For example, Bitcoin, Satoshi Nakamoto wanted it to become a payment currency, but now it has become a digital asset and has not played the role of currency. Emphasizing "substitute coin" is unworthy of the name and instead triggers a series of thorny problems such as monetary sovereignty. Therefore, I oppose translating "token" as "substitute coin", and my attitude is very firm. Even if this translation has become simplified and customary, we must firmly change it and not tolerate it.

Meng: I feel the same way! Translating token as "substitute coin" has huge drawbacks. Tokens can represent various proofs of rights and interests, but if they are to represent currency alone, they ultimately need state authorization, which is what we call encrypted digital fiat currency. I recently read some articles introducing the development of monetary thought. One view particularly attracted my attention, that is, the German economist Knapp believes that currency, especially credit currency, has power intervention from the beginning. The so-called view that "currency is formed spontaneously in market exchange" is probably just a romantic fantasy. In fact, currency is power, currency is politics, and monetary power must belong to the state. So token can substitute anything easily, but it is difficult to substitute currency. Without the authorization and support of the state, the so-called "substitute coin" is just self-deception. And tokens are real and can be used today. So we need a more reasonable translation for token. Back then you translated blockchain as "区块链", which gained universal recognition. Today I want to make a suggestion, which is to translate token as "通证" (Tong Zheng), meaning "circulable encrypted digital proof of rights and interests". What do you think?

Yuan: Great translation. I also had an alternative translation called "Tong Ka", which sounds more like token. But I prefer your translation. Let's start using it below. You are right just now, Tong Zheng has three elements, none of which can be dispensed with. First is digital proof of rights and interests, that is to say, Tong Zheng must be a proof of rights and interests existing in digital form. It must represent a right, an intrinsic value. Second is encryption, that is to say, the authenticity, tamper-resistance, privacy protection, etc. of Tong Zheng are guaranteed by cryptography. Each Tong Zheng is a right protected by cryptography. This protection is stronger and more reliable than any protection provided by law, authority, or guns. Third is circulablity, that is to say, Tong Zheng must be able to flow in a network so that it can be verified anytime and anywhere. Part of these Tong Zhengs can be traded and exchanged. In fact, Tong Zheng can represent all proofs of rights and interests, from ID cards to academic diplomas, from currency to bills, from keys, tickets to points, coupons, from stocks to bonds. All proofs of rights and interests in human society can be represented by Tong Zheng.

Meng: This imagination space is too huge! The entire civilization of human society can be said to be built on proofs of rights and interests. All accounts, ownership, qualifications, certificates, etc., are all proofs of rights and interests. Just like Yuval Noah Harari said in "Sapiens: A Brief History of Humankind", it is these "fictional facts" that are the core reason why Homo sapiens stood out and established human civilization. If these proofs of rights and interests are all digitized and electronic, and their authenticity, integrity, and privacy are protected and verified by cryptography, then it will be a huge renovation for human civilization. Previously, someone in our blockchain circle said that looking back at today in fifty or a hundred years, the Internet of Things might just be a small interlude before the arrival of the new civilization, a period of construction of social infrastructure for a new world. The really important thing is blockchain. But after hearing what you said, I feel that actually the really important thing is Tong Zheng, and blockchain acts as the background technology to support the operation of Tong Zheng.

Yuan: It is the best platform.

2. Tong Zheng and Blockchain are two independent things, but they are the best partners

Meng: My own view is that Tong Zheng is the most characteristic application of blockchain. Without issuing tokens, the charm and power of blockchain are greatly discounted. In fact, a blockchain without issuing Tong Zheng is not much better than a distributed database, and it is completely unnecessary to make such a big fuss.

Yuan: I agree. But I want to emphasize again: Blockchain is the backend technology of the new world, and Tong Zheng is the frontend economic form of the new world. The two things are completely independent, and equally great.

Meng: This reminder is very important. In fact, Tong Zheng can indeed run on non-blockchain platforms. In a sense, Q coins, game coins, user points of various enterprises and communities, including discount cards issued by shopping malls, membership cards, credit cards issued by banks, etc., are all some kind of primitive Tong Zheng. They are all digitized proofs of rights and interests, but without the application of cryptography, circulation is also restricted. However, they are currently running in centralized systems, and most of them are running okay. In the future, if the central bank issues digital currency, it is also possible that it will not run on the blockchain, but in the central bank's data center. Therefore, Tong Zheng basically does not have to run on the blockchain. But on the other hand, at least for people in the blockchain circle today, if a Tong Zheng is not placed on the blockchain, I lack a bit of trust in it.

Yuan: I am the same, but why? It is because blockchain provides a solid foundation of trust for Tong Zheng. The level of credibility it achieves cannot be provided by any traditional centralized infrastructure. This is why "The Economist" hit the nail on the head and called blockchain a "trust machine". Let's analyze it this way:

First, blockchain is a natural cryptographic infrastructure. Tong Zheng issued and circulating on the blockchain carries the brand of cryptography from its DNA. As I just said, Tong Zheng represents rights and interests, and cryptography is the most reliable and indestructible protection for rights and interests. Is there any force in this universe that is more powerful than cryptography in protecting rights and interests? No! Even if you burn the energy of the entire galaxy, you can't crack a password with sufficient strength. So Tong Zheng on the blockchain is naturally secure and credible in the cryptographic sense.

Second, blockchain is an infrastructure for transaction and circulation. The "Tong" (circulation) of Tong Zheng means to have high liquidity, fast transaction, fast circulation, safety and reliability, and this happens to be a fundamental capability of blockchain. Some people say that blockchain is a value exchange protocol on top of the Internet TCP/IP. Regardless of whether this statement is comprehensive, at least it accurately grasps one point: blockchain is naturally the most suitable infrastructure for value exchange.

Third, blockchain is decentralized, which greatly increases the difficulty of artificially tampering with records, blocking circulation, influencing prices, and destroying trust. Note my wording, I don't think decentralization can completely eliminate artificial manipulation, it just increases the difficulty of this matter. for example, we know today that the surge in bitcoin prices in 2013 was backed by artificial manipulation and speculation. Is there such manipulation in today's bitcoin surge? I'm afraid there is, and this cannot be solved by the decentralization of infrastructure, because the problem lies in people's minds. But decentralized infrastructure, and the emergence of more and more Tong Zhengs, at least make it increasingly difficult for a few people to manipulate the market for a long time. This is already a very remarkable progress.

Fourth, Tong Zheng must have intrinsic value and use value, and blockchain, through smart contracts, can endow Tong Zheng with rich and dynamic uses. The founder of Ethereum regards smart contracts as programs on the blockchain "global computer". This is certainly a high insight, but we also have to think about a question: what kind of programs are necessary to run on this global computer? Is it necessary to put our programs for chatting, playing games, listening to music, writing blogs, and surfing the Internet on the blockchain? I think it is unnecessary. The programs that are necessary to be placed on the blockchain, as currently seen, are applications involving value exchange, rights management, etc., or more bluntly, applications involving Tong Zheng. So with blockchain with smart contracts, extremely rich applications will be created around Tong Zheng. These applications will enable human society to transcend the Internet, transcend digital life, and reshape digital life in the new cyberspace.

Meng: So it can be said that although Tong Zheng and blockchain are two different things, they are the best partners for each other.

Yuan: Yes, both are equally great, serving as front and back ends for each other. But if I have to compare, I even feel that the meaning of Tong Zheng is more important than blockchain.

3. Tong Zheng Economy is the Digital Economy of the Next Generation Internet

Meng: You were a flag-bearer in the chain circle before, how did you come to this understanding of "Tong Zheng"?

Yuan: Yes, from 2013 to the beginning of this year, I was a supporter of blockchain and did not approve of, or even resented, the speculation of digital currency. But since the beginning of this year, the development of the entire industry has prompted me to reflect deeply, and then I suddenly realized that I was wrong before. Tong Zheng is too important. As China's first-generation Internet entrepreneur with an engineering background, I have always been obsessed with the underlying technology of the Internet, and always believed that "if the skin does not exist, where will the hair attach". Facts have proved that I was wrong. The value reconstruction and value creation speed and scale of the Internet eyeball economy, traffic economy, fan economy, etc. in the past 20 years have far exceeded Internet infrastructure.

Meng: Can we say that you align with the coin circle in your thinking?

Yuan: I can't say that either. Tong Zheng is not equal to the speculation of encrypted digital substitute coins. Tong Zheng is based on intrinsic value. Tong Zheng is based on the real economy and serves the real economy. Of course, I want to affirm that the model of the coin circle is mostly problem-free and should be adopted by Tong Zheng. For example, Tong Zheng should also be listed for trading, and Tong Zheng can be pre-sold. These are all fine. But on a key point, Tong Zheng thinking is fundamentally different from the current coin circle thinking. Tong Zheng is meant to be used, while most current coins are useless, or don't even consider what use they can have. Tong Zheng inspires and encourages everyone to take out various proofs of rights and interests, such as tickets, points, contracts, certificates, game cards, securities, permissions, qualifications, etc., tokenize them, put them on the blockchain for circulation, put them on the market for trading, let the market automatically discover their prices, and at the same time, they can be consumed and verified in real economic life. It is something that can be used, which is close to the real economy. And what is the thinking of the coin circle? Build a chain, issue a new digital currency, attach a bunch of advanced technologies to it, pull a few celebrities to endorse it, go to the exchange as soon as possible, and focus on price speculation rather than serving the real economy. This is called idling. Idling is fast, of course, but it never lands, and sooner or later it will collapse.

Meng: I understand. But why do you think Tong Zheng is so meaningful? Others might say, aren't you just changing the platform for issuing what I originally had? Is there such a big meaning? Are you overthinking it?

Yuan: Your question has touched the core of Tong Zheng. In fact, when the price of Bitcoin soared, when the price of Wanke Coins like Xunlei soared, many people were touched, started to think, and begun to vaguely realize the matter of Tong Zheng. As far as I know, many companies at home and abroad are starting to consider issuing their own Tong Zhengs. We will soon see a batch of Tong Zhengs popping up. But unfortunately, most people focus mainly on price surges and various legends of getting rich quickly, while the true face of Tong Zheng is covered up. This is a pity. You know, there is a new concept abroad called "Token Economy", which translates to "Tong Zheng Economy". What is Tong Zheng Economy? It is an economy where Tong Zheng is fully used. I think this is the real core thing. Why is Tong Zheng so important? Why can Tong Zheng Economy bring about a new round of digital economy revolution? Why might Tong Zheng trigger another major upgrade of the real economy? This is the key question.

Meng: Please explain your views in detail.

Yuan: This question requires more discussion and analysis by more people. Here I introduce a few of my thoughts. First, on the supply side, the supply of Tong Zheng is fully market-oriented and highly free. Anyone, any organization, any institution can issue proofs of rights and interests based on their own resources and service capabilities, and Tong Zheng runs on the blockchain, verifiable, traceable, and exchangeable at any time. Its security, credibility, and reliability are unmatched by any previous method. So every organization and individual can now easily put their promises into writing, "tokenize" them, and marketize them. This is an ability that human society has never had before.

Second, circulation speed, this is key. Tong Zheng on the blockchain can flow hundreds and thousands of times faster than previous cards, coupons, points, and tickets, and due to the application of cryptography, this circulation and transaction are extremely reliable, and disputes and friction will be reduced by hundreds and thousands of times. If we say that in the traditional economic era, an important indicator to measure the economic development of the entire society was the currency circulation speed, and in the Internet economic era, an important indicator to measure the development level of a country or a city was network traffic, then in the Internet+ economy era, the total circulation speed of Tong Zheng will become one of the most important economic measurement indicators. When all kinds of Tong Zhengs of each of us and each organization are circulating and trading rapidly, our production and lifestyle will change completely.

Third, price discovery. Due to the high-speed circulation and trading of Tong Zheng, the price of each Tong Zheng will be quickly determined in the market. This is the invisible hand of the Tong Zheng economy. It is hundreds and thousands of times more sensitive and precise than today's market price signals. It will push efficient markets and even perfect markets into every micro field.

Fourth, Tong Zheng applications, that is, smart contract applications around Tong Zheng. Just this one item can stimulate myriad forms of innovation. The innovation opportunities it creates and the innovation wave it sets off will far exceed the sum of the previous computer and Internet eras. Based on these four understandings, I firmly believe that Tong Zheng is the key to leading us to the new economy of the next generation Internet.

***Meng: Very inspiring! I would also like to add two of my thoughts.

First, the Tong Zheng economy will be an economy with multiple value scales, and thus will help develop a modern society with multiple value scales. Not long ago, I heard news that Xiong'an New Area might issue a kind of points to its citizens to reward citizens for "good" social behaviors, such as cycling to work, garbage classification, etc. Actually, an advanced modern society needs multiple value scales to guide human behavior. The single scale of currency alone has many drawbacks. For example, a very rich person can drive a large displacement luxury car in a dangerous way. You give him a general fine and punishment, and he may not care at all. But the Tong Zheng economy can tokenize various scales. For example, this person may be rich, but his environmental protection Tong Zheng and driving Tong Zheng are very low, then he will be restricted by the entire society in certain things, and he cannot be so arrogant. This has huge significance for social management.

Second, the Tong Zheng economy will be extremely beneficial to state regulation and micro-social management. Because the background facility of blockchain archives all data exactly as it is, convenient to trace, impossible to tamper with, and impossible to deny. Combined with artificial intelligence and big data analysis technologies, it is extremely convenient for competent authorities to implement regulation. Even more powerful is that the Tong Zheng economy combined with blockchain's "Code is Law" capability can write many norms directly into smart contracts. For example, when selling train tickets during the Spring Festival travel rush, our system requires ticket buyers to have a certain number of Tong Zhengs and meet a series of requirements of the smart contract before the system will issue tickets. Another example is the distribution of relief funds for low-income households, which can also greatly improve standardization through the use of Tong Zheng and smart contracts. The management will of the state will be ensured by cryptography, smart contracts, and a series of matching institutional arrangements and infrastructure. No organization or individual can "have countermeasures against policies from above".***

Yuan: Indeed, the two points you added are also very important. A real market economy must be a well-regulated economy. A market without regulation will be a market where gangs run rampant, factions stand in great numbers, and is torn apart. The Tong Zheng economy can promote free exchange and strengthen regulation. It is a major upgrade of the market economy. Essentially, it uses cryptography and future information infrastructure including cross-border open source supercomputers to redefine the market economy. How could it not produce a huge and essential impetus to the real economy? How could it not essentially change our lifestyle? Artificial intelligence, Tong Zheng, blockchain, these three things combined are not just a matter of simple changes in production and lifestyle, but a matter of the evolution of human civilization and the change in the meaning of life existence. That is what I said, digital life drove the Internet in the past 20 years, and digital life will drive the next generation Internet in the next 20 years. This is left for later discussion.

End of Part I

To be continued - Part II "The 'Third Way' of Blockchain Development from the Perspective of Tong Zheng Economy", please stay tuned.