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Let's get to the point. Students familiar with Bitcoin technology may feel a bit confused when learning about Ethereum and Hyperledger (both referring to Hyperledger Fabric). Here’s a brief overview to help clarify:

1. The biggest confusion: What is worldstate?

Bitcoin does not have the concept of accounts; all balances are calculated through UTXO. In contrast, both Ethereum and Hyperledger have the concept of accounts. Ethereum accounts are divided into regular accounts and contract accounts, with each account corresponding to a permanent storage space that holds the account's Ether balance, bytecode, counter (to prevent replay attacks), and other key-value pairs. In Hyperledger, an account is represented by a chaincodeID, where each deployed chaincode (the term for smart contracts in Hyperledger) is an account, and each account also has a permanent storage space for custom key-value pairs. The permanent storage space in both Ethereum and Hyperledger is referred to as worldstate.

2. Where is worldstate actually stored?

This question can be even more confusing for Bitcoin developers because, for Bitcoin, each node maintains a complete blockchain, and there is no other data to store. But where is the information of worldstate (i.e., account-related information) stored in Ethereum and Hyperledger? Is it in the blockchain or somewhere else? Is it on-chain storage or off-chain storage? The answer is off-chain storage. In fact, each block in Ethereum and Hyperledger only contains a hash of the entire data set corresponding to the current worldstate, known as worldstate-hash. The complete data of Ethereum's worldstate is stored in ~/.ethereum, while Hyperledger's worldstate data is stored under /var/hyperledger/production/db.

3. Different block generation speeds

This should be relatively clear. Bitcoin generates a block approximately every 10 minutes (for beginners, it's important to note that this is an average, not fixed. The processing logic is that as soon as a miner finds the answer, a block is generated immediately, which can take anywhere from a few seconds to several hours), while Ethereum averages around ten seconds, and Hyperledger defaults to generating one block per transaction, but also supports CommitTxBatch mode, where multiple transactions can generate one block (this is just my understanding and has not been fully verified). This means that Hyperledger does not generate blocks when there are no transactions; for example, if there are no transactions for a day, no new blocks will be generated that day. In contrast, Bitcoin and Ethereum will still generate blocks even without transactions (because miners will publish coinbase transactions to earn mining fees).

4. Different consensus mechanisms

Bitcoin is the pioneer of PoW, Ethereum currently also uses PoW, while Hyperledger uses IBM's version of PBFT. PoW requires the design of tokens (Bitcoin and Ether, used to reward miners and prevent attacks), while PBFT does not necessarily require this, which is why Hyperledger currently does not have a built-in token.

5. Do Ethereum and Hyperledger support SPV?

Bitcoin's success owes much to SPV. Satoshi Nakamoto's genius is reflected in many aspects, and SPV is one of them. Without SPV, I believe very few people would be using Bitcoin today. Imagine downloading a wallet and having to wait several days to sync before you can use it—what a frustrating experience! I have not yet researched whether Ethereum currently supports SPV. However, Hyperledger does not support it at the moment (currently referring to the Fabric 0.6.1 version), and not supporting SPV would be a disaster!

Looking at the top twenty blockchain application projects by market capitalization, blockchain projects mainly fall into four categories: the first category: digital assets, the second category: smart contracts, the third category: global payments, and the fourth category: platform-based application services.

Digital Assets

The first category is digital assets, which are divided into general digital assets and anonymous digital assets that focus on anonymous application scenarios. General digital assets include Bitcoin and Litecoin, which we are very familiar with. In addition, there are new economy movement NEM, Decred (no Chinese name yet), Dogecoin, etc. They aim to solve payment issues in cross-centralized scenarios.

Anonymous digital assets address the issue of payment while protecting privacy. Notable examples include Dash, Monero, and Zcash (full name Zero Cash) which uses zero-knowledge proofs, as well as PIVX (full name Private Instant Verified Transaction).

Currently, there are over 1,000 varieties of digital assets globally, mainly serving as "medium of exchange." A medium of exchange is a general equivalent used to exchange goods, such as gold, silver, and silver notes in the past. About 30 of these have a market capitalization exceeding $100 million. Due to limited application scenarios, the overall market capacity is growing slowly; as of September 2017, Bitcoin remains the largest by market capitalization.

Smart Contract Platforms

The second category is smart contract platforms. In simple terms, a smart contract is a blockchain that customizes smart contracts. They are computer programs running on a blockchain database that can execute automatically when the conditions set in their source code are met. Once a smart contract is written, it can be trusted by users, and the contract terms cannot be changed, making it immutable and non-breachable. For example, a smart contract related to a rental agreement will automatically execute when the landlord receives the rent and provide the apartment's security key to the tenant. This contract ensures regular rent payments and executes automatically. Representative projects for smart contracts include Ethereum and Ethereum Classic.

The main function of this category of projects is to establish a foundational technology platform that allows developers to create applications they want on this platform. A significant portion of these platforms is still in development, and institutional investment occupies a large share in this field. As of September 2017, Ethereum remains the largest by market capitalization. So what is Ethereum Classic? This refers to the hard fork that occurred on July 20, 2016, when the Ethereum development team forcibly modified the Ethereum software code. So, do you remember what a hard fork means? A hard fork refers to a change in the blockchain's protocol and rules. If old nodes refuse to accept the blocks created by new nodes, the blockchain will split into two independent chains. Miners need to choose one of the two blockchains to mine. At that time, Ethereum formed two blockchains: one called Ethereum Classic (ETC) and the other simply Ethereum (ETH). Some say Ethereum Classic reflects the decentralized nature of Ethereum. Why do they say that? I’ll leave that as a thought-provoking question for you.

Global Payments

The third category is global payments, with representative projects including Ripple and Tether. Ripple is the world's first open payment network that allows the transfer of any currency through this network. Tether is a fiat currency token that utilizes Bitcoin blockchain transactions, allowing for equivalent exchanges between fiat currencies and digital assets.

Platform Applications

The fourth category is platform applications, which have a wide range of operations covering finance, social networking, gaming, property protection, and more. This is currently the fastest-growing area of blockchain assets. Notable projects include the market prediction platform Augur built on blockchain, the computing resource trading platform Golem, the decentralized cloud storage platform MaidSafe, and the real-time trading and payment platform OmiseGO, among others.

(Here are additional learning materials)

According to the market capitalization rankings on the coinmarketcap website as of September 2017, the top 10 blockchain assets are: Bitcoin, Ethereum, Bitcoin Cash, Ripple, Dash, Litecoin, NEM, IOTA, Monero, and Ethereum Classic.

Among them, IOTA is particularly special as a new type of micro-payment cryptocurrency optimized for the Internet of Things.

Let’s briefly introduce these 10 projects, noting that the following market capitalizations are based on September 2017 data.

Bitcoin, as previously discussed, has a market capitalization of $60 billion.

Ethereum has a market capitalization of $27 billion.

Bitcoin Cash has a market capitalization of $7 billion.

Ripple, used in gateways, has a market capitalization of $6.7 billion. In the first half of 2017, Ripple's market capitalization briefly surpassed Ethereum, becoming the second-largest.

Dash has a market capitalization of $2.5 billion.

Litecoin has a market capitalization of $2.5 billion.

NEM has a market capitalization of $1.9 billion.

IOTA has a market capitalization of $1.4 billion.

Monero has a market capitalization of $1.3 billion.

Ethereum Classic has a market capitalization of $1 billion.

(Here are additional learning materials)

You may wonder why, with so many blockchain projects, I still haven't seen any truly impressive real-world applications? Why haven't any globally popular applications like Facebook or Twitter emerged from the blockchain? The development of blockchain is still in its early stages; 2016 was referred to as the "year of blockchain," and the technology has just gone through a round of hype and is still in the exploratory development phase. I believe it may take another 5 to 10 years to truly form an ecosystem. Personally, I think there are some misconceptions in blockchain application development, which I summarize into two points:

Misconceptions in Blockchain Application Development

The first point is the risk of insufficient computing power. This is a concern raised for all teams working on public chain blockchains, such as Ethereum. When we create a new chain, we need to bind more computing power and nodes with an economic ecosystem to ensure the security of this blockchain. Ethereum has developed many nodes to date. However, do the public chains currently being developed have enough computing power or nodes to ensure that they are not attacked? Otherwise, the risk of this chain being attacked is very high.

The second point is the paradox of credit endorsement. Many companies hope to use blockchain to enhance their credit endorsement. For companies with good credit, people will trust them even without blockchain; for companies with poor credit, even with blockchain, people may not necessarily trust them. For example, if well-known companies like Tencent or Ant Financial launch public welfare projects, people will naturally trust them. However, if an unknown company or a company with a tarnished reputation conducts public fundraising, even if it uses blockchain, it may not gain public recognition.

Blockchain technology is a foundational technology that ordinary people hardly perceive. When we use blockchain, we are merely changing the underlying technology of the application. For example, if the central bank uses blockchain technology to issue digital assets of the renminbi, the average person will only perceive that they have an additional mobile terminal to pay with renminbi, which is not much different from using Alipay or WeChat Pay; when using blockchain for crowdfunding, users' perception is limited to a crowdfunding website and a crowdfunding wallet, with crowdfunding information accessible via a blockchain explorer.

In terms of the stage and form of blockchain development, it is still in the early experimental phase. I hope we can continue to work hard together, contribute more innovative technologies, and emerge with more business models to jointly promote the development of the entire blockchain industry. I look forward to the day when the era of "blockchain+" will arrive.

Alright, it's time for a summary. This lesson was very focused, and we learned about the four major categories of blockchain projects: digital assets, smart contracts, global payments, and platform applications.

The first category: Digital assets, like common currencies, are mainly used for trading. However, due to limited application scenarios, the market capacity for digital assets is not growing quickly.

The second category: Smart contract platforms. These applications mainly provide foundational platforms for developers to implement their applications. For example, implementing electronic contracts primarily to ensure transactions between parties; or implementing rental agreements to ensure timely rent payments and prevent breaches.

The third category: Global payments. This category primarily facilitates digital currency transactions between countries, allowing for the transfer of any currency globally or equivalent exchanges between fiat currencies and digital assets.

The fourth category: Platform applications. Most applications are built on Ethereum, covering a wide range of application scenarios, including finance, social networking, gaming, property protection, etc., enabling various functions such as storage, trading, and payments. This is currently the fastest-growing area of blockchain assets.

General digital assets include Bitcoin, Litecoin, NEM, Decred, Dogecoin, etc.

Bitcoin

First, let's look at Bitcoin. We have discussed Bitcoin in detail before; it was born in 2009 and is a type of encrypted digital asset established on a globally distributed network, without the involvement of central banks or third-party institutions, with a fixed total supply. Bitcoin's characteristics of decentralization and immutability overcome the drawbacks of high costs and low efficiency associated with centralized transactions, where information is controlled by a few. Thus, the Bitcoin website states, "Let you truly own your wealth." Now, let's look at some technical parameters of Bitcoin, which also compare with other digital assets. The inventor of Bitcoin is Satoshi Nakamoto, and its core algorithm is SHA-256; it was released on January 9, 2009; its consensus mechanism is Proof of Work (PoW); the total issuance of Bitcoin is 21 million; the block time for Bitcoin is 10 minutes, meaning a block is generated every 10 minutes; as of now, the reward for each Bitcoin block is 12.5 Bitcoins; the block reward halves every four years; currently, nearly 17 million have been issued (as of September 2017, it was 16.58 million). The main features of Bitcoin are: it is the pioneer of digital assets, has high public recognition and trust, and is widely circulated, with high acceptance in various countries. The shortcomings of Bitcoin are: as the number of users grows, the block capacity is insufficient, leading to ongoing debates about scalability; additionally, the 10-minute block generation time results in long confirmation times. Therefore, the risks associated with Bitcoin include the scalability debate (the controversy over expanding capacity) and potential fork risks.

Litecoin

In comparison to Bitcoin, the second digital currency asset we will discuss is Litecoin, which was born on November 9, 2011. It is also a distributed encrypted digital asset, supported by major trading platforms. Litecoin was inspired by Bitcoin and has the same technical implementation principles, aiming to improve upon Bitcoin, which is why it shares many similarities with Bitcoin. Litecoin has made some improvements on the basis of Bitcoin and enjoys a high status among digital assets, leading to the saying in the industry that "Bitcoin is gold, and Litecoin is silver," comparing Bitcoin to digital gold and Litecoin to digital silver. Let's compare the technical parameters of Litecoin with Bitcoin. The founder of Litecoin is Charlie Lee, who recently visited China. Its core algorithm is Scrypt; it was released on November 9, 2011; its total supply is four times that of Bitcoin, at 84 million; its halving time is the same as Bitcoin's, every four years; its consensus mechanism is also Proof of Work (PoW); its block time is 2.5 minutes, which is one-fourth of Bitcoin's, meaning a block is generated every 2.5 minutes; the initial reward for Litecoin blocks was also 50 Litecoins, which is now 25 Litecoins; as of September 2017, the issuance has reached about 53 million (53.08 million). The main features of Litecoin are: its issuance is four times that of Bitcoin, and its confirmation time is one-fourth of Bitcoin's, meaning it has a larger total supply and faster confirmation speed. Litecoin was the first digital asset to implement Segregated Witness and scalability without experiencing a hard fork. The downside of Litecoin is that its promotional efforts have stagnated, and there are currently relatively few applications. The risk for Litecoin is that after activating Segregated Witness, potential vulnerabilities and risks may arise in the network.

NEM

Next, I want to talk about NEM, which was born on April 1, 2015. It is the first digital asset developed using a test-driven development model. What is test-driven development? It means testing first, then programming. A common example is that when construction workers build a house, they like to hammer a line down first and then stack bricks according to that line, ensuring the wall is straight. In contrast, inexperienced workers may start stacking bricks directly, which could lead to a crooked wall. Test-driven development means developing only with code that has passed tests. The NEM platform was developed entirely using Java and incorporates smart contract functionality, capable of handling and developing mainstream mobile applications. It was designed from the outset to be a user-friendly platform. So, what are the parameters of NEM? The development team is the NEM team, not an individual; the consensus mechanism of NEM is Proof of Importance (PoI), which determines blockchain accounting rights based on transaction volume, activity, and other dimensions, rather than just based on workload and coin quantity. NEM was released on April 1, 2015, with a total supply of 9 billion, which is significantly higher than Bitcoin and Litecoin; its block time is 60 seconds; the block reward is transaction fees; note that each block does not generate block rewards. By 2017, it had issued a total of 9 billion coins, meaning it completed all issuance at launch. The main feature of NEM is its integration of smart contract functionality, providing rule-based solutions that automatically trigger a series of specified actions through smart contracts; it also offers a public chain for users to make payments using NEM blockchain assets. The downside of NEM is insufficient market promotion and low attention; furthermore, it issued all NEM coins at the beginning, providing insufficient incentives for latecomers. The risk for NEM is that, at present, the Proof of Importance (PoI) consensus mechanism based on transaction volume and activity is rarely adopted in blockchain projects, and the sustainability of this algorithm carries certain risks.

Decred

Now let's talk about Decred, which was born on February 8, 2016. It is similar to Bitcoin but emphasizes community involvement, open governance, and sustainable mining. Decred aims to be an open and progressive digital asset, allowing anyone willing to participate in project governance to join. It introduces a mechanism that combines Proof of Work (PoW) and Proof of Stake (PoS), aiming to achieve a balance between the two. So, what are Decred's parameters? Its developers are from the btcsuite development team; its core algorithm is Blake-256; it was released on February 8, 2016; its total supply is the same as Bitcoin's, at 21 million; its consensus proof is a hybrid mechanism of PoW and PoS; its block time is 5 minutes, meaning a block is generated every 5 minutes; the block reward is 25.82 DCR coins, and Decred's adjustment cycle is approximately every 21 days; as of September 2017, Decred has issued 5.82 million coins. The main feature of Decred is its PoW + PoS consensus mechanism, specifically, PoW for packaging and accounting, and PoS for voting governance, balancing the rights of miners and voters. Its downside is that the confirmation process is cumbersome and time-consuming. The risk for Decred lies in the combination of PoW and PoS consensus mechanisms, which inherently contain contradictions and conflicts, potentially leading to network instability.

Dogecoin

Finally, let's discuss Dogecoin, which was born on December 8, 2013. It is also one of the earlier digital assets, combining the Doge culture to create a distributed encrypted digital asset that is quite popular in Europe and America. The avatar of this digital asset is quite cute, resembling a Shiba Inu meme. Dogecoin differs from other digital assets in that it has its own core culture and dedicated fans. Many people participate in Dogecoin trading not for speculation but to embrace its culture. In Europe and America, there is a custom of tipping, and Dogecoin can facilitate transactions as low as $0.001, making it a way to express sharing, appreciation, and gratitude.

Let's briefly discuss Dogecoin's technical parameters. Its developers are Jackson Palmer and Shibetoshi Nakamoto; Dogecoin's core algorithm is Scrypt, which is the same as Litecoin's, meaning Litecoin mining machines can also mine Dogecoin; Dogecoin was released on December 12, 2013; its total supply is 100 billion coins, with an additional 5 billion coins added each year after mining is complete, and the halving time is approximately every 2 months, indicating that Dogecoin is an unlimited digital asset; its consensus proof is an auxiliary proof-of-work mechanism (AuxPoW), allowing for merged mining with Litecoin; its block time is 60 seconds; the block reward is 100,000 Dogecoins. The main feature of Dogecoin is its tipping culture; it developed through tips, as Bitcoin's price is relatively high, while the cheaper Dogecoin is more suitable for online tipping, and the quantity of Dogecoin received as tips is relatively large and visually appealing; its transactions are convenient, with short confirmation times and fast transfer speeds. Its downside is that it has no upper limit on total issuance, leading to significant inflation risks.

These five general digital assets—Bitcoin, Litecoin, NEM, Decred, and Dogecoin—each have their own technical parameters, advantages, disadvantages, and risks, and their characteristics differ. It is essential to understand these differences, as knowing their features makes it easier to remember their respective pros, cons, and uses.

Some people may not want others to know who they are paying. This demand has led to the emergence of corresponding anonymous asset blockchain projects, which is what we will discuss today regarding anonymous digital assets.

You might ask: Isn't Bitcoin anonymous? Indeed, Bitcoin is anonymous; its blockchain network is open and transparent, allowing us to see detailed information about every transaction, including which addresses transferred to which addresses and where the change went. Bitcoin's anonymity is ensured by the fact that addresses do not correspond to real-world identity information. You know all the information about this address, including its transaction records, but you do not know who is behind this address. However, once an address is linked to identity information, all transaction information on that address becomes real-name verified. For example, if you register on trading platforms like Huobi or Bitfinex, when you trade and deposit money or coins, you can find out who corresponds to that address. If you register on a wallet, you will also leave an email or phone number, which can also be traced.

So, is there another way to achieve greater anonymity? The answer is yes. Blockchain projects like Dash, Monero, Zcash, and PIVX can help solve this problem.

Dash

Dash was born on January 18, 2014. It is a digital asset that supports instant transactions and aims to protect user privacy. Dash offers a higher level of anonymity than Bitcoin, as transactions cannot be tracked or queried, making it a choice for users who do not want to expose their transaction records and financial privacy. Dash transactions can be conducted in three ways: first, a standard transfer, which is the same as Bitcoin; second, an instant transaction, which does not require miners to package and confirm, thus solving the disadvantage of Bitcoin's 10-minute confirmation time; third, it can achieve anonymous transactions, meaning that it is not visible on the network who is transferring to whom.

How does Dash achieve anonymous transactions? In addition to nodes similar to the Bitcoin network, Dash has a type of node called a "masternode." Masternodes differ from other nodes in that they can provide a range of additional services, including voting services for the community and anonymous and instant transaction services for traders. Traders wishing to conduct anonymous transactions initiate a request, and the masternodes perform coin mixing. Coin mixing means mixing coins belonging to different people together and then returning them. Mixing is a free service. Through mixing, the network does not know who you transferred to or who transferred to you. Dash's mixing generally occurs in groups of three transactions. For example, imagine a group of people putting their money on a table, mixing it together, and then taking back their own denominations; this way, it becomes unclear whose money is whose, even though the amounts are the same. Sometimes, this mixing process may need to go through several rounds to be sufficiently mixed.

Next, let's discuss Dash's technical parameters. Its developer is Evan Duffield, and its core algorithm is the proprietary X11 algorithm. What does the X11 algorithm mean? It is an algorithm that combines 11 different encryption algorithms, such as Bitcoin's SHA256 and Litecoin's Scrypt. The purpose of this design is to prolong the time before dedicated mining machines emerge, allowing more ordinary users to participate. Dedicated Dash mining machines have now been developed. When Dash mining machines first came out, they could recoup costs in about a month. The current price is also quite high. If you're interested, you can search for it. Dash was released on January 18, 2014; its total supply is 22 million; its consensus proof is a hybrid mining mechanism of PoW + PoSE; its block time is 2.5 minutes; the block reward is 3.6 Dash coins; as of September 2017, 7.58 million have been issued. The main features of Dash include its anonymity, 11 encryption algorithms, and dual consensus mechanism. Its downside is that its technical threshold is currently high, making it unsuitable for ordinary users, and the PoW + PoSE hybrid mechanism may lead to conflicts, potentially resulting in system instability.

Monero

After discussing Dash, let's move on to another anonymous digital asset called Monero. Unlike other digital assets, Monero provides better anonymity through ring signatures. Regarding ring signatures, I will explain in detail below. As we just learned, Dash allows users to choose whether to use anonymous transactions, but starting from the new version in 2017, Monero does not provide this option; instead, all transactions on the network are anonymous. They believe that if most people are not anonymous while a few are, it does not effectively protect privacy. Therefore, Monero's anonymity technology is less promoted in China but is well-known abroad. Monero meets three important attributes of electronic cash: decentralization, privacy, and digitization.

Let's look at Monero's technical parameters. There is currently limited information about its developers, and like Bitcoin, it disappeared from public view after its creation. Its core algorithm is the CryptoNote algorithm, designed specifically to resist the emergence of dedicated mining machines, aiming to extend the time before such machines appear, allowing more people to enter the Monero network. Monero was released on April 18, 2014, three months after Dash; its total supply is 18.44 million; its block time is 60 seconds; each block rewards 7.8 Monero coins; as of September 2017, 15.15 million have been issued; its consensus mechanism is PoW; Monero's block size is unlimited, so it does not face the same scalability risks as Bitcoin. Its main feature is the one-time ring signature. What does a ring signature mean? As we learned earlier, Bitcoin transactions use asymmetric encryption technology, where encryption and decryption are performed by public and private keys, respectively. In Monero's blockchain network, the network first mixes the signer's public key with another set of public keys and then signs the message, making it impossible for outsiders to distinguish which public key corresponds to the actual signer. This is similar to the ancient practice of co-signing a petition, where to avoid exposing the initiator, a circular signing method is used instead of the usual sequential signing method, making it unclear who the initiator is. Therefore, this is the origin of the ring signature. Monero's blockchain can even ensure that the sender does not know which address the coins are sent to, and the recipient does not know who sent the coins when they open their wallet. The technical details of Monero differ significantly from Bitcoin, and I won't go into further detail here. If you're interested, you can check out Monero's code discussions on GitHub.

Zcash

The next digital currency asset I want to introduce is Zcash (full name ZeroCash). Zcash was born on November 9, 2011, and is one of the earlier digital currency assets. It is the first blockchain system to use zero-knowledge proofs, which means that the prover can convince the verifier that a statement is true without providing any useful information to the verifier. For example, if A wants to prove to B that they have the key to a certain room, and B knows there is an object in that room, A can open the door with the key and show the object to B, thereby proving they indeed have the key to that room, rather than directly showing the key to B. This method is the basis of Zcash's anonymity mechanism. Zcash is inspired by Bitcoin, and much of its code is very similar to Bitcoin's; for example, its total supply is 21 million, and it has a halving mechanism every four years. Zcash further improves upon Bitcoin's shortcomings in anonymity.

Zcash's technical parameters are as follows. Its developer is Zooko Wilcox; its core algorithm is Equihash; it was released in October 2016, causing a stir in the cryptography and digital currency communities, leading to a surge in its price. Zcash's total supply is 21 million; its consensus proof is PoW, but in the first four years, 20% of the proceeds are automatically allocated to the Zcash team and investors; the block generation time is 2.5 minutes; the block reward is 12.5 Zcash; its halving time is four years; as of September 2017, 2.3 million have been issued. Its main feature is the zero-knowledge proof mechanism. Zcash is a blockchain asset that has attracted attention, but it also has its downsides; currently, Zcash's system is still unstable, with significant technical risks, having experienced seven vulnerabilities in a short period in November 2016; the time required for anonymous transfers is relatively long, approximately 20 minutes; the network allows for both standard and anonymous transfers, affecting the level of privacy protection.

PIVX

The next anonymous digital currency asset to introduce is PIVX (pronounced: [piveks], translated as "Private Instant Verified Transaction"). This blockchain project is relatively young and adopts the strengths of various anonymous digital asset blockchain projects. It was born on February 1, 2016, and is very similar to Dash in terms of anonymity. PIVX operates based on the Bitcoin core 0.10.x codebase, aiming to achieve near-instant private payment transactions for all users. Like Dash, PIVX uses masternodes, requiring 10,000 PIVX to become a masternode. The functions of the masternodes in PIVX are similar to those in Dash, providing instant payment confirmations, mixing, and community voting. However, the rewards for masternodes are dynamically adjusted, unlike Dash's fixed 45% reward. PIVX plans to decentralize voting rights, allowing a broader range of ordinary token holders to participate in community development rather than just masternodes.

PIVX's technical parameters are as follows. Its core algorithm is the Quark algorithm, a lightweight hashing algorithm; it was released on February 1, 2016; its total supply currently has no upper limit; its consensus mechanism transitioned from PoW to a service-based proof mechanism similar to Dash six months after its inception; its block time is 60 seconds; the block reward is 4.32 PIVX; as of September 2017, 54.39 million have been issued. Its main features include anonymity and instant payments, which are very similar to Dash. PIVX's mixing mechanism is also similar to Dash's. Its downsides include insufficient code innovation, as most of its code is derived from existing Bitcoin, Dash, and Zcash; additionally, a significant risk is its unlimited total supply, which poses inflation risks. Furthermore, transitioning from PoW to PoSE carries the risk of future technical incompatibility.

Alright, let's summarize today's lesson. In this lesson, we learned about anonymous digital assets, focusing on the stories of Dash, Monero, Zcash, and PIVX. This lesson was information-dense and quite brain-intensive, so let's review the key points we discussed today:

We first learned why anonymous digital assets emerged: the fundamental reason is that people want their personal privacy protected during payment transactions. To thoroughly ensure user privacy, corresponding blockchain projects, known as "anonymous digital assets," have emerged.

The four types of "anonymous digital assets" are Dash, Monero, Zcash, and PIVX. Let's review their key points:

Dash offers a higher level of anonymity than Bitcoin, with its anonymous transactions being untraceable. The underlying principle is a mechanism called "mixing," which mixes coins belonging to different individuals together and then returns them, making it impossible for the network to know who transferred to whom.

Monero achieves transaction anonymity through a mechanism called "ring signatures." Bitcoin transactions use asymmetric encryption technology, where encryption and decryption are performed by public and private keys. In Monero's blockchain network, the network first mixes the signer's public key with another set of public keys and then signs the message, making it impossible for outsiders to distinguish which public key corresponds to the actual signer. To avoid exposing the initiator, Monero uses a circular signing method instead of the usual sequential signing method, making it unclear who the initiator is.

Zcash employs a "zero-knowledge proof" mechanism to ensure anonymity. The zero-knowledge proof mechanism can be illustrated with an example: A wants to prove to B that they have the key to a certain room. If B knows there is a vase in that room, A can open the door with the key and show the vase to B, thus proving they indeed have the key to that room, rather than directly showing the key to B. This method is Zcash's anonymity mechanism.

Lastly, PIVX's anonymity mechanism is very similar to Dash's mixing mechanism, which ensures transaction anonymity by mixing coins belonging to different individuals together and then returning them.

Ripple is currently one of the more successful applications of blockchain in finance. It is built on an open, neutral protocol that supports instant, low-cost international payments between different ledgers and networks, allowing banks to send real-time international payments across different networks.

When we talk about Ripple, we can refer to both the Ripple blockchain and the company Ripple Labs that operates it. Unlike other blockchain organizations, which are developer-centric, Ripple is a legally registered company with strict organization. By September 2016, it had raised a total of $93 million in venture capital, with many well-known companies investing, such as Google, Accenture, IDG Capital, and several prominent banks like Standard Chartered, providing good conditions for cross-border remittance testing among banks.

As of September 2017, 15 of the top 50 banks globally had partnered with Ripple. These include Standard Chartered, Westpac, National Australia Bank, Mizuho Financial Group, Montreal Bank Financial Group, and Shanghai Huari Bank, all of which have joined the Ripple network. I mentioned the BitLicense issued by New York in Lesson 11; you should remember that on June 13, 2016, Ripple obtained the BitLicense from the New York Department of Financial Services, becoming the second company globally to receive a digital currency license.

Let's look at Ripple's technical parameters. Its developer is Ripple Labs. Its core algorithm is the OpenCoin original algorithm; it was released on April 18, 2011; in fact, it was born as early as 2004 when the company was called "Ripplepay." In 2014, the new OpenCoin company emerged, developing a new payment protocol that allows transaction parties to bypass traditional banking systems for direct transfers. After investment from institutions like Google in 2013, OpenCoin officially changed its name to Ripple Labs, embarking on a journey of cooperation and financing with major banks. The token on the Ripple blockchain is called XRP, with a total supply of 100 billion; unlike Bitcoin and Ethereum, Ripple Labs itself holds a large amount of XRP, nearly twice the market circulation, approximately 61 billion; the block generation time on Ripple is in seconds; the consensus mechanism is protocol consensus, which divides nodes in the network into two categories: ordinary nodes and validating nodes. The protocol consensus stipulates that only the votes of validating nodes are needed to verify and confirm transactions in a short time; thus, it does not require mining. If you want to own XRP, you can purchase it on trading platforms.

Currently, Ripple mainly distributes XRP through business development transactions, rewarding liquidity providers with smaller spreads and selling XRP to institutions interested in investing in it; as of September 2017, the issued amount of XRP was 38.3 billion. In the Ripple network, XRP serves as an intermediary that can be exchanged for many fiat currencies, making cross-border payments very fast. Additionally, XRP is also a "consumable energy"; for each initiated transfer, a very small amount of XRP must be paid to the network. This distinguishes Ripple from other blockchain projects. In other blockchain projects, such as Bitcoin and Ethereum, the transaction fees are given to miners. However, in Ripple's network, there are no miners; the transaction initiation fee will be permanently destroyed in the network.

Unlike the Ethereum blockchain, Ripple's blockchain is not generally open to individual developers but primarily to enterprises, especially banks and payment institutions. In early 2016, Ripple announced a joint venture with SBI Holdings, one of the world's largest integrated financial networks, to establish SBI Ripple Asia, providing distributed network solutions for Ripple in countries like Japan, China, Taiwan, and South Korea. By September 2017, more than 40 banks had joined. In September 2016, Ripple established a bank-to-bank blockchain organization called the "Global Payments Steering Group," whose members are large global banks. In early 2017, Japan's largest bank, MUFG, joined this working group, hoping to promote commercial international bank fund transfers. Several banks have already conducted extensive remittance trials using Ripple.

In early 2017, the Bank of England revealed that it had reached a cooperation agreement with Ripple. In July 2017, the first instant remittance service based on Ripple's blockchain between Japan and Thailand officially began (initiated by Siam Commercial Bank (SCB) in Thailand and SBI Remit in Japan). This blockchain function allows personal funds to be transferred from yen to baht, with deposits reaching the recipient's account in 2 to 5 seconds. In contrast, conventional transactions between the two countries typically take "two working days." In the same year, many other countries also attempted to use Ripple for instant transfers, such as a transaction between Spain and Mexico, which took 20 seconds; a cross-border transfer by Standard Chartered using Ripple's blockchain took only 10 seconds. In early 2017, Ripple developed a payment channel that increased the transaction throughput of XRP to tens of thousands of transactions per second, theoretically reaching Visa's level.

Ripple's centralized operation has also been criticized by many. Since the Ripple team holds most of the tokens, there is a risk of malicious price manipulation, which investors are very concerned about. Ripple Labs has repeatedly stated that once Ripple matures, it will gradually reduce the influence of the centralized team, such as withdrawing from validating nodes, making Ripple a truly decentralized blockchain network.

Having introduced Ripple, let's talk about another blockchain project, Tether.

Tether is essentially a simple digital currency, but it achieves equivalent exchanges between fiat and digital currencies. Tether's token is called USDT, with USD being the abbreviation for the dollar. In fact, Tether's token is pegged to the dollar at a one-to-one exchange rate, meaning 1 dollar = 1 USDT. To ensure the stability of the token's trading price, Tether generates equivalent digital assets based on fiat currencies, which Tether Company ensures can be exchanged for an equivalent amount of dollars.

Tether achieves this through the following technical parameters. The underlying technology uses the Bitcoin blockchain; it was released on June 10, 2014; its consensus mechanism is Proof of Reserves (PoR), meaning that for every Tether issued, there is a corresponding dollar stored for redemption. Each USDT unit is backed by a dollar held in a bank by Tether Company; users can check the usage of each USDT in the browser, as well as the bank deposit balances and third-party audit reports published by Tether. Users can issue Tether through Tether Company, with the number of Tether issued equal to the amount of fiat currency deposited by the user; users can redeem their fiat currency at Tether Limited, exchanging their stored Tethers for fiat currency, although Tether Company charges a fee for this service; users can freely circulate in the secondary market or trade Tether; as of September 2017, Tether's circulation was 440 million. Tether also carries certain risks, as Tether can freeze and confiscate funds, posing a risk of fund confiscation; due to the delay in Tether redemption, the circulating price of Tether in the secondary market may fall below 1 dollar, presenting an arbitrage risk for Tether investors.

In this lesson, I introduced the blockchain projects Ripple and Tether used for global payments. Let's summarize the knowledge points:

Ripple is the focus of this lesson, currently one of the more mature blockchain financial applications. Its maturity is reflected in three aspects:

First, it is a formally registered company that operates under strict legal regulations, thus avoiding many policy and regulatory risks from the outset.

Second, its business operations have been relatively successful: it has received investments from well-known institutions like Google and IDG and successfully attracted the participation of 15 top banks globally.

Third, Ripple's technical parameters offer higher execution efficiency, with a new payment protocol that allows transaction parties to bypass traditional banking systems for direct transfers. Ripple's block generation time is also relatively fast, reaching "seconds," while conventional cross-border bank transfers typically take several "working days."

In addition to Ripple, we also learned about another project based on global payments and settlements called Tether. It is a digital currency generated based on fiat currency, with the key feature being that 1 dollar equals 1 USDT, with each USDT backed by a dollar deposited in a bank by Tether Company. However, due to the delay in Tether redemption, the circulating price of a Tether in the market may fall below 1 dollar, thus presenting an arbitrage risk for Tether investors.

Market Prediction Platform Augur

The first project we discussed is the market prediction platform Augur, which means "diviner" in English. Augur is a decentralized prediction platform built on the Ethereum blockchain and is the first application on Ethereum. On Augur, users can make predictions about future events based on powerful predictive data and reward users who correctly predict future events. In early 2015, Augur raised about $5.3 million through its token (REP) sale. In March 2016, Augur launched its test version software.

Users on Augur can bet on the outcomes of events in the prediction market to earn rewards, with funds stored in smart contracts, effectively eliminating the risk of counterparty default and centralized server cheating.

So, how do you use Augur for predictions? It's quite simple and mainly involves three steps. First, create an account and deposit funds; second, create a prediction market or participate in a prediction market question; third, report the event results, which will be executed automatically.

How do you create a prediction market question? You submit a description and question for the new prediction market, currently only supporting questions with "yes" or "no" answers. Then, input the start-up funds you intend to provide and set a transaction fee. Choose an expiration date, which should be a certain time after the event occurs. In return, you will receive half of the transaction fees from the market.

How do you participate in the prediction market? Select an event and buy "shares" of the event's outcome. If you believe the event will occur, buy "yes" shares; if you believe it will not occur, buy "no" shares. The current market price of the shares is an estimate of the event's probability. For example, in the U.S. presidential election, if the prediction event is "Will Trump be elected as the new president?" and you believe the probability of Trump being elected is 60%, you can spend 60 cents to choose "yes." If the election result is Trump's victory, you will receive 1 dollar, resulting in a profit of 1 dollar minus the initial investment of 60 cents. If you predict incorrectly and hold shares of the wrong outcome, you will not receive a reward, and your loss will be the initial investment.

So, who reports the results in this prediction market? Augur believes that having a centralized entity report the results may lead to fraud, so they base the results on the Ethereum blockchain, where the predictions are reported by each token holder.

Augur employs a concept called "collective intelligence," meaning that the wisdom of a group of people will be greater than that of the smartest person in that group. This is somewhat akin to the saying, "Three cobblers with their wits combined equal Zhuge Liang."

Regarding "collective intelligence," Augur introduced a story about a submarine. A U.S. submarine went missing before returning, and the government summoned several top experts but could not locate it. At this point, a naval officer stepped forward, gathering a diverse group of people, providing them with several locations they had investigated, and asking them to guess which location was most likely.

To ensure the independence of each person's guesses, the officer prohibited them from discussing their answers and also had them bet on their guesses to ensure they had thought carefully about their predictions. Ultimately, the officer compiled all the guesses and calculated the submarine's location. In the actual search, the investigation team found that the submarine was only about 200 meters away from the location collectively guessed by the officer. Similarly, Augur believes that the more diverse the knowledge backgrounds of people guessing the same question, the closer the aggregated result will be to the truth. This is also the future value of Augur.

Now, let's look at Augur's technical parameters. Augur was founded by Joey Krug and core developer Jack Peterson; it was released in June 2015; its underlying technology is the Ethereum blockchain; its token is called REP, meaning reputation, with a total issuance of 11 million REP, 80% sold to the public; users can purchase REP on various trading platforms, and large purchases can be made by contacting the Augur team. Users can deposit funds using cash, Augur token REP, and Ethereum. However, prediction markets face significant regulatory resistance in the U.S., posing a risk of being shut down due to pressure from the U.S. government. For example, a prediction market called Intrade was forced to shut down in 2013 due to pressure from the U.S. government.

On top of Augur, there is another similar project that ranks highly in global market capitalization called Gnosis, which is also a prediction market platform. Gnosis charges market fees to participants at the service and application level, and its mechanism for determining market outcomes differs from Augur's. Augur requires decentralized result verification, reported by users holding tokens. This process takes time, affecting speed. However, Gnosis has created its own solution, providing dedicated result dissemination, which is faster, allowing it and Augur to coexist in the entire blockchain application market.

Computing Resource Trading Platform Golem

Now, after discussing two market prediction projects, let's talk about the second project, the "computing resource trading platform," represented by Golem. Golem is the first global shared platform for computing power based on blockchain, allowing users to trade computing resources over the network and achieve global sharing of computing power.

How do we understand this computing resource sharing platform? You can think of Golem as "Didi for computers," where participants include computing resource sellers, task creators who upload computing tasks to the network, and software developers. Through a P2P network, Golem allows computer owners and individual users to rent computing power from other users.

Golem's network token, GNT, was created during the crowdfunding phase and is a currency used by computing requesters to pay for device resources and compensate computing suppliers and software developers. The GNT token is based on the widely used Ethereum platform, so it can be managed using an Ethereum wallet, with one Ethereum equaling 1,000 Golem tokens (1 ETH = 1,000 GNT).

Golem's technical parameters are as follows. Its total token supply is 1 billion GNT; 82% of GNT is sold and circulated externally, while 18% is retained by the Golem team. Golem uses a decentralized computing power network based on the Ethereum blockchain as its underlying technology platform, with a consensus mechanism of Proof of Work (PoW); the resource distribution protocol is IPFS (InterPlanetary File System). What is IPFS? It is a global, peer-to-peer distributed version of a file system that connects all computing devices with the same file system, allowing for quick matching of content without needing to access each server individually.

However, Golem also faces some risks, such as the need for strong technical support for computing resource sharing, and whether the computing power can meet demand poses certain technical risks. Additionally, Golem's development heavily relies on the number of platform participants, and its business model is easily replaceable, leading to significant market risks in the future.

Digital Tokenization Platform DigixDAO

Finally, let's introduce the third project, the digital tokenization platform DigixDAO, which is another asset tokenization platform built on the Ethereum blockchain. DigixDAO is actually an older project that created a very important concept called "on-chain," meaning putting physical assets onto the blockchain to become blockchain assets. DigixDAO was developed by a Singapore startup called DigixGlobal, which launched a proof of asset existence and ownership system. The proof records will be permanently published and protected through IPFS and Ethereum. DigixDAO also innovated the Proof of Assets (PoA) system, providing use cases for the tokenization and documentation of physical assets.

What does PoA mean? Don't worry; let me first explain the minting process of DigixDAO, and you'll understand. Suppose we want to put gold on-chain; the value of one gram of gold is certified by participants in the "regulatory chain," such as gold suppliers, custodians, and auditors, through continuous digital signatures, registering the information of this gram of physical gold as an asset proof (PoA) asset card, permanently uploading it to a decentralized database. This information includes the timestamp of the asset card creation, the stock-keeping unit (SKU) of the gold bar, the serial number of the gold bar, purchase receipts, audit documents, storage receipts, storage fees, and finally, digital signatures from regulatory departments in the regulatory chain, such as suppliers, custodians, and auditors. The PoA asset card is stored in an Ethereum wallet, which is the minting process of DigixDAO.

DGX tokens are generated through smart contracts on the blockchain network. Each DGX token represents one gram of gold from a gold bar recognized by the London Bullion Market Association (LBMA) and can be subdivided to 0.001 grams. Each PoA asset card sent to the minting smart contract will result in the issuance of the corresponding DGX token. For example, if you send a PoA card for one gram of gold to the minting smart contract, you will receive one DGX token. Digix tokens DGX can also be stored in an Ethereum wallet. You can conveniently transfer this one DGX to a friend or keep it as an asset for your children. The recipient can also take the DGX token to the corresponding place to redeem the equivalent gold. Since there are certain costs associated with storing and safeguarding physical gold, DGX token holders will be charged a daily storage fee. When sending DGX in an Ethereum wallet, a transfer fee of about 0.13% will be charged (with a cap of 1 DGX).

Digix's gold PoA asset card provides a good example for other physical assets to go on-chain, offering ideas for the tokenization and documentation of physical assets: first, using Ethereum and IPFS to trace assets through the regulatory chain; second, achieving open and public asset existence certification without a centralized database; third, providing an application programming interface (API) that allows other applications to build on its asset tokenization services.

DigixDAO is still in its early development stage, with insufficient trading liquidity and low market attention and user engagement, posing certain risks to the network's usability. Therefore, this project carries risks, even though it provides a very good and important concept.

Alright, let's summarize today's knowledge points:

We covered three Ethereum-based platform projects: the market prediction platform Augur, the computing resource trading platform Golem, and the digital tokenization platform DigixDAO.

1. The first project: Market prediction platform Augur. Augur is the first application on Ethereum, where users can make predictions based on strong predictive data, and those who predict correctly will be rewarded. The steps to use Augur for predictions are: first, create an account and deposit funds; second, create a prediction market or participate in a prediction market; third, report the event results, which will be executed automatically.

2. The second project: Computing resource trading platform Golem. Golem is a global shared platform for computing power, allowing users to buy and sell their computer's computing resources over the network.

3. The third project: Digital tokenization platform DigixDAO. DigixDAO creates a correspondence between blockchain virtual assets and physical assets like gold, providing a good example for other physical assets and offering ideas for their tokenization and documentation. In the future, different physical assets may also be put on-chain as a model.

After reviewing today's knowledge points, I have a question for you to ponder. Platform applications are increasingly integrating with our real economic activities, whether in predictions, computing power sharing, or the registration and transfer of assets like gold. Imagine in the future, could our other physical assets, such as houses, cars, or even intellectual property bonds, also be easily tracked, divided, and transferred? What assets would you most like to see tokenized, and why?

In current economic activities, when decentralization, transparency, immutability, forgery resistance, distributed storage, and programmability are needed, but cannot be achieved by other means or are very costly, blockchain can shine.

Blockchain technology has a wide range of applications, which can be categorized into four types: the first type relates to blockchain assets, the second type relates to accounting methods, the third type relates to public trust, and the fourth type relates to controllable anonymity.

First, let's discuss the first type, blockchain assets. We have already talked a lot about this, including the issuance of blockchain assets and the payments, cross-border exchanges, trading, and sales that follow.

The second type relates to accounting methods. Blockchain itself is a distributed accounting system, and industries such as banking, securities, and insurance, which are closely related to accounting, can utilize blockchain's accounting methods to improve or enhance existing accounting and clearing efficiencies.

The third type relates to public trust. This type is meaningful only when conducted on a public chain, as it involves "public trust" application scenarios, such as crowdfunding, public welfare, mutual insurance, and data preservation. Currently, Ant Financial has announced its blockchain strategy, and they are using blockchain to build application scenarios in the public welfare sector.

The fourth type relates to controllable anonymity. What is "controllable anonymity"? As we learned earlier, in the world of Bitcoin, there are only addresses, with no concept of identity corresponding to those addresses. Bitcoin transactions refer to the transfer of Bitcoin from one address to another. However, we do not know who the identity holder behind that address is. Many people use this feature for identity verification. For example, when we go to banks or hospitals, we may expose our private information, but in fact, banks or hospitals only need to know that you are you, and they can use blockchain's "controllable anonymity" to perform identity verification, encrypting and storing this private information on the blockchain, and then verifying it at places like banks or hospitals.

Next, let's study in detail the impact of blockchain on digital currency, fintech, and the Internet of Things.

Digital Currency

Let's first talk about digital currency. In early 2016, the central bank held a seminar on digital currency. In early 2017, the central bank's digital currency research institute was established. The Bank of England has also begun recruiting blockchain talent globally. Blockchain was first successfully tested on Bitcoin. So, can it also succeed in legal digital currencies? Although a country's legal digital currency is issued by the central bank and is a centralized ledger, the traceability brought by blockchain technology, which allows for anonymity on the front end and real-name control on the back end, can be applied in the field of legal digital currencies. In early 2017, the central bank successfully tested a bill trading platform built using blockchain technology.

Fintech Industry

Now let's discuss the fintech industry. The essence of finance lies in the flow of funds. In financial markets, information asymmetry is a common characteristic. Information asymmetry can lead to risks and even cause chaos in the financial system. Common issues such as P2P lending platforms going bankrupt, insider trading in the stock market, and fraudulent loans by companies arise from this.

By leveraging blockchain to transform internal application scenarios in the financial industry, numerous benefits can be achieved, primarily including three aspects: first, reducing costs; second, improving efficiency; third, lowering risks.

Cost reduction can be reflected in two aspects: first, reducing communication costs. For example, the securities trading market often requires the involvement and coordination of multiple parties, such as central clearing systems, securities companies, exchanges, and banks, leading to high coordination costs. Blockchain can achieve a one-stop service through multi-signature and other technologies, enabling information sharing and enhancing overall business collaboration efficiency. Second, it reduces operational costs by minimizing manual processes and paper-based documentation, thus improving automation.

Efficiency improvements are mainly reflected in two ways: first, very fast settlement cycles. The settlement of token transactions on the blockchain can combine the processes of clearing, settlement, and auditing; second, the public and transparent nature of blockchain, or partially public and tamper-proof characteristics, can preserve regulatory records and audit trails, facilitating regulation and auditing. According to a report by Santander Group's fintech venture capital firm (Santander InnoVentures), it is estimated that by 2020, blockchain could reduce infrastructure costs by $15 to $20 billion.

The risk reduction effect is specifically manifested in several aspects: first, because transaction confirmation completes clearing and settlement, it significantly reduces counterparty risk; second, blockchain digitizes the transaction process and maintains complete records, effectively controlling fraud, manual input errors, and other operational risks; finally, the existence of a distributed network and consensus mechanism in blockchain also reduces systemic risks from hacker attacks and malicious tampering. Therefore, blockchain can bring three benefits to the transformation of internal scenarios in the industry: reducing costs, improving efficiency, and lowering risks.

Currently, blockchain applications in the financial sector are still in the experimental stage. We previously learned about Ripple's experiments with several banks for cross-border transfers. Blockchain technology provides a vast imaginative space for the future of the financial industry.

Internet of Things

Some believe that the Internet of Things will become one of the most exciting application areas for blockchain technology. When talking about the Internet of Things, some may think it relates to logistics. However, the concept of the Internet of Things is much broader. In the 2010 government work report, the Internet of Things was defined as: through information sensing devices, connecting any object to the internet according to agreed protocols for information exchange and communication, achieving intelligent identification, positioning, tracking, monitoring, and management. In the era of the Internet of Things, not only your daily computers and smartphones can connect to the internet, but also wearable devices, home appliances, cars, traffic cameras, and everything else you can think of can be connected online. In simple terms, everything can be connected to the internet.

To achieve such a global Internet of Things may seem beautiful, but according to our current technology, Visa's peak processing capacity is 14,000 transactions per second; during the 2015 Double Eleven shopping festival, Alipay handled a peak of 85,900 transactions per second. In the Internet of Things, because the usage and status of objects are constantly changing, even every node in the network, every product, needs to simultaneously act as both a transaction object and initiator, generating a massive amount of foundational data and transaction data. Additionally, data privacy is also a problem that needs to be solved.

The characteristics of blockchain can precisely address the core difficulties faced by the Internet of Things, making it a key technology for constructing a new generation of the Internet of Everything. The internet itself is a decentralized network, and in the era of the Internet of Things, the number of nodes connecting to the network will grow exponentially compared to now. Therefore, the future Internet of Things needs to be a self-organizing, self-regulating system. In such a system, reliable decentralized, peer-to-peer value transfer networks are needed for information and value conversion.

Blockchain technology can protect the privacy of Internet of Things data through reliable encryption algorithms. The blockchain system can achieve trustless, peer-to-peer value transfer and secure distributed data sharing, thereby constructing a robust and scalable Internet of Things. In August 2014, IBM published a report stating that blockchain could become one of the best solutions for the Internet of Things.

The blockchain industry is still in a very early stage, and the infrastructure is far from mature, so services based on blockchain have not yet been widely applied. Although the new era of the value internet is approaching, we should not overestimate the immediate value while underestimating the long-term value; we should patiently witness the changes it brings.

Alright, as usual, let's summarize the core knowledge points of this lesson:

The first knowledge point: Blockchain technology applications include four major categories: blockchain asset-related, accounting method-related, public trust-related, and controllable anonymity-related.

The second knowledge point: The impact of blockchain on digital currency, fintech, and the Internet of Things. We mentioned that the People's Bank of China has successfully tested a bill trading platform built using blockchain technology; the existing information asymmetry issues in the financial market can be addressed through blockchain technology to reduce costs, improve efficiency, and lower risks; at the same time, the trustworthy, peer-to-peer value transfer characteristics of blockchain can construct a scalable, privacy-protected Internet of Things system.

Blockchain has many advantages, but is it suitable for application in any field? Compared to the changes brought by the internet to our lives, which fields do you think need blockchain to perform well, and which fields must rely on blockchain to succeed? Please leave your answers in the comments section and see how other students think.

Although the prospects for smart contracts are very bright, the infrastructure is still not perfect at this stage. Currently, our asset digitization and documentation are insufficient. The application of smart contracts relies on the digitization of assets based on blockchain, mapping our actual assets and rights onto the blockchain, turning them into flexible, editable code, so that smart contracts can be easily controlled.

Crowdfunding

Next, let's introduce the second important application scenario of blockchain in traditional fields: crowdfunding. This is a relatively common application scenario that has also brought about many controversies.

In traditional methods, crowdfunding is mostly conducted through third-party internet platforms, such as the familiar JD crowdfunding. As a mode of internet finance, crowdfunding has lower thresholds and higher efficiency compared to traditional financial financing channels. However, crowdfunding platforms, as centralized third parties, must have high credibility, which requires substantial funds to guarantee. However, media statistics show that in 2015 alone, 43 crowdfunding platforms in China ceased operations or went bankrupt.

Blockchain can reduce the information asymmetry during the crowdfunding process and subsequent fund usage due to its inherent characteristics of an open, transparent, and tamper-proof ledger, thereby lowering people's trust costs. Additionally, due to blockchain's programmable and traceable features, project initiators can set up smart contracts, ensuring that crowdfunding funds are used for their intended purposes, alleviating concerns about fund misappropriation.

Notarization

Now let's discuss the third important application scenario of blockchain in traditional fields: notarization. Based on the open, transparent, and tamper-proof characteristics of blockchain, there is also considerable application potential for blockchain in the notarization field. There is a joke online about how difficult it is to get things done, where getting a stamp requires multiple stamps, even leading to the question, "How do you prove your mother is your mother?" Notarization must be very rigorous to have credibility. However, today, everyone values high efficiency in handling matters, and notarization is no exception. Notarization is essentially about proving that something exists or that something occurred at a certain time. Today, we rely on credible third parties such as notary offices and courts for verification. Blockchain can ensure the immutability and integrity of documents, and its internet attributes can provide notarization services to the public without being constrained by geography or time, making it much more efficient than traditional methods.

In October 2015, a couple named David and Joyce recorded their marriage certificate and vows permanently on the Bitcoin blockchain, allowing the entire open network to witness their marriage. Such actions have continued to occur, representing interesting attempts.

A company called Factom is also utilizing blockchain technology for data management and registration in commercial society and government departments.

Currently, there have been no cases where proof of existence on the blockchain has been submitted as court evidence. Although the proof provided by blockchain has not yet been recognized by the current judicial system, as blockchain applications continue to expand, this new notarization method is expected to develop rapidly.

Moreover, since blockchain itself is a value transfer network, any field related to value is a domain where blockchain can play a role, such as insurance, data security, healthcare, energy, and many others, where blockchain will exert its immense value.

After learning about blockchain applications in traditional fields, you may feel that everything is still in the foundational building process, and that feeling is correct. Now, let's do a simple summary:

The applications of blockchain in traditional fields mainly include three areas: smart contracts, crowdfunding, and notarization.

1. In the smart contract field, Ethereum is considered the representative platform for blockchain smart contract development. Its representative projects include the market prediction platform Augur, the computing resource trading platform Golem, and the digital tokenization platform DigixDAO, all of which we have introduced earlier. Additionally, we also introduced another project called RootStock, which completes the deployment of smart contracts through sidechains, thereby adding value and functionality to the Bitcoin network.

2. In the crowdfunding field, what we previously called "coin crowdfunding" is now referred to as "ICO," which provides funding support for a project or enterprise by raising digital assets from many people. Currently, ICOs in China are considered illegal public fundraising activities that have not been approved, and we are only introducing it as a blockchain application in traditional fields.

3. In the notarization field, blockchain can ensure the immutability and integrity of documents, and its internet attributes can provide notarization services to the public without being constrained by geography or time, making it more efficient than traditional methods. A company called "Factom" utilizes blockchain technology for data management and recording services for enterprises and government departments, but currently, there are no cases of proof of existence on the blockchain being submitted as court evidence.

Reflecting on the internet, how long do you think it will take for blockchain to be applied in traditional fields? Why?

Public Chains

First, let's talk about the first type of blockchain, public blockchain, which is open to everyone and allows anyone to participate. Bitcoin is the representative of this. Public blockchains are completely decentralized and not controlled by any institution, with the ledger being entirely open and transparent, allowing anyone to participate in maintaining the blockchain and reading data.

Data on public blockchains can be accessed by everyone, and anyone can initiate their transactions to be written into the blockchain. Participants in the consensus process of public chains, such as miners, maintain the security of the entire network database through cryptographic techniques and built-in economic incentives. Public chain projects include Bitcoin, Ethereum, Ripple, Hyperledger, and most competitive coins and smart contract platforms.

Consortium Chains

The second type is consortium blockchain, which is open to specific organizations or groups. This means that the nodes participating in the blockchain are pre-selected, and there is likely to be good network connectivity between the nodes. Such blockchains can use consensus algorithms other than proof of work. For example, if 100 financial institutions establish a blockchain, it may require the agreement of more than 67 institutions to reach a consensus. The characteristics of consortium chains include good connectivity between nodes, requiring minimal costs to operate, very fast transaction speeds, and high trust levels among a small number of nodes, without needing every node to verify. Additionally, transaction costs can be significantly reduced or even zero. When a centralized entity consortium handles accounting, there is no need for high incentive mechanisms, which can greatly reduce transaction fees, even to zero. Finally, data can have a certain level of privacy. The data access permissions in a consortium chain are hierarchical, with different permissions for external and internal access, as well as between internal nodes. Consortium chains also imply that the application scope of this blockchain will not be too broad; it does not have the network effect of Bitcoin. For example, if ten universities in Beijing establish a consortium chain for sharing course content, club information, and credit sharing, the course content on this chain can only be seen by students from these ten universities, and only teachers and students from these ten universities can publish content and apply for credits. Other schools' faculty and students cannot see it and cannot contribute content or apply for credits. Other schools wishing to join must apply to this consortium and gain approval to join this blockchain.

Consortium chains can be seen as representatives of "partially decentralized" systems, where some consortium chains allow the public to view and trade but do not permit transaction verification or smart contract publishing without the consortium's permission; some consortium chains do not allow the public to view or inquire about transactions at all, with rules set by the consortium.

Private Chains

The third type of blockchain is private blockchain, which is open to individual persons or entities, with only themselves participating. Data access and usage are strictly managed with permissions. This refers to a blockchain with a certain level of centralized control. Since consortium chains have some centralized control, some people categorize consortium chains as private chains. As mentioned earlier, some believe that private blockchains are shared databases in the traditional sense. Such databases have mature solutions and do not necessarily need to use blockchain. Because there is a controlling center, the data within cannot guarantee the immutability feature, providing little assurance for third parties and the public, and is generally used for internal audits. For example, a university may develop a blockchain-based voting system where everyone can vote using this chain, which is open and transparent for the school and developers, while remaining anonymous for users, with control held by the school.

While limited decentralization can facilitate consensus, speed up transaction times, and improve efficiency, it does not differ significantly from a centralized system. Decentralization is the core value of blockchain technology. If private chains cannot fully utilize the decentralized trust foundation constructed by public chains in practice, their development space will be very limited.

I personally believe there is little point in debating the superiority of public chains, consortium chains, and private chains. In terms of influence, some argue that private chains can effectively address efficiency, security, and fraud issues in traditional financial institutions, but such changes are gradual; private chains will not disrupt the financial system. However, public chains have unlimited potential; they may replace most functions of traditional financial institutions. For example, in the near future, you might be able to finance yourself through blockchain-based reputation, issuing your own bonds, which is entirely possible. Public chains will fundamentally change the operational methods of the financial system.

This is akin to what the Huobi Blockchain Research Center stated in the book "Blockchain: Defining the Future Financial and Economic Landscape." Compared to the completely open, uncontrolled, and cryptographically secure public chains, private chains can create systems with stricter permission controls, where modifications and even reading permissions may be limited to a few users. Because of this, the debate over private and public chains has never ceased: one side argues that private chains are meaningless and little different from distributed databases; the other side believes that private chains are merely blockchains with certain controls over participants, and in environments with multiple participants and incomplete mutual trust, the establishment of consensus mechanisms and the consensus process have value.

Essentially, private chains sacrifice some decentralization characteristics in exchange for special control over blockchain permissions, allowing for the operation of blockchains using more efficient, flexible, and low-cost consensus mechanisms than public chains. Private chains indeed have numerous scenarios that can connect with real-world needs; limited decentralization can facilitate consensus, speed up transactions, improve efficiency, and provide more controlled functionalities. Decentralization and centralization are not mutually exclusive; rather, they coexist in a symbiotic relationship, relying on and combining with each other.

In the past one or two years, blockchain has attracted the attention of major mainstream financial institutions globally, which have conducted research on blockchain and even established laboratories or departments to explore the potential of using blockchain technology in various financial scenarios. However, public chains like Bitcoin cannot meet some basic requirements of financial institutions, such as Know Your Customer (KYC) and Anti-Money Laundering (AML), so financial institutions are more interested in consortium or private chains.

In 2016, when the blockchain concept was hot, you may have heard that over 50 banks globally joined an organization called R3CEV, which aims to create a global financial system consortium chain. Its members include prestigious banks such as Wells Fargo, Bank of America, Bank of New York Mellon, Citibank, and Ping An Bank from China. However, many companies have since exited the organization, such as Goldman Sachs. What kind of reforms R3CEV can implement in interbank transactions using blockchain remains unclear, and we look forward to seeing it together.

Alright, in this lesson, we learned about public chains, consortium chains, and private chains. Now, let's summarize the knowledge points we learned today:

1. Public chains allow anyone to participate in maintaining and reading blockchain data, are completely decentralized, and are not controlled by any institution. Bitcoin is the representative of public chains.

2. Consortium chains are open to specific organizations or groups, with pre-selected nodes participating in the blockchain. Their characteristics include (1) very fast transaction speeds; (2) significantly reduced or zero transaction costs; (3) a certain level of data privacy. R3CEV is a representative of consortium chains.

3. Private chains are open to individual persons or entities, with strict permission management for data access and usage, generally used for internal audits.