Hello everyone, I am Patrick Dai, the founder of Qtum. The topic of my speech today is “The New Direction of Blockchain Development: The Measuring Off-chain Assets.” Speaking of the origins of the Wanxiang Blockchain Summit, this is the sixth Wanxiang Blockchain summit. I have taken part in the Wanxiang’s Blockchain Summits since 2015, and in 2016 I participated in the Wanxiang Blockchain Summit hackathon and won an award for presenting the idea of Qtum. At noon, I saw another team. I think the Wanxiang Blockchain Summit has built a bridge between Chinese and foreign blockchains, bringing the most advanced experience, technology, and ideas to our country. My speech is divided into several topics. Since 2016, Qtum has been regarded as the first domestic project to cultivate in the field of public blockchain and now in its fifth year. The years go by fast. The past 5 years have witnessed the innovative development of blockchain, especially the public chain, and have also experienced a period of ups and downs.
On the first topic, I will summarize the past two years of the public blockchain. Why do I want to make this summary? I think the public blockchain is still the source of industry innovation. Products that exceed our expectations continue to emerge on Ethereum.
In essence, Ethereum plays the role of the largest venture capital institution in the blockchain field. The people who own Ethereum can determine their voting rights and decide who to vote for with Ether. RMB or US dollars cannot capture this kind of opportunity, which indicates that the technology and ecosystem of Ethereum have evolved and surpassed the technology envisaged in our current financial world. It is a technology with intelligent evolution capabilities. The public blockchain has such potential because it provides an open and inclusive platform.
Speaking of the development of public blockchains, I would like to make the first point that Bitcoin has a strong currency attribute, which is gaining more and more recognition in overseas countries. It is allocated as an alternative asset by many listed companies. It also does not need technical iteration because it has degenerated into a role of electronic gold and value reserve. It is considered an alternative currency and a public asset, which is irrelevant.
Ethereum 2.0 has finally started testing after five years, which will promote the development of blockchain. Of course, there have been other blockchain developments in the past two years, including projects like cross-chain. It is also popular, but the progress of cross-chain projects is still slow. We see innovations in the public blockchain industry like new consensus protocols different from the Satoshi Nakamoto consensus. For example, AVA has made some new consensus protocols, including the introduction of some new concepts.
You can see that both Bitcoin and Ethereum are synchronous and consistent protocols. If we can bring our past calculation ideas into the world of blockchain, it will bring about differences in the technological iteration of blockchain. The emergence of some cryptocurrencies that integrate cryptography and the formation of new cryptographic encryption methods are all people silently promoting industry progress.
The topics of DeFi and Filecoin that many people are talking about today are interesting. From my point of view, I am more optimistic about the innovations made by Filecoin. I think the innovation made by DeFi is more of a financial level. From the perspective of innovation and iteration, Filecoin is connected to off-chain resources, which is more in line with my speech’s theme today. I think blockchain’s real future is to connect resources on the Internet, which can get rid of current bottlenecks and difficulties. For DFinity, the people talked about in the past, as an Internet computer, as a distributed cloud, and distributed Amazon in the future, blockchain infrastructure can take another step forward.
I just talked about the underlying innovation of the blockchain. The development of applications has changed a lot in one or two years.
First, everyone is talking about DeFi. DeFi’s smart contract acts as a bank. The main purpose of each smart contract is to manage money, including Ethereum. No matter how advanced the contract is, it is ultimately about the operation of funds. The quantity is different when you enter and when you exit. The smart contract plays the role of the custody box, that is, the bank’s role. There are so many smart contracts in Ethereum. You can treat each contract as a bank, so the number of such banks far exceeds the financial world.
Also, we see the development of oracles that provide price information on the blockchain. The development of DeFi promoted the development of oracles. By providing liquidity and automated market-making (AMM) for everyone, we can allow more people to participate in the provision of liquidity and is consistent with the blockchain’s spirit where people can participate without burden. This is different from the traditional financial world bank providing liquidity, but it makes everyone see Uniswap and DEX’s popularity.
What everyone can see is the explosion of stablecoins. From March to today, the amount of USDT has increased from more than 3 billion US dollars to more than 10 billion US dollars. The scale of all stablecoin markets has expanded many times. I think the demand for stablecoins is replacing Bitcoin and becoming a valuable indicator of the virtual world. Such a trend has also appeared where we see that Bitcoin is likely to migrate part of it to Ethereum, and there are WBTC, sBTC, etc. You want your currency to be smarter, not just money. This is why everyone hopes that the Bitcoin in their hands will become a Bitcoin with long heads and wings. The future of blockchain can only be solved off-chain.
You can understand it as Layer 2 off-chain because Layer 2 and Layer 1 are entirely unrelated. Everyone can feel that there is a huge ceiling for applications on Layer 1, which is why the scale of DeFi cannot be expanded today. It has come to an end. This is not because the DeFi protocol does not work, but because the settlement on Layer 1 will inevitably encounter problems of high gas fees and network congestion, meaning that users will have a huge ceiling.
Vitalik has written many articles about zkrollups, and this expansion method is the easiest to achieve. The most important innovation in the next two years will only happen at the Layer 2 level. Users will build tens of millions of applications on Layer 3 based on the foundation of Layer 2. Currently, Uniswap can only reach millions of users because Ethereum has collapsed at this level. In addition, the emergence of privacy agreements has continued to evolve and iterate in the past two years. As an entrepreneur, I have experienced technological iterations in the past five years. I think the public blockchain is bound to face two huge problems.
One is the problem on the blockchain, and the other is the processing capacity of the blockchain. The blockchain’s processing capacity is still a bottleneck restricting the development of the industry when we saw the popularity of Uniswap, games, and micropayments on the Ethereum blockchain disappear.
For example, if I want to buy a batch of props in a blockchain game and the gas fee is $50 and my props only cost $1 or $0.1, no one would want to use this dapp because of the high fees. The bottleneck of processing power prevents many users from entering the blockchain world. The biggest problem on the blockchain is the problem of on-chain assets. The off-chain problem is how to build a bridge between real assets on and off the blockchain and how to bridge this gap.
Regarding the handling of the blockchain, my thinking is that in the future, ordinary people will not deal with Layer1. We will not become users of Layer 1 but will deal with Layer 2. Layer 1 will degenerate into a settlement tool, and only wallet service providers, exchanges, and liquidity providers will deal with Layer 1.
In addition, the current progress of Layer 2 is also very rapid. Everyone has seen various expansion plans. This is the direction of everyone’s investment in the last year or two. It is also the direction that everyone pays attention to and is even the only direction that needs attention. Without Layer 2, all applications will have a huge ceiling, and you do not need to expect tens of millions of applications.
Another problem is the issue of asset types and asset classes. Now the assets on the blockchain are tokens issued by various communities with weak credit. With the help of this token mortgage to generate the next token, continuously increasing leverage to form unlimited Tokens. But when the market is falling, the token has no support, so it is particularly easy to collapse. The internal circulation of assets on the blockchain chain, assets are relatively closed, and mortgages’ continuous circulation will cause many problems. At present, the largest type of asset on the chain is stable currency, which has legal supervision issues in various countries. We imagine that one day stablecoins will not circulate, then the value of the blockchain may be hollowed out.
The other is the issue of strong investment assets. The agreement has a high value, but the agreement has more value when it liquidates high value. For example, many liquidated assets are worthless assets. For example, 99.99% of the tokens on Ethereum are worthless, but they also occupy limited chain resources. How to solve these two problems, we must return to the blockchain. The information and resources off-chain represented on the blockchain are an important direction in the future.
Simple data information can be provided to the smart contract through an oracle, allowing it to interact with real resources. There is no solution to complex off-chain data.
What does the off-chain data include? The easiest way to get started is the demonstration by Filecoin, where storage on the internet displays on the blockchain. Based on this logic, we can express computing power on the internet or bandwidth capabilities on the blockchain network. Blockchains such as Ethereum are all single-threaded services, such as virtual machines and EVMs, which are relatively weak, just like small cloud services and micro Clouds, but this is in verifiable computing; it’s just a subset or category. Computable categories far exceed the scope of smart contracts. Smart contracts have achieved global consistency to a certain extent, so they are called smart, essentially only small categories that can be calculated.
As more applications migrate to the blockchain, we must find a way for application distribution and transmission. We need to find the native bandwidth and native storage of the blockchain. The current challenge is why we only put simple data on the chain because this data is scaled and standardized.
For complex off-chain resources, the first thing we need to do is to build metrics, such as how we measure bandwidth and computing power. We need to use cryptographic solutions to fulfill various commitments and form the measurement of off-chain resources. With weights and measures, we can migrate real-world resources to the blockchain. The blockchain resources are not single, and the assets can form a mapping with the assets in real life. These real resources are through the blockchain. The clearing, settlement, and dispatching network is used and mobilized by all blockchain users. At this time, the blockchain’s asset categories are like moving Alibaba Cloud, Amazon, etc. to the chain resulting in network effects, the value generated, and user resources. It will settle on the network. This is the path through which the blockchain truly produces breakthrough developments.
Qtum has also made a lot of innovation. The project has gone through ups and downs for five years. This year we are still doing a lot of underlying protocols. We have done a lot of research in the field of public chains, such as letting users’ private keys participate in the network to construct more smart contracts, frameworks, some privacy protocols based on zero-knowledge proof, a lot of improvements, and some attempts on DeFi. Although the blockchain is still bumpy, the blockchain is still the fastest iteration in finance today. If you don’t pay attention to the blockchain for a month, you will find that the world has significantly changed. I will leave you with these words of encouragement.
“Think and participate “— Patrick Dai