People’s Daily: Cryptocurrency Startups Face Major Challenges in The Next Two Years

According to the People’s Daily, many popular WeChat public accounts that are related to cryptocurrency have been blocked recently. Moreover, the General Office of the State Council on Issuing the Implementation Plan for Special Rectification on Risks in Internet Finance has also issued a notice to tighten its control over cryptocurrency trading exchanges.

According to the People’s Daily, many popular WeChat public accounts that are related to cryptocurrency have been blocked recently. Moreover, the General Office of the State Council on Issuing the Implementation Plan for Special Rectification on Risks in Internet Finance has also issued a notice to tighten its control over cryptocurrency trading exchanges. Chinese government’s increasing control over fake cryptocurrency and blockchain-based cryptocurrency amounts to new heights. The development of blockchain has continued over a decade. When blockchain is separated from cryptocurrency, however, what will the future look like?

  1. The blockchain network has declined in popularity; most participants are middle-aged men

According to Baidu search index, blockchain reached its peak popularity in January 2018 and then began to fall rapidly regarding public attention. Its demand increased again gradually in mid-February, reached a high point in early March, and then started to show a downward trend. By analyzing public opinion, we concluded that the blockchain craze at the beginning of this year was related to the price surge of Bitcoin. The discussion during China’s Two Sessions in 2018 accounted for blockchain’s popularity in March. Due to the Chinese government’s reserved attitude regarding blockchain during China’s Two Sessions, blockchain gradually faded from public sight. In China, government policy and investment prospect determine whether blockchain will gain public attention.

Also, the Baidu Trend Index in July showed that people who take part in blockchain exchanges are mostly middle-aged, with 52 percent aged between 30 and 39 years old, 25 percent between 40 and 49 years old, and 16 percent between 20 and 29 years old. The total number of people, who are 50 years old and over or 19 years old and younger, accounts for seven percent. Regarding gender, 72 percent of participants are men, compared to 28 percent of women. In sum, middle-aged men are significant participants on the blockchain network.

  1. Bitcoin as a virtual currency is driven into the real world; cryptocurrency startups face tremendous challenges in the next two years

Enthusiasm for blockchain continues to be universally shared across regions as businesses and organizations alike continue to explore the technology’s potential application. From a global perspective, blockchain has already started to make its presence in the real world. According to IDC data, out of the worldwide market distribution of blockchain in 2018, the financial industry accounts for 60.5 percent, manufacturing and resource industries account for 17.6 percent, the service industry accounts for 14.6 percent, the public sector accounts for 4.2 percent, and the infrastructure industry accounts for 3.1 percent. Also, according to Deloitte’s statistics in April 2018, consumer products and manufacturing industries see compelling business cases for the use of blockchain. Approximately 74 percent of respondents from consumer products and manufacturing industries said their companies are in the experimental or production phase of blockchain technology.

China’s blockchain investment has also shown a trend of moving towards real-world applications. According to statistics from MIIT (domestic data source itjuzi.com), as of March 31, 2018, out of China’s blockchain projects that are currently in the venture round, 65 of them are related to the real economy, and 48 of them are associated with the financial industry. Also, as of March 2018, 64 percent of blockchain projects are in the early investment stage, 25 percent are in Series A funding round, nine percent are in strategic investment stage, and two percent has already completed Series B funding round. By analyzing international trends, we concluded that blockchain would have more extensive and more profound connection with manufacturing as well as consumer industries in the following years.

According to statistics of the National Enterprise Credit Information Publicity System at the end of March 2018, about 42 percent of “blockchain” companies in China were incorporated in this year, located mainly in Shenzhen and Guangzhou. Blockchain companies established in Guizhou this year accounted for 93 percent of all crypto companies in the province. That for Guangzhou is 88 percent, 80 percent for Shandong, and 78 percent for Zhejiang. By analyzing the blockchain mentioned above investment and financing, we concluded that numerous blockchain startups would face challenges from competitive companies in the next two years, with increasing intensity and scope.

  1. Enterprises across countries remain cautious about investing in blockchain technology

In March and April 2018, Deloitte surveyed 1053 corporate executives from China, Canada, France, Germany, the United States, Britain, and Mexico. According to the survey, 39 percent of executives believe the biggest challenge facing blockchain investment is the regulatory issue (such as regulatory policies), and 37 percent of them think the biggest problem is the practicability of blockchain investment. Also, 35 percent of them mentioned security issues, 33 percent of them said the uncertain return on investment, and 28 percent of them said the lack of relevant technology or skills. Moreover, 22 percent of executives believe there is no urgent need to adopt the blockchain technology, 22 percent of them thinks that blockchain technology lacks innovation, and 20 percent of them believe the current technology is not fully developed yet.

  1. Limited computing power is the bottleneck of blockchain development, current application of blockchain is unlikely to accommodate security, low cost, and ease of use at the same time

Blockchain is a technological innovation inseparable from programming languages. Essentially, the cost-effectiveness of blockchain determines whether it will become widely adopted in the market. A blockchain that focuses on decentralization, which was a far-fetched goal a decade ago, is finally making inroads into the mainstream. Ever since its development, however, blockchain technology faces “The Trilemma” due to the limitation of computing power. In the decentralized blockchain design, it is impossible to include security, low cost and the ease of use at the same time. Satoshi Nakamoto mentioned in his 2008 paper the concept of a purely peer-to-peer electronic payment system based on cryptographic proof instead of trust. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. That said, however, if taking into account the difference in computing capacity of participants, how can we ensure that the blockchain provides low cost, high security and the ease of use simultaneously? A more feasible way to solve these problems is to ask the service provider (intermediary) to conduct entrusted management, or directly use the platform of the blockchain service provider. This is why major companies are competing for the development of blockchain projects – they are trying to seize the market of blockchain platform ahead of each other.

  1. The integration of blockchain, the Internet of Things and edge computing is ongoing

According to the market research firm Gartner, the number of IoT devices worldwide reached 8.4 billion in 2017, an increase of 31 percent compared to 6.4 billion in 2016. The global population is 7.5 billion, and the number of IoT devices will reach 20.4 billion in 2020. While demand for IoT is multiplying, that for new computing power and innovative services has also expanded. According to IDC, by 2020, there will be about 50 billion smart devices connected to the Internet worldwide, including smartphones, wearable devices, personal devices and so forth. 40 percent of the data will need edge computing service, which has strong market potential and is also a profitable area for service providers.

Based on current developments, we concluded that the integration of edge computing and blockchain would be a driving force for the growth of IoT. First, edge computing provides platform support for the application of blockchain in IoT. IoT devices are characterized by low energy consumption and geographical restriction. The limited computing power and energy shortage of IoT terminal devices severely restrict the application of blockchain. Edge computing can quickly solve this problem.

On the other hand, the fusion of edge computing and blockchain would improve the overall performance of IoT devices. This prospective development, however, still faces many issues that are yet to be solved. For example, the integration of blockchain technology and IoT faces challenges regarding service hosting, response time and mass storage. Moreover, it needs to tackle the potential risk of lacking service provider credibility, authentication security, and legal supervision. These problems will not only affect the fusion of blockchain, IoT and edge computing. Similar issues also exist in the integration of blockchain and other computing paradigms. Hence, when evaluating the real-world application of blockchain projects, we must be cautious.

  1. Three issues to be considered while applying blockchain in the construction of industrial IoT and the expansion of smart manufacturing

Under the influence of China’s industrial transformation, alongside the rise of smart manufacturing and the widespread application of the industrial internet system, a new business model will emerge. The integration of blockchain and the real economy is consistent with the trend of digitalization in China. We believe that this process requires our attention to three issues.

First, how to define the liability of the algorithm and the physical unit? In the past, the physical group usually bore the responsibility. According to the current development trend, the physical device has gradually transformed into an execution unit of the algorithm. Moreover, the decision system and the terminal itself begin to separate. For instance, If a vehicle with Uber’s automated driving system hits a pedestrian, who should be responsible for the accident? Should we blame the algorithm provider who controls the computerized driving system or the Volvo’s ultrasonic sensors? As of now, software server and physical device supply have become two concepts. Corresponding regulatory standards and liability thresholds are not clear, nor is the relevant reward mechanism well-defined. These ambiguities will negatively affect the expansion and development of smart manufacturing.

Second, should we update current standards for smart manufacturing? The rapid development of technology causes many standards to lag. In particular, because of the large-scale penetration of blockchain-based smart contracts, the government faces similar problems. Regarding the future development of smart manufacturing, is it possible to let the market determine standards, which will arise naturally in the competition for technological development? What technology standards need to be determined by the market? What standards need to be monitored by the government? We need to have more clear definitions.

Third, how will 5G impact edge computing, blockchain, and IoT? 5G refers to the fifth generation of cellular mobile communications. Its performance targets high data rate, reduced latency, energy saving, cost reduction, higher system capacity, and massive device connectivity. The 5G-based communication system will trigger what kind of technological chain reaction? The answer is unknown as of now, but we should be cautious at the policy level.

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