leaf

Talent, talent, talent—important things are worth saying three times.

Reliable people do reliable things. A blockchain startup without an excellent team is like a tree without roots; it will fall with a gust of wind. Like other internet companies, blockchain startups will also revolve around talent and strategy. Strategy generates products, products capture the market, the market wins the hearts of users, and ultimately earns revenue and profit. However, compared to other internet companies, blockchain startups have a more urgent need to attract outstanding talent, and the requirements are higher. Blockchain technology is a rapidly developing application field that requires partners who are daring, meticulous, and resilient to explore new knowledge. An excellent blockchain company is itself a network full of valuable nodes, where various talents in product, development, testing, marketing, and operations are indispensable. The first thing the COO needs to do is to continuously filter out outstanding talent and build a good team, so that they can together play the symphony of enterprise development.

"What is the most important thing in the world? It's not money, it's talent!"

Blockchain startups are the same!

Ensuring goal achievement with experienced drivers.

Once the personnel are complete, like-minded partners board a big ship that requires teamwork to set sail. The company's CEO will set the goals, and the achievement of these goals requires the COO's control. Weekly management meetings, quarterly performance evaluations and feedback, annual and irregular shareholder meetings will ensure that partners are always in position, working towards the same goal.

Product, market, and operations all strive together.

"What is blockchain? Can you explain it to me in one sentence?"

"Oh, I understand, but what does it have to do with you?"

First, what exactly is blockchain? Now, major mainstream media are talking about blockchain technology, positioning it as a technology. I don't quite agree with this positioning; I believe that blockchain, as a new thing, is more like a solution to credit issues.

We all know that the global credit system can be categorized into the following types:

First, based on morality, relying on moral constraints to solve credit issues. For example, when we go to a restaurant, due to information asymmetry, we don't know if the restaurant owner has used gutter oil or unhealthy ingredients. But we choose to trust the restaurant owner, believing that they won't do anything harmful to customers' health.
Second, based on faith. I once heard a joke that food safety issues rarely occur in the West, largely because those involved in food production fear God's punishment. Because everyone believes in God and trusts that God is a fair judge, people establish a credit system based on this belief.
Third, based on government. When talking about government, we must mention the banking systems of every country in the world, which are fundamentally built on the government. Every citizen believes that their government will not collapse, and at any time, the government is a strong backing for the people. As long as the government does not collapse, the numbers in the people's bank accounts have value and can be used as a medium for commodity exchange.

After the emergence of blockchain, the world has added a new cornerstone of credit systems—algorithms. The term algorithm comes from a concept in the computer world, and algorithms have a characteristic: consistency. Regardless of time and place, as long as the input is determined, the output will also be determined after processing through the algorithm; this is the basic definition of algorithmic consistency.

Blockchain is precisely built on this characteristic to establish a new type of credit system.

Secondly, why choose blockchain? Because blockchain has the following major characteristics:

First, security. From a technical perspective, blockchain is essentially a distributed database, where each data node stores a copy of all data in the distributed system. This means that each data node independently records every transaction in the blockchain world. When a transaction occurs, the system broadcasts the transaction to every data node in the blockchain through a P2P protocol. For example, if there are 100 people in the blockchain, and one person transfers money to another, the sender worries that the recipient might lie and say they haven't received the remittance. So the sender sends an email to everyone except themselves, attaching the remittance bill and a handwritten signature. Because 98 people can testify for the sender, the recipient cannot commit fraud.

Second, stability. I once heard someone say: "No one can destroy the blockchain." As the most mature application of blockchain, the Bitcoin blockchain has thousands of data points spread across the globe. The Bitcoin protocol organizes various nodes into a powerful Bitcoin blockchain network, making it difficult for any individual or organization to destroy the blockchain.

Finally, what can we do with blockchain? The current Bitcoin blockchain can already facilitate peer-to-peer payments. For example, if you want to send money to a friend in the United States, under traditional processing methods, you would need to go to a bank counter, where the bank would transfer the remittance to the U.S. through the international remittance channel SWIFT, and then the local bank in the U.S. would deliver it to your friend. This traditional remittance method has several drawbacks: high remittance fees, long remittance cycles, and a lack of transparency in the remittance process. Through blockchain, true peer-to-peer remittance can be achieved, with short arrival cycles, and information that is open and transparent, allowing for real-time inquiries.

Currently, OKLink is committed to building a global remittance network based on blockchain. Addressing the drawbacks of traditional remittance methods, OKLink has designed a global remittance network that allows for real-time arrival, low fees, and full tracking of remittance information. It has already launched remittance services in countries and regions such as Canada, South Korea, Japan, the Philippines, India, Vietnam, Indonesia, Singapore, Taiwan, and Hong Kong, achieving real-time arrival. Isn't that amazing?

I believe that the technological revolution brought by blockchain will have a disruptive impact on every industry. Let's look forward to it.

Imagine telling people in the 1980s that they could shop online; what would their reaction be?

• Who would want to buy clothes online? Don't be ridiculous.

• You can't even try on clothes online; you want me to pay based on a picture? • It must be a scam; they must be crazy to want to cheat people out of money.

If you introduced Google to them, what would their reaction be?

• Free search? How do they make money? It must be a trick! • A company worth $500 billion? Just for looking up information? • A simple webpage needs over 50,000 employees? Manual search? What if you told people today that a programmer wrote a piece of code that could change the entire financial market landscape; what would their reaction be?

• Just speculating to make money; it will disappear in a few days. • Without authoritative government backing, relying on a piece of code for fairness? Are you crazy? • There must be hackers manipulating the system; anything artificially created can be manipulated!

Doesn't all this sound reasonable, logically sound, and irrefutable? This is the problem we face.

First, the definition of talent:

1) A large number of experts, scholars, and highly skilled workers.

The talent issue has led to a series of consequences:

1) Loss of funds;
2) Decreased regenerative capacity of researchers and scientific development;
3) Aging of talent in the research field and a break in talent succession;
4) Inflow of talent;
5) Promoted the development of talent-receiving countries in various aspects.

Regarding cryptocurrencies, no matter how much you have heard or how deeply you have researched, there are many ways in the market to help you obtain your first cryptocurrency chips. You can mine them, buy them on exchanges, or if you are a merchant, you can also exchange them by selling goods.

Unfortunately, if you want to profit from mining Bitcoin now, you need to invest a large sum of money to buy specialized ASIC miners. Although you can use cloud mining services (like those provided by Ghash.io), you won't gain much understanding of how the entire Bitcoin network works.

In fact, even if you deploy ASIC miners, most mining systems cannot complete the task of selecting or verifying Bitcoin transactions solely on their own; you are merely selling your mining power to a mining pool. There is also a low-cost mining method, which is to purchase small USB ASIC miners (like those provided by BitFury); however, you may need to rely on the appreciation of the mined coins to recover the electricity costs incurred during mining (for example, if you mine 0.1 Bitcoin worth $80, but your mining electricity cost is $85, you will have to wait for Bitcoin to appreciate, or else you will incur a loss).

In recent years, a new business model has emerged in the Bitcoin mining industry: pre-ordering. Essentially, customers first provide a certain amount of Bitcoin to ASIC miner manufacturers, who then use the received Bitcoin for investment, design, manufacturing, and ultimately ship the miners to the respective customers. To minimize costs, manufacturers accept orders in batches, and each batch will have a queue list. The later you are in the queue, the longer it will take to receive the miner, and only then can you start mining to recoup your initial investment. Although you can take a chance and pre-order the first batch of miners before shipping, the risks may outweigh the rewards. Your capital is tied up in an asset that will continue to depreciate; unlike GPUs, ASIC miners cannot be resold to gamers or 3D graphic designers, and their second-hand resale prices will continuously decrease, their uses are singular, and they may not be delivered on time, and the actual performance of the delivered products cannot be predetermined.

Alternatively, you might think that your order is relatively high up on the queue for the upcoming Neptune miner from KnC, just like those who only received Avalon miner chips last winter or those who only received CoinTerra's new T-series miners in January of this year. However, it is very likely that this will not be the case, and if you are reading this while not having placed an order, it is even less likely. The delays in ASIC orders from Butterfly Labs (BFL) last year are a living example. Butterfly Labs announced in July 2012 that it would launch various models of ASIC miners, and subsequently, hundreds of customers pre-ordered using Bitcoin. However, during the development and testing process, they encountered a series of troubles, and the shipping time was delayed by more than a year. For example, in March 2013, a friend of mine who is a Bitcoin investor spent 50 Bitcoins to order four ASIC miners from BFL, each with a hashing power of 25GH/s. He finally received that batch of machines at the end of November last year. If he had not bought the miners but instead held onto those 50 Bitcoins, at that time (November 2013), those coins could have been exchanged for $40,000-$50,000 at various Bitcoin exchanges. If he plugged in the received miners and started mining, with a total hashing power of 100GH/s, based on the rising difficulty of mining at that time, he wouldn't even mine one coin in an entire year, let alone recoup the 50 coins used to purchase the miners.

A milestone event in the Bitcoin ecosystem occurred in 2011 when someone used 10,000 Bitcoins to buy a pizza. This is considered the first known value transfer to the public and thus became the origin of the exchange rate between Bitcoin and fiat currency.

Since then, the merchant ecosystem of Bitcoin has gradually grown, attracting about 50,000 online merchants to join. BitPay is one of the most powerful startups in this field, providing an electronic payment processing system for online merchants to accept Bitcoin. In 2013, it processed Bitcoin transactions worth over $100 million and signed cooperation agreements with more than 20,000 merchants. Gyft is a digital mobile gift card wallet that accepts Bitcoin as one of its payment methods, allowing users to buy, send, receive, manage, and redeem digital gift cards using mobile devices, which can be used in over 100,000 retail stores. On November 27, 2013, Shopify, a large e-commerce platform, announced that all 75,000 of its merchants now accept Bitcoin payments. On January 9, 2014, Overstock.com began accepting Bitcoin payments. On the first day of this initiative, Overstock.com received Bitcoin payment orders worth $126,000, and in the following two weeks, that number continued to rise, exceeding $500,000. Subsequently, on January 23, 2014, TigerDirect announced that it would begin accepting Bitcoin as one of its payment methods, processing Bitcoin payments worth up to $500,000 within the first week. On February 27, 2014, Coinbase announced that the number of registered users of its consumer wallet exceeded 1,000,000, while at the beginning of 2013, this number was only 13,000—additionally, over 25,000 merchants had begun using the Coinbase platform.

At the same time, other suppliers and merchants are independently joining the ranks of supporting Bitcoin payments every day. Zynga, the developer of the social game Farmville, announced on January 4, 2014, that it would begin accepting Bitcoin payments (using services provided by BitPay). Prior to that, on May 9, 2013, HumbleBundle announced that it would begin supporting Bitcoin payments (in collaboration with Coinbase) for purchasing its game bundles (later expanding support to the entire store). Additionally, during CES 2014, Formlabs, a 3D printer manufacturer, announced that its online store would now support Bitcoin payments. Furthermore, on February 4, 2014, CheapAir.com announced that it would begin supporting Bitcoin payments for hotel expenses (earlier, the company had already accepted Bitcoin for booking flights).

In Chapter 3, we introduced Jon Holmquist, who served as the community liaison for Ripple Labs and was also the founder of Bitcoin Black Friday (BBF), the largest online shopping promotion day for Bitcoin, set for the day after Thanksgiving, where all participating merchants' products would appear on the same website. One of Holmquist's motivations for launching the first BBF in the fall of 2012 was, "I was working with a Bitcoin merchant, and we had initiated various forms of promotions to attract support from the Bitcoin community, but ironically, at that time, there was no information aggregation site to navigate for them. I also noticed that many merchants were independently conducting promotional activities, and I thought creating an information aggregation site would be a great experiment."

Holmquist set up the website, and customers began to visit one after another. In 2012, the first year of BBF, there were 60 participating merchants, and by 2013, this number rose to 600, with hopes of reaching 6,000 merchants that year. On November 29 of last year, BitPay processed 6,926 Bitcoin transactions, while on the same day the previous year, there were only 99. However, for Holmquist, there is a significant number often overlooked: the customers of BBF have donated Bitcoin worth over $1 million to charity. If this were done through conventional credit card transaction methods, the estimated fees would account for 5% of the total amount (which is $50,000). However, by completing this through Bitcoin, that $50,000 flowed to charity instead of to the credit card company. Although this event is an isolated incident in the Bitcoin ecosystem, Holmquist believes, "This is just the beginning; consumers can now more easily transfer value. At the same time, for entrepreneurs and developers, they can continuously help those merchants who want to support cryptocurrency payments simplify the process by providing one-stop services (like website plugins)."

Perhaps Bitcoin, as a specific embodiment of virtual currency, is just a passing trend, and merchants will eventually completely abandon their support for it. If that is the case, switching to another ledger would be relatively simple, as the front and back ends of the existing merchant systems could be replaced with other competing coins (altcoins) or competing protocols (altprotocols). However, the case studies mentioned above serve as empirical examples of how value can be transferred across borders, directed at anyone, safely, reliably, and almost instantaneously, without the need for any intermediaries or institutions.

All investors and software architects believe that this ecosystem continuously needs capable and creative programmers to join. Moreover, because this field is so novel and constantly evolving, the entry barriers are very low. Therefore, novice programmers with a certain business sense may find entrepreneurial opportunities in this ever-growing ecosystem.

"CoinSimple makes it extremely easy for e-commerce merchants to accept Bitcoin payments. With CoinSimple, you can use any existing payment processor (BitPay, Coinbase, BIPS, GoCoin), and you don't need to find a programmer to help you integrate them into your e-commerce store. We have already completed the development work for you and added a user-friendly consumer analytics feature."

When it comes to smart contracts operating on next-generation platforms, the earliest use case he envisions might be "the issuance of cryptocurrencies backed by financial assets that can be used for project funding. For example, a solar park could issue a custom cryptocurrency to raise funds, and the purchasers of this cryptocurrency could receive a certain amount of electricity as a return once the park starts operating." Similarly, he believes that the adoption rates of cryptocurrency-related applications will vary greatly across different regions, largely depending on the level of infrastructure development.

"For those living in the U.S. and other developed regions, cryptocurrency-related applications are less likely to become killer applications. In contrast, for people in other parts of the world, simple payment methods (already supported by the Bitcoin protocol) will become killer applications when they encounter existing devices (phones, bank cards)."

Therefore, he also believes that there are still some overlooked and undeveloped areas, including education.

"There is so much happening in this field that even the most proactive investors cannot grasp all the surprising opportunities that emerge daily. Educational and research institutions in this field, such as the University of Texas, the University of Nicosia, and the University of Hong Kong, may provide investors and entrepreneurs with a way to discover business opportunities more quickly."

"Building a suitable team, finding the right talents, leaders, and marketers, and creating sellable and profitable products is no easy task. New concepts, like proof of storage, will inspire a large number of talents to rush to the narrow bridge, but only a small portion will be able to cross the bridge and be accepted by consumers.

Therefore, when they do marketing, they should invest a lot of energy in cultivating users and educating users to gain their trust and make them feel 'cool.' Trust and the feeling of 'cool' cannot be forced; once lost, they are basically irretrievable."

Despite the existing bubble, the more powerful functions of digital currencies are being nurtured. There is a clear consensus that if this technology can be carefully designed and applied in the financial field, it will reduce friction and management costs for businesses.

Platform Matrix

Table 1:

Protocols built on top of the blockchain or connected to ledgers: Colored coins, Mastercoin, Contract coin, Open trading

Non-blockchain distributed consensus networks: Ripple

Decentralized blockchains without smart contract functionality (SCFE): Bitcoin, Litecoin, Dogecoin, NXT, Namecoin (mixed mining)

Decentralized blockchains with embedded smart contract functionality: Ethereum, Invictus (prototype stock, BitShares)

Table 2:

1. SCFE means "smart contract functionality available"—the protocol can use smart contracts.

2. The protocol has SCFE functionality, but the development team has not yet launched it.

3. Colored coins, Mastercoin, and Contract coin all rely on the parent chain (such as Bitcoin's blockchain) for transactions and storage.

Ask yourself this question: "Which platform is the best?" "Which platform is worth adopting and integrating into your team or enterprise?"

The only honest answer is: No one knows.

The purpose of writing this guide is to provide readers with an overview to help them understand an industry that, while often hyped, is still vibrant and rapidly developing in technology, law, and business. In this guide, I have tried to be as fair and honest as possible, giving equal time to different viewpoints, methods, and platforms. The entrepreneurs in this industry are very passionate, and you can see similar traits in developers, entrepreneurs, investors, and thinkers.

Overall, I believe that with the development of technology, a large amount of energy will be invested in this industry in the next two years. However, analyzing solely from the perspective of market share and bad debts, it is difficult to clearly judge which platforms will prevail.

Existing digital currency protocols are all pursuing grand goals, but they are still significantly troubled by known technical issues. At least until today, we still lack sufficient funds and manpower to solve these problems. Furthermore, currently, developing some gambling-related applications is quite timely, but combining app development with the market will involve high legal costs, and returns will diminish over time. After all, there are already some proactive participants pushing for the progress of "digital taxes."

If the purpose of cryptographic protocols is to provide a frictionless mechanism to promote the growth of the real economy, then creating applications that genuinely help end users improve productivity, thereby replacing existing expensive infrastructures, is a natural progression. (For example, if the gambling industry can indeed promote economic growth, then Las Vegas and Macau will replace New York and Shanghai as centers of economic growth.) The U.S. casino industry generates approximately $125 billion in revenue annually, yet most people do not participate due to "digital taxes." Similarly, the U.S. has issued over 1 billion bank cards, most of which are replaced every six months.

So, while cryptographic protocols have not yet been widely adopted in the consumer sector, how can companies in the industry enter a broader consumer ecosystem? Some seasoned professionals believe that novice entrepreneurs just entering this field do not need to start with projects that pay high compliance fees like exchanges or remittance companies; they can try to solve the needs of users in developing countries who often lack bank accounts or find it difficult to enjoy mainstream banking services due to circumstances. One reason WordPress accepts Bitcoin is that not everyone in the world has a Visa card, and the reality is that users in over 60 countries cannot use PayPal services. WordPress wants to reach areas that those companies cannot access. Other experts also suggest that entrepreneurs should first provide quality services to the existing few hundred customers and learn from that experience before attempting to grow their products to millions of users.

Anyone looking to enter the cryptocurrency field should first ask themselves this question: What profit-driven business applications can be built on these systems? Is it more effective to build another POW mechanism blockchain, or is it better to lead your team to synchronize functions with an existing blockchain? Without a Turing-complete protocol, can new value be provided to a larger customer base? Do you really need to use a decentralized processing framework instead of a distributed or even centralized (especially for intranet) framework? Can your development team work remotely to reduce management costs, or do they need to be located in a specific office or housing community? Is it necessary to establish formal partnerships with existing market participants to secure more funding to better meet their needs?

All of these are part of an unprecedented, encrypted, mathematical framework experiment that is likely to impact various industries. However, decentralization is not necessarily the ultimate answer, nor is it a panacea for all problems; it is merely a tool that can be used to solve certain issues, not all issues. Regardless of whether this experiment succeeds or fails, enterprises, organizations, and companies (like IT support) that adopt centralized management systems can still benefit from this technology.

Furthermore, skeptics' bold speculations about specific future events, such as when everyone will reinvent the wheel (recreate the blockchain), are also reasonable. Each project we have listed here can be investigated and analyzed in detail from at least two or three points. As Carl Sagan said, extraordinary claims require extraordinary evidence. Based on my interactions with the aforementioned teams, I believe that, if not all, most teams can achieve the milestones and goals they have set.

The community has differing opinions on the future of cryptocurrencies; in some countries, constructive and technical dialogue with global decision-makers is a necessary prerequisite for the broader acceptance of virtual currencies in the future. However, this topic will inevitably be mentioned in other books, so I will not elaborate further here. Decentralized applications may become popular in illegal markets or may profit in certain specific market channels. The key to the widespread adoption of digital currencies lies in whether these technologies truly solve practical needs (for example, what reasons can persuade your mother to use it; how does this technology help those without bank accounts?).

All the platforms mentioned above, whether first-generation or second-generation coins, have the potential to provide a trustless storage and transportation mechanism for asset management. However, stripping away the hype and promises, we still have reason to remind everyone that this technology may not have developed to the point of meeting the expectations of its enthusiasts. After all, the only thing that has remained popular for ten years is P2P seeds. However, I personally believe that cryptographic ledgers still have unlimited potential for realizing smart contracts, smart assets, and trustless asset management.

The "digital industrial revolution" is exciting, and you can also be a part of it.

The "celebrity" effect of Bitcoin.

1. The dissemination of innovation.

Communication scholar Everett Rogers provides a comprehensive explanation of the dissemination of innovation in his book "Diffusion of Innovations."

He believes that the process of innovation (which can be a theory, a practice, or a product) is accompanied by uncertainty, and the essence of innovation is to provide new methods and solutions to problems. But for decision-makers, they are unclear about the extent to which this new solution is superior to traditional solutions.

In Rogers' view, during the process of innovation diffusion, early groups that seem "weak" can play a significant role in interpersonal communication; they are the first to accept and use innovative things and are willing to take risks for them. These individuals not only have a strong tolerance for the various shortcomings of innovation in its early stages but can also "lobby" the opinion leaders in their respective groups to accept and adopt innovative products. Subsequently, innovation rapidly spreads outward through these opinion leaders. Thus, the arrival of the "take-off period" for innovation is not far off.

The ability to continuously innovate is an important aspect that distinguishes humans from animals. Humans will certainly think about how to make a product better, how to design a system more optimally, and how to clarify a set of ideas. At the same time, innovation must be multi-directional, and it is difficult to know in advance which direction is correct. For individuals, errors in the direction of innovation can lead to failure, but for groups, the multi-directional selection of innovation is certainly a beneficial process.

For an emerging thing, whether it is a product or a viewpoint, there is generally a certain threshold, which may be in terms of technology or understanding. Only a small number of people in the crowd will first understand, try, and use it; this small group belongs to the trial-and-error innovators, who are very few and may very well be on the wrong path.

Once their innovation can indeed bring social progress, they can persuade early adopters to use the product or accept the idea, and gradually, the increase in the accepting population makes those who accept this innovation become mainstream, even those who are reluctant to accept it are forced to learn and follow, their starting point may merely be to avoid being eliminated.

The degree of acceptance of innovation is related to each person's knowledge and experience, and in the case of Bitcoin, it even relates to faith. Due to individual circumstances, the same innovative product may appear completely different in the eyes of different people. The innovation of Bitcoin seems so obvious and straightforward to many programmers, it is simply the starting point of mathematics taking over the world; while to another group, it is a worthless, energy-wasting, quasi-pyramid scheme.

2. Comments on Bitcoin.

The frenzy of Bitcoin's price rising several times in three months has attracted countless people's attention, and whether technology or finance giants understand it or not, they are being pressed by the media to express their opinions. Let's see how world-class celebrities view Bitcoin; here are both fervent enthusiasts of Bitcoin and big shots who lack sufficient understanding of it. Their remarks can provide references for our judgments. But it is worth reminding that the capital market is cruel, so regardless of how the big shots view it, it can be taken as a reference, but please do not take it too seriously. To see Bitcoin clearly, one must rely on oneself.

The same thing is there, but people see it differently; what they see depends entirely on their past knowledge accumulation and their level of thinking, and that's all, so many debates are unnecessary. Those who are fervent about Bitcoin do not understand currency and misunderstand it. He also quoted Samuelson's view that currency is a "social invention" that cannot exist outside of society, while Bitcoin attempts to detach the value of currency from the society it serves. The differences brought by the attributes of currency make it difficult for all social science topics to have a unified standard correct answer; ultimately, it will be a process where people holding different viewpoints try to persuade more people to accept their views, thus making their views mainstream. There are many such examples, such as the abolition of the death penalty, the legality of same-sex marriage, and the means of government regulation of the economy, etc. For Bitcoin, its social attribute is as important as its technical attribute, and as it moves towards becoming a universal currency, its social attribute will become stronger. For a certain period, the inconsistency of viewpoints is inevitable and an unchangeable reality. The understanding, promotion, and application of Bitcoin by its supporters are methods to increase its social value, to enhance the overall understanding of the concept of Bitcoin in society, reduce differences, and win consensus.

Only when the social consensus of Bitcoin is stronger will it increasingly resemble currency, and its revolutionary value can be fully expressed.

"All the world is bustling for profit; all the world is bustling for profit." Sima Qian deeply elaborated on the strong attraction of economic interests for all humanity in the "Records of the Grand Historian." Bitcoin originated from the revolutionary experiment of the mysterious founder Satoshi Nakamoto on electronic payment technology without third-party supervision, formed through the joint efforts of open-source communities, miners, exchanges, users, and other participants, ultimately creating a "currency-independent kingdom" involving hundreds of thousands of people and worth billions of dollars. Surrounding the "minting," circulation, exchange, and payment of Bitcoin, this "currency-independent kingdom" gathers a large number of stakeholders, building its unique power contract and creating an increasingly mature ecosystem.

Bitcoin is neither the earliest nor the only virtual goods ecosystem; game items, virtual currencies, and even electronic coupons all have their ecosystems. However, as a type of currency that is not controlled by institutions, has no third-party supervision, can circulate directly with fiat currencies, and is decentralized, Bitcoin is significantly different from other virtual goods, thus its ecosystem exhibits a completely different structure and composition, with richer connotations.

Starting from the complete process of producing, storing, circulating, exchanging, and paying with a Bitcoin, we can analyze the various services, institutions, and interests involved in each link, forming a comprehensive understanding of the composition of the Bitcoin ecosystem.

The Bitcoin operation flowchart assumes that a novice who has never been in contact with Bitcoin wants to engage with it; they first need to solve the problem of how to acquire Bitcoin. There are generally three solutions: mining, purchasing, and accepting transfers from others. Mining requires the appropriate software and hardware, which is a vast industrial chain; purchasing can be done either offline or through online exchanges, which is also a vast industrial chain. After obtaining Bitcoin, it needs to be stored for future use, which involves the wallet issue. The ways to use Bitcoin are generally threefold: transfer—directly transferring one's Bitcoin to others; exchange—converting Bitcoin into fiat currency (such as USD, EUR, RMB, etc.) or other virtual currencies (such as LTC, XRP, etc.); and payment—combining transfer and exchange, that is, for parties that do not accept Bitcoin, one can first transfer Bitcoin to a third party that supports real-time exchange technology, and then the third party will convert the Bitcoin in real-time into the currency the transaction party is willing to accept and pay them.

It is worth noting that the above links are not clearly defined; they often overlap and intersect, but these links involve a large number of service institutions and personnel, forming the main body of the Bitcoin ecosystem.

Bitcoin payment companies can act as payment intermediaries, using programs to convert A's Bitcoin into fiat currency in real-time and automatically transfer it to B. This process is transparent and flexible for both A and B. If A and B are willing to use the same currency, the payment intermediary can transfer directly; if not, the payment intermediary can perform a real-time exchange and then pay. This intermediary model even transcends the scope of Bitcoin payments and can be conducted between any two currencies, with simple operations and good user experience, thus being favored by both users and merchants, becoming a relatively popular field in the current Bitcoin ecosystem. Bitcoin payment companies also profit by charging transaction fees.

From the above introduction, we can basically get a rough picture of the Bitcoin ecosystem. Surrounding the mining link, there exists the ecosystem of mining machines and mining pools; around the purchasing link, there exists the ecosystem of exchanges and intermediaries. Various wallet services play an important role in the storage of Bitcoin, while Bitcoin payment services and e-commerce allow Bitcoin to enter the real world and establish connections with physical goods. Beneath these ecosystems, the Bitcoin Foundation, open-source communities, Bitcoin information services, and financial services play important supporting roles in the entire ecosystem and are also important components of the Bitcoin ecosystem.

To Bitcoin enthusiasts, Bitcoin is merely about mining and trading, something that can be resolved with software and an exchange. However, the reality is far from that simple; behind these simple actions lies the entire vast Bitcoin ecosystem.

First, the Bitcoin network requires maintenance, relying on Bitcoin clients and mining software to build this network, which involves software developers and organizations that support, organize, and coordinate these developers (such as the Bitcoin Foundation).

Secondly, mining software runs on hardware devices, and miners will also try various ways to increase their profits and reduce risks, leading to the emergence of the mining pool and mining machine industries.

Thirdly, beyond the need to convert Bitcoin into fiat currency, some holders wish to fully leverage Bitcoin's advantages in payments, directly using Bitcoin to purchase goods. Bitcoin payment companies play an important role in this process, serving as a bridge connecting users and merchants, and promoting the expansion of the Bitcoin economy.

Fourthly, once Bitcoin becomes a currency, holders have the desire for investment and appreciation, while others have the need for financing and borrowing; the matching of the two gives birth to the Bitcoin financial market and stimulates derivatives.

Finally, we must not forget: the promotion and popularization of the Bitcoin concept rely on numerous forums, blogs, and other information service platforms, which help novices understand Bitcoin, teaching them how to mine, trade, and invest, making significant contributions to the prosperity of the Bitcoin ecosystem.

Bitcoin, as a great monetary experiment, involves more people than we can imagine. Some are fervent supporters and contributors to the Bitcoin belief; some are merely curious and opportunistic, following the trend; others are filled with speculative motives, just wanting to make a quick profit and leave. Regardless of the participants' motives, these individuals are actually contributing to the construction of the Bitcoin ecosystem, and this nascent ecosystem lays a solid foundation for the dematerialization of Bitcoin, which is a collective contribution from all participants.

Bitcoin demonstrates a vivid case of reconstructing social contracts through the establishment of its ecosystem. Currency based on freedom (including all current fiat currencies) is essentially a contract; every banknote printed at a low cost by the government represents a value contract signed with the holder. This contract is nominally guaranteed by the government's credit and practically enforced by the government's coercive power, thus it is a form of coercive contract. Individuals have no room for choice and no ability to resist. In the 19th century, Owen's utopia aimed to liberate the people from the government's coercive contract, with the idea that everyone would become good people, thus eliminating the foundation of regulation. The result was his failure.

In the world of Bitcoin, almost everything relies on computational voting: the increase of Bitcoin is obtained through computational voting, the secure transmission of Bitcoin relies on computer voting, and the non-deceptive, irreversible nature of Bitcoin transactions is also achieved through computational voting. Even the changes to Bitcoin rules and improvements to clients rely on computational voting choices. Relying solely on computational voting, the decentralized Bitcoin network has miraculously persisted and continues to grow. The key lies in the fact that behind the computational power are miners and users, who directly vote for the actions most beneficial to themselves using computing devices—one GPU, one vote, fair and just, with no deception. There is no representative system, no judges, and no police. Thus, the Bitcoin network has essentially completed a radical practice of large-scale direct democracy, creating a utopia of monetary autonomy: everyone establishes a new type of P2P contract based on their direct voting rights. This contract is reached under the premise of zero trust, where good people receive no extra rewards, and bad people's tricks cannot be played out. Relying on this theoretically extremely unstable yet practically extremely effective P2P contract, the development of the Bitcoin network has exceeded everyone's expectations.

This may be the true reason why many high-IQ geeks love Bitcoin, and it may also be the most profound lesson Bitcoin has taught us. Extending this thinking to the financial and economic fields, we may be able to assert: true internet finance and internet economy have not yet arrived.

Viewing Bitcoin merely as a currency, rather than a revolutionary idea or a complete trading ecosystem and architecture, is clearly underestimating Bitcoin. Even if its influence is confined to the broader financial field, it may not be appropriate or fitting. However, at present, Bitcoin's "currency" attribute is still being infinitely magnified—although people rarely think about the essence of currency.

In the public's conventional understanding, Bitcoin is neither fiat currency nor a rare precious metal with a physical form, nor has it gained widespread recognition and trust in society (at least for now). Its circulation range is limited, and its influence is limited, usually being categorized as one type of "virtual currency," more precisely, as a type of digital currency. If the global currency system is vast land, then the colorful Bitcoin is merely a tiny grain of sand; virtual currency is likely a collection of grains of sand forming a river that continuously spreads. However, whether this core of potential sand flow is Bitcoin remains to be observed. Although many people are filled with desire and optimism about this.

Regarding these propositions, some natural questions arise: What are the differences between virtual currencies and the currencies or fiat currencies we commonly speak of? What is the basic logic behind their generation, circulation, and development? What distinguishes Bitcoin from other virtual currencies? Does it have long-term viability?

The symbolic function of currency directly leads to the rise of the virtual economy. For example, when valuing a technology company, we generally do not use its fixed assets or human assets as valuation bases, nor do we use its profitability as a valuation basis, but rather through some indirect means—such as how many users the company's products have and how much revenue each user may bring to the company in the future—to value it. These values do not exist currently and may not exist in the future, but once the valuation is completed, the company possesses the corresponding "face value," and investments flock in, turning the "face value" into cash in the bank account. At this point, the number of "currencies" has increased, but the actual value in the real world has not increased at all. In the future, if the company goes bankrupt, the excessive currency issuance related to it will not disappear, which is unimaginable in the era of physical currency.

The pros and cons of the symbolic function of currency are too broad to elaborate on. Another result it brings is that what we actually need is not currency, but a ledger. Just as the unit of mass is "kilogram" and the unit of length is "meter," we do not need the physical existence of "kilograms" and "meters" in the real world; we need standard physical objects that can measure mass and length, such as the international prototype of the kilogram and the international prototype of the meter. In contrast, currency no longer has a physical form and thus loses its meaning as a standard; it can only exist as a bookkeeping unit for achieving consensus.

In this way, changes in personal wealth will manifest as changes in corresponding personal accounts under the ledger, and the process of "currency" circulation will manifest as simultaneous changes in the accounts of both buyers and sellers under the ledger. Under this assumption, if we allow different groups to use different bookkeeping units, it means they are using different "currencies." To some extent, this is equivalent to returning to a primitive era where everyone can freely choose the "medium" for exchanging goods.

The expansion and evolution of Bitcoin.

From those predecessors who conquered giant machines worth millions of dollars in the 1950s to today's young "wizards" who control computers in suburban bedrooms... they share a common characteristic: they all adhere to principles consistent with the elegant logic of computers—sharing, openness, decentralization, and the willingness to improve machines and the world at all costs.

—Steven Levy

How does Bitcoin evolve itself?

The self-evolution of Bitcoin is based on three points of consensus: 1) Consensus on value: Bitcoin is not just a currency; it is also a technology that requires proper operation to ensure its value. 2) Consensus on rules: Participants decide which transaction rules are allowed and which are not. The rules defining the legality of transactions, once written down, cannot be automatically executed. Participants must ignore transactions that do not comply with the rules and only accept those that do. 3) Consensus on history: Participants must recognize the historical transactions of the Bitcoin economy; otherwise, they will not know who owns which Bitcoins.

A common misunderstanding among the public about Bitcoin is that the rules of Bitcoin were written in stone by Satoshi Nakamoto from the beginning and can never be changed. Satoshi did create the initial set of rules for Bitcoin, but they can be modified at any time as long as there is a consensus across the Bitcoin network that the Bitcoin community needs to change those rules.

Another misunderstanding is that Bitcoin rules can be automatically executed, but this is not the case. For example, digital signatures, a form of mathematically deterministic encryption, do not execute automatically, regardless of whether they are correct. You can detect an incorrect digital signature at any time, but those transactions with incorrect digital signatures are only considered invalid if you choose to ignore them.

The Bitcoin Wiki states: "The Bitcoin protocol may change in the future to create more scalability or security needs." So how does the Bitcoin protocol achieve continuous updates?

Protocol updates are technically straightforward, such as adding a condition in the source code: if the block number <= 200000, execute in the old way; otherwise, use the new way.

Protocol updates are not actually a technical issue but a political issue, as updates may infringe on the interests of certain individuals, such as the faster issuance of currency, which may be opposed by the majority. Additionally, if an update is not widely accepted, a fork in the blockchain will occur, and the losing side (usually the blockchain adopting the new rules) will be ignored.

Fortunately, all previous updates to the Bitcoin protocol have been passed by the computing power voting of the entire community. Through these updates, various bugs such as OP_LSHIFT crashes, infinite SigOp DOS, and joint output overflows have been patched. In the Bitcoin community, there is a broad consensus that altcoins are unlikely to threaten Bitcoin. Taking Litecoin as an example, unlike Bitcoin, which uses the SHA256 algorithm for mining, Litecoin uses the Scrypt algorithm, which relies on memory and CPU, allowing many users to mine LTC with ordinary computers, while expensive FPGA and ASICs struggle due to memory limitations, making Litecoin mining appear more "environmentally friendly" (saving computing power) and "fairer." However, this is merely an illusion; the "environmental friendliness" of Litecoin mining is based on sacrificing security.

In May 2013, the total computing power of the Bitcoin network was eight times that of the top 500 supercomputers in the world, reaching 158THash/s; while Litecoin, due to the performance limitations of CPU mining, had a total computing power of only 15GHash/s, meaning the latter could be taken over by a botnet at any time, which could contain hundreds of thousands of machines. For example, the Storm Trojan has 250,000 nodes; assuming these machines have an average performance equivalent to a Core 2 dual-core (5MHash/s), the computing power of the botnet controlled by the Storm Trojan would reach 1.25THash/s, far exceeding Litecoin's total computing power. Another self-proclaimed "environmentally friendly" cryptocurrency, Freicoin, was successfully attacked with a 51% attack using just two ASIC chips. The "fairness" of Litecoin mining is also a facade; theoretically, any mining algorithm can be designed with dedicated integrated circuits; this is merely a matter of difficulty. In fact, someone in China is already developing Litecoin miners, using the LX150 chip to create a 150M core with a theoretical rate of 60KH/s. Litecoin's designer, Charles Lee, also admitted, "Litecoin started with CPU mining, and a year later, someone discovered they could also use GPU mining. Some people believe Litecoin is fairer than Bitcoin because there were no integrated circuit miners at that time, but that is probably just a matter of time.

The reliability of Bitcoin cryptography.

Traditional electronic payment tools like Alipay, Tenpay, and online banking use email addresses, QQ numbers, and bank card numbers as user IDs. If users are slightly careless, they may accidentally transfer money into someone else's account. In the world of Bitcoin, however, this cannot happen. A Bitcoin address appears to be a meaningless string of numbers but has a specific structure. If users make mistakes while copying or entering this string of numbers, the program will check it. There will be no accidental transfers to someone else's account. A Bitcoin address consists of 33 characters encoded in Base58, and the number of usable Bitcoin addresses theoretically exceeds 2^160. There are about 263 grains of sand in the world, and the total number of Bitcoin addresses far exceeds the number of all the sand on Earth. The probability of an incorrectly entered Bitcoin address coincidentally matching someone else's Bitcoin address is extremely low.

From theoretical construction to technical realization, Bitcoin has undergone decades of technical relay by outstanding programmers like David Chaum before Satoshi Nakamoto completed the final touch. It allows wealth to be sent to anyone in the world in the form of pure information and at zero cost—something unheard of before 2009. Its effects will not be immediately apparent, especially for ordinary users. However, just like asymmetric encryption technology, it will be proven to be as great an invention as alternating current in a few years.

Blockchain integrates existing technologies to form an innovative architectural structure containing five key elements.

1. Distributed. Participants in the blockchain are independent individuals in the real world, but they are connected through the network in the blockchain. Each participant managing a complete node needs to maintain a complete copy of the ledger, which will be updated when new transactions occur. More specifically, nodes are computers owned or used by participants that can run consensus algorithms when each transaction block passes. All participants can view the entire content of the ledger but cannot change it unless they follow pre-established rules.

2. Encrypted. Blockchain uses technologies such as public keys or private keys to securely and semi-anonymously (participants use pseudonyms) record data in blocks. Participants control their personal identity and other information, sharing only the necessary information in transactions.

3. Immutable. Records of completed transactions are encrypted, timestamped, and added to the ledger in chronological order. Transaction records can only be destroyed or altered with the agreement of participants, and such agreements are called "forks."

4. Tokenization. Transactions and other interactions on the blockchain involve the secure exchange of value, which is presented in the form of "tokens." Tokens make digital markets more efficient, and the purposes of creating tokens (tokenization) are manifold. Tokens can represent physical assets in digital form, serve as a reward mechanism to incentivize network participants, and can be used to create and exchange new forms of value. Additionally, tokens support individual and enterprise participants on the blockchain to control their own data.

5. Decentralization. The maintenance of network information and operational rules is carried out by multiple computers in a distributed network, or nodes. In practical terms, decentralization means that there is no single entity controlling all computers and information or setting rules. Each node maintains the same encrypted copy and keeps records in the network. The consensus mechanism run by all complete nodes is responsible for verifying and approving transactions. This decentralized, consensus-driven system architecture means that organizing governance by a central authority is no longer necessary, while also preventing fraud and malicious transactions.

When combined, these five elements can support two or more participants who do not know each other to interact securely in a digital environment. Each of these five elements is indispensable; if one or several elements are missing, the value of the blockchain will be limited or even destroyed.

Regarding this issue, there are drastically different opinions in the industry. During a certain period of new technology development, opportunistic participants often emerge, attempting to define the market in vague or self-serving ways. Using the term "database" to describe blockchain is one such example. Blockchain is not a database. Although technology providers sometimes introduce blockchain as a type of database, there are several key differences between the two. For example, unlike databases, blockchain is not a universal information storage method. Additionally, blockchain is immutable, while databases support reading, writing, deleting, or changing information. Most importantly, although databases can be distributed to multiple participants, there is a single central administrator, whereas in blockchain, management is achieved through consensus. Centralized management is contrary to the concept of blockchain.

In other instances, we have also seen misleading promotions. For example, technology providers may conflate the concept of blockchain, promoting a suite of products or services that use some technologies or a few design elements of blockchain. Some tech companies are developing so-called "blockchain" solutions and requiring supply chain partners to use them, thereby making partners more dependent on their ecosystem.

In fact, blockchain is still immature, and organizations do not yet know how to leverage blockchain and realize its value. Many people will only utilize the elements they can understand and know how to manage. Therefore, for most of the so-called blockchain solutions currently being developed (some of which we have listed at the beginning of this chapter), they only use a portion of the five key elements of blockchain. Developers may even achieve the same goals without blockchain. According to our research, in 85% of such projects, traditional data architectures can perform as well as, or even better than, blockchain.

Three social models empowered by blockchain.

As blockchain and business develop, you will have the ability to better participate in a fair, open, and digitally empowered global economy and society. In such an environment, diverse enterprises, individuals, and objects will interact and operate according to their respective needs, thereby earning profits and creating value. However, such a world has not yet been established.

The horizontal axis represents the continuous evolution of governance structures, from complete centralization to complete decentralization. The concept of continuous evolution is important because decentralization itself is a dynamic process, even within blockchain. Today, certain industries and companies within those industries are highly centralized due to their characteristics, while others exhibit fragmentation. However, even considering industry differences, significant evolutionary developments along the horizontal axis will still rely on blockchain. If organizations want to advance digital transformation and achieve decentralized governance, they must utilize blockchain or other forms of digital ledger technology. Only then can all economic participants, including autonomous participants, conduct transactions and receive corresponding economic returns. Only based on the decentralized capabilities provided by blockchain can transactions occur in a network environment without the involvement of intermediaries.

What have we learned?

Blockchain is a computerized way that supports two or more participants in a network to exchange assets without intermediaries. Traditionally, such intermediaries would take a cut from the transactions. The blockchain we define contains five key elements: distributed, encrypted, immutable, tokenized, and decentralized. These elements will collectively create a trusted environment that supports the creation and sharing of value. In terms of ease of implementation, these elements vary. Among them, the implementation of decentralization is the most challenging, as it requires organizations to accept a certain degree of decentralized governance.

● What should you do?

As a leader, you should recognize that more proactive decentralization is beneficial for business development. The time left for you is not much, as complete blockchain solutions containing all five key elements will begin to develop around 2023. Shortly thereafter, we will also see business and social environments integrated with IoT and AI technologies, where autonomous agents will possess asset value and transaction value. You must know how to prepare for interactions through IoT and AI without a central participant coordinating.

Five prototypes of blockchain innovation solutions.

1. FOMO (Fear of Missing Out) type: Exploring advanced digital solutions like blockchain can send a message to the market that your organization cares about innovation and is keeping up with current trends. This may attract more attention from potential customers. By creating "FOMO," it can also force competitors to invest time and resources in this field.

2. Trojan Horse type: These solutions appear attractive from the outside. They are often backed by well-known brands, have seemingly strong technical foundations, and address existing, widespread issues in the industry. However, using these solutions exposes the private data, processes, and business activities of enterprises, while not providing equal rights.

3. Opportunistic type: These solutions aim to solve known problems and seize known opportunities. Companies initiating such projects assess the risks of using untested new technologies, the costs of blockchain solutions compared to other technological options, and the potential value that may be created. Although these solutions are inspired by blockchain, they do not consider how to advance decentralization.

4. Evolutionary type: Some organizations actively explore blockchain innovation solutions and intend to evolve toward complete blockchain solutions as technology matures. To maintain the possibility of this transition in the future, project owners must establish system architecture, make operational decisions, and ensure they support decentralization and tokenization from the beginning. This solution can develop into a network that connects all participants in the ecosystem without requiring institutional authorization.

5. Blockchain-native type: The fifth and final prototype of blockchain innovation solutions is those "born on the blockchain." These solutions typically come from startups or innovative projects that create new markets based on existing business models on the blockchain or provide disruptive approaches. In the future, they can evolve into complete blockchain solutions.

Wei Frong: "You may not know, but it was the company's CEO who asked me to develop blockchain."

In helping enterprises save costs or create value, FOMO-driven blockchain projects are unlikely to be effective, but they are not without significance. Exploring advanced digital solutions like blockchain can send a message to the market that your organization cares about innovation and is keeping up with current trends. This may attract more attention from potential customers. By creating "FOMO," it can also force competitors to invest time and resources in this field.

However, leaders need to be cautious not to feel secure just because they understand blockchain well; instead, they need to carefully control their funding investments in such solutions. If a project fails to create value, some leaders may think they have already tried blockchain, and the failure was merely due to an unsuitable application scenario. If there are too many blockchain solutions driven by "FOMO," the credibility of blockchain in the business world will be damaged. Furthermore, if leaders insist on forcibly implementing blockchain solutions in their enterprises, it often increases the burden on existing systems and processes, incurs additional costs, and fails to improve efficiency.

Trojan Horse type solutions involve one or a group of powerful industry participants developing blockchain innovation solutions and inviting (or even requiring) ecosystem participants to use them. By definition, these solutions belong to blockchain innovation solutions because the owners of the solutions are singular or limited in number. Although the providers of these solutions may use terms such as "decentralization" and "consensus mechanism" (one of the characteristics of decentralized systems), the centralization of ownership clearly indicates that the system design is certainly centralized.

Because these solutions appear attractive from the outside, we call them "Trojan Horses." They are often backed by well-known brands, have seemingly strong technical foundations, and address existing, widespread issues in the industry. However, using these solutions exposes the private data, processes, and business activities of enterprises, while not providing equal rights. Analyzing this from a business currency perspective, Trojan Horse type solutions require participants to relinquish some control over their own data to gain access to the market and use the technology.

Blockchain innovation solutions will dominate the market before 2023. These solutions utilize three of the five key design elements of blockchain and can typically solve known data sharing and workflow issues within or between enterprises. Well-designed solutions can be effective, but you also need to weigh the risks and costs. Blockchain innovation solutions do not consider the element of decentralization in their design, so without third-party verification, participants who do not know each other cannot conduct transactions or value exchanges. Instead, these solutions are usually owned by a single or limited number of participants, and participation rights are restricted. Therefore, depending on the specific design and objectives of the solutions, data, participation rights, contracts, and technology can be controlled by a single participant or a group of participants. Based on the degree of centralization, we propose five prototypes of blockchain solutions, including FOMO type solutions (mostly internal projects), Trojan Horse type solutions (like Walmart), opportunistic type solutions (like the Australian Securities Exchange), evolutionary type solutions (like Sweden's Lantmäteriet), and blockchain-native type solutions (like Wolf University).

For organizations, blockchain innovation solutions cannot be used to create or exchange new forms of value because new digitally native forms of value require tokenization in a decentralized environment. Therefore, in the blockchain trend map, blockchain innovation solutions are not the endpoint but a stopover on the way to complete blockchain solutions.

● What should you do?

Leaders can use four types of business currencies—data, participation rights, contracts, and technology—to assess and judge the development prospects of blockchain projects, thereby understanding the mid- to long-term value and risks. You can ask your executive team the following questions: How does your organization plan to implement blockchain projects? Which prototypes align best with your strategy? How do you manage business currencies? If you have already conducted pilot projects, proof of concepts, or full implementations using blockchain, do these belong to blockchain innovation solutions? If so, where is the network data stored? Who has access to the data? Who prepares the contracts?

● What is the next step?

In specific markets, regions, and value chains, organizations develop blockchain projects through internal development, establishing partnerships, and participating in alliances. In fact, alliances have been the driving force behind many blockchain activities. Sharing risks with partners that have similar goals may bring potential benefits, but participating in alliances is also a significant challenge for organizations. You must remain vigilant to avoid handing over control to powerful central participants or competitors. So, should you participate in an alliance? This is the question we will address in the next chapter.

Different blockchain protocols have slightly different approaches for each alliance. Specific protocols include the Linux Foundation's open-source tool Hyperledger for distributed ledgers on blockchain and R3's open-source blockchain platform Corda.

What happens if multiple alliances focusing on the same issue develop simultaneously? From a centralized perspective, if multiple alliances are available, it will create a limited competitive environment, thus maintaining the status quo. In this case, blockchain alliances will lock participants into blockchain innovation solutions driven by central intermediaries, and the alliances will thus become forces maintaining the market. In other words, this is a "blockchain as a Trojan horse" model: attracting unsuspecting business leaders with promised benefits, ultimately limiting their independence.

Another possibility is that alliances collaborate to promote the establishment of new standards. If the new standards eliminate central authority, they can encourage market entry, promote competition and innovation, and lay the foundation for interconnected decentralized systems. From this perspective, alliances can facilitate the transition of blockchain innovation solutions to complete blockchain solutions, ultimately evolving into enhanced blockchain solutions. Therefore, alliances have the potential to change the status quo.

Blockchain has the potential to drive market consolidation and promote decentralization; both scenarios are possible. Some alliances aim to promote the centralization of market forces, while others will gradually become marginalized as the blockchain market matures. Certain groups may have to merge (like we.trade and Batavia), dissolve, or stagnate due to their inability to solve governance and business issues. Other groups will develop systems, formulate strategies, and promote decentralization, ultimately evolving to the complete blockchain stage. In the blockchain innovation stage, and even in the subsequent period, many projects are centered around various alliances. Let's first take a look at the types of alliances currently existing in the market.

Participating in alliances brings you closer to your competitors. According to our statistics, there are over 100 blockchain-focused alliances globally as of 2019, with many more being formed. The connections among alliance members vary widely, involving industry, market, technology, and business relationships. Many enterprises have joined more than one alliance.

Industry alliances: The most popular form of alliances. The most well-known blockchain alliances are mostly based on industry relationships. For example, the Energy Web Foundation, headquartered in Zug, Switzerland, aims to discover and develop blockchain application scenarios in the energy supply chain; the Blockchain Insurance Industry Initiative (B3i) initially was a project within Europe, aiming to assess blockchain innovation for the reinsurance industry; the Mobility Open Blockchain Initiative attracts members from the automotive industry's value chain; and the Blockchain in Transportation Alliance focuses on establishing blockchain usage standards for the logistics and transportation industry. Industry-based blockchain alliances typically focus on common issues within the industry, solving specific problems such as customer identity verification, trade financing, logistics, certification, and standards. In many cases, these alliances also create open forums to discuss these issues.

Market alliances: Alliances focused on addressing market challenges. Some alliances focus on the challenges faced by specific national or regional markets, which may also relate to industries. For example, the Isabel Group, although originating from the Belgian banking market, aims to leverage blockchain technology to develop into a pan-European provider. The Russian FinTech Association is another market-focused alliance, regulated by the Central Bank of Russia. The association launched the Masterchain blockchain to develop and test payment processing solutions, completing cross-border payments with the EU without the need for SWIFT. The Russian FinTech Association also emphasizes collaboration with other regional alliances, with partners including Shenzhen Financial Blockchain Cooperation Alliance in China, Infrachain in Luxembourg, Blockchain Cooperation Alliance in Japan, and the Global Blockchain Council in the UAE.

Technical alliances: Alliances centered on developing solutions. The core of technical alliances is the platforms or technical methods that serve as the primary principles for solution development. Two well-known examples in this field are Hyperledger, led by the Linux Foundation in 2015, and the Enterprise Ethereum Alliance, launched in 2017. Both alliances aim to promote collaboration between organizations and optimize compatibility between ledgers.

Another technology-centered alliance is R3. R3 was initially a collaborative project between financial service institutions and technology providers and is the developer of the open-source platform Corda. It has a close relationship with the financial services industry and was one of the first participants in the Hyperledger project, thus holding a certain level of influence.

The premise of using alliances for your benefit. Leaders should consider which types of blockchain solutions developed belong to which prototypes and study the issues reflected in Figure 3-1 based on this. These issues may affect leaders' experiences with each type of blockchain prototype, and vice versa. Figure 3-1 lists the inherent risk levels associated with each prototype and each issue. For example, if an alliance designs a blockchain solution due to "FOMO," it likely does not have a clear goal, making the risk in this regard the highest. If the alliance develops a blockchain-native solution, there will be a high level of governance clarity, and the corresponding risk will be lower. Your answers to these questions, whether single or grouped, will help you ensure minimal risk and maximal opportunity.

Why choose this alliance? Does your organization understand what blockchain means for customer strategy? Do you know how to achieve differentiation in the market? What new opportunities do you want to seek? The capabilities of different alliances vary in helping enterprises achieve their goals. Therefore, before joining an alliance, you should know the answers to these questions.

Moreover, even if you and your organization are clear about your goals, many blockchain alliances are not. The existence of these alliances seems to be based on a shared interest in doing some work. They may attract many members, but if the goals of different members diverge significantly and their investments in the alliance vary greatly, the alliance will face challenges in reaching a consensus.

It is also important to note that the issues the alliance focuses on may be too broad or too extensive. Identifying the issues is one thing; reaching a consensus on the details and root causes of using blockchain to develop solutions is another, and there is a clear difference between the two. If the issues are too complex, and members are unwilling to share information, and the needs of stakeholders vary greatly, the likelihood of success for the alliance will be very low. Based on past experience, alliances with limited and clear objectives are more efficient than those with broad goals.

Clarifying intellectual property ownership: Who is the owner? In collaboration, alliance participants provide a range of expertise. To create an open environment for broad participation, alliances need to clarify which intellectual assets belong to participating organizations and which belong to the alliance. Therefore, alliances need to clearly define the development, donation, and monetization of intellectual property.

Clarifying funding sources: Who pays? Funding sources are always a major challenge for alliances. Therefore, alliances must balance the sustainability of financing with the expectations of participating organizations. In this regard, R3's experience is instructive. R3 initially had only a few stakeholders, but later expanded to a paid participation model and introduced a membership system, growing to over 300 members and partners. With a large number of members, R3 has more options for funding sources, and at the same time, the stakeholders within R3 have become more diverse, with varying capabilities and goals. Leaders need to consider what roles technology providers and professional service companies should play in the interaction between the alliance and end users. How to assess the contributions of different members and confirm their value and compensation? What should the payment structure look like? Additionally, balancing the financial flexibility of the alliance with audit capabilities is also crucial.

Clarifying governance rules: Who makes decisions? Governance rules are essential for alliances. Are the voting rights of members equal or differentiated? Are voting rights obtained through payment or election? Are the rules based on majority consent or unanimous consent? Who is responsible for the operation of the alliance? To whom does the management team report? How is the board organized? Should the alliance be positioned as a non-profit or for-profit entity? How to handle dissent and various concerns? How to deal with regulation? What regulatory requirements from which industries and jurisdictions must be taken into account? Are specific rules applicable to the entire alliance or only to specific teams and projects, like the Hyperledger project? How will the rules evolve with changes in the business and technology environment? Regardless of what the answers to these questions are, the alliance can use a blockchain solution in various ways to conduct organizational operations and record and enforce rules.

Clarifying accountability: Who is responsible for what? It is crucial to clarify who is in charge of the alliance and who has a voice. How does the alliance make decisions? Who has voting rights? If decisions or processes conflict with government regulators or radical stakeholders, who should be held accountable? As mentioned earlier, blockchain alliances can sometimes operate as centralized industry participants. Alliances support multiple parties to pool resources to develop a common digital solution. However, it remains unclear whether alliances will also lead to the centralization of accountability. If processes go wrong, will the collaborative development of processes lead to joint liability? Are regulatory bodies supervising the alliance or the balance sheets of member organizations? Blockchain innovation solutions cannot solve the dilemma of defining accountability, but information recorded on the blockchain can help establish dispute resolution mechanisms to clarify accountability.

Clarifying payment structures: Who benefits? How profits are distributed within the alliance is also very important. Who gets priority access to use the solutions developed by the alliance? If the solutions generate profits, what rules govern the distribution of profits or reinvestment? Can these rules address the concerns of payers? Due to the business and industry status quo, the size and type of enterprises, the rights of members to use the solutions, and other issues, there are many different models for profit distribution within alliances. Equal distribution can save costs and profits, making it potentially the most efficient method and possibly the fairest approach, but if different members have vastly different usage of the solutions, this distribution method may not be realistic. In practice, it is unlikely that participants will be completely equal, especially in groups with many members. Considering these complex and variable factors, you should understand the profit distribution rules of the alliance and the policies for amending those rules before joining.

Clarifying external communication: Who speaks for the alliance and gains recognition? Members need to establish common rules for external communication of the alliance. Who will produce public relations and marketing materials, and who needs to understand and sign off on these materials? If individual members participate in certain specific application scenarios, can they publicly discuss this? What information can representatives of the alliance share publicly and with whom? Do they know what they should talk about? These questions relate to the responsibilities, compliance, and quality control of multiple member organizations. In the research conducted for this book, we interviewed many alliance members, and they did not fully agree with other members' views on the alliance. Inconsistent communication can undermine the trust structure of the alliance, leading to adverse legal and business consequences. Therefore, the alliance must clarify the principles of external communication.

Clarifying technical sources: How are technical decisions made? Blockchain alliances often conduct testing or pilot projects, most of which involve third-party technology providers or service providers. The demand for external expertise raises important questions, such as how to choose the type of technology, how to pay, and how to avoid bias from certain key members toward suppliers. How should the alliance share experiences and best practices in technology? Who pays for the integration of solutions for a particular enterprise? How compatible are the solutions with existing systems and processes? What obligations must members fulfill in the process of using the solutions developed by the alliance? How to reach consensus on upgrades and other changes to the solutions? What technical standards should be adopted? What impact will the alliance's technical choices have on the security strategies of member enterprises? Perhaps most critically, will the technical liabilities of member enterprises increase? If the technology developed by the alliance is not suitable for the internal architecture of a single member, those members will face additional costs and operational issues.

Clarifying exit strategies: How to exit the alliance? The rules of alliances usually define how and under what conditions members can join. However, if a member's goals are no longer aligned with those of the alliance, the alliance typically does not clearly state how members should exit. Leaders need to know the rules for joining and exiting to weigh the benefits of joining the alliance against the risks of being locked into a particular ecosystem.

What boundaries exist for members' contributions to the alliance's finances, technology, processes, and data? What should you do if the alliance's goals no longer align with the priorities of the members? A clear exit strategy can provide you with answers.

Moving to blockchain. So far, we have mainly discussed the various forms of tokens in digital and real environments without mentioning the role blockchain plays in them. When tokens are used on the blockchain, they typically serve one of the following three purposes.

First, tokens can help issuers maximize existing value. If the purpose of the token is to maximize value, its design will encourage customers to engage in behaviors that directly or indirectly benefit the issuer. Companies can tokenize existing resources and manage them within the blockchain, facilitating issuance and tracking, and promoting holder usage. Specific examples in this regard include reward points, identity tokens, and tokenized customer identity verification information. Through these initiatives, companies can provide convenience to customers, thereby increasing customer loyalty and facilitating more transactions. In the case of journey planning, if hotels offer tokens as rewards to travelers who accept additional services (such as room upgrades), then these tokens can promote value maximization.

Second, tokens can represent value, and cryptocurrencies can serve as a form of value representation. Literally, the value represented by Bitcoin comes from the "miners" running algorithms, which consume electricity and computing resources to verify users and transactions. For Bitcoin, tokens can incentivize "miners" to participate in the operation of the network, so they can also promote value maximization.

Although some e-commerce websites have begun accepting Bitcoin as a payment method, most Bitcoin transactions still come from cryptocurrency speculators. They focus on the value of Bitcoin relative to the dollar or other currencies, or rather, valuing Bitcoin in fiat currency. Beyond Bitcoin, if cryptocurrencies support blockchain network participants in trading or sharing real-world assets, such as energy cooperation projects, investment securities, or real estate, then cryptocurrencies can also represent value. Returning to the journey planning case, if service providers tokenize services like hotel discount packages, then the tokens represent the value that holders can enjoy, and these tokens can also be used to trade assets or services.

Finally, with the help of blockchain, tokens can create new types of value. For example, tokens can support participants in monetizing assets that were previously difficult to liquidate or had low liquidity. Cheng Yaohui, the general manager of Fubon Bank in Taipei, stated: "The capabilities of blockchain can enable asset-backed tokens, such as the tokenization of accounts receivable from suppliers at various levels in a large enterprise supply chain ecosystem, providing powerful financial tools for these SMEs." Another category of cases in this regard comes from emerging digital asset markets focused on data exchange.

Eight elements of decentralization. On the surface, the technology of decentralized mechanisms is simple and clear. The design of blockchain does not have a central authority. According to the business rules that define the interaction methods on the blockchain, each participant in the network has an equal vote (one equal vote) regarding whether other participants are trustworthy, whether transactions are valid, and so on. Participants act as nodes in the operation of the blockchain, and these nodes are actually the computers owned or used by participants that can run consensus algorithms when each transaction block passes. If at least 51% of the nodes in the network recognize a transaction, then the transaction can proceed, and subsequently, each node independently adds the transaction information to its local copy of the blockchain ledger. The existence of a consensus mechanism means that it is unlikely for a single node to omit or deliberately duplicate a transaction, or for fraudulent activities to occur. Based on the one node, one vote strategy, even without a central authority, blockchain can solve challenges in identity verification and transaction validation.

However, decentralized mechanisms face not only technical issues. The entire mechanism also involves how blockchain defines and enforces business rules for a solution, who can participate as complete nodes in the network, and how to allocate rewards based on participants' contributions. Overall, the decentralized mechanisms running in blockchain mainly consist of the following eight elements, depending on governance methods, economic models, and technology.

Governance methods

• Decision-making: Participants allow decisions to be recorded and executed on the blockchain without a central authority.
• Participation: Anyone or anything can act as a complete node as long as they have the necessary infrastructure and agree to comply with operational terms.
• Business ownership and oversight: No single entity or alliance can control most of the value created by the blockchain. This equal sharing model applies to funds as well as to business currencies such as data, participation rights, contracts, and technology.

Economic models

• Funding sources: No single entity or alliance is responsible for providing liquidity to the blockchain. A sound economic model supports the blockchain platform.
• Reward distribution: The blockchain fairly distributes rewards to all nodes running consensus algorithms based on pre-agreed transparent rules.

Technology

• Technical architecture: Blockchain relies on consensus algorithms and a one node, one vote strategy to authenticate participants and verify transactions.
• Protocol development: The source code for solutions and inputs comes from multiple parties, typically following an open-source model.
• Network governance: No single entity or alliance has absolute control over the nodes on the blockchain. Participants hold the initiative and have the freedom to join and exit.

Each of these eight elements can be decentralized to varying degrees, and there are clear interdependencies among them. For example, if a blockchain has a single or a group of owners (such as centralized business governance), then this blockchain may reinforce centralization through a centralized coordinating technical architecture. Such a design means that this blockchain does not require a decentralized consensus mechanism, so it can only be considered a prototype of blockchain innovation. In contrast, an open participation model where participants do not know each other may rely on a technology architecture driven by consensus to establish trust.

Further examining governance methods. Although blockchain currently has technical limitations, based on our experience, these limitations are not the reasons for organizations' hesitations about decentralization; the real reasons stem from organizational-level resistance.

Many leaders have told us that blockchain requires handing over decision-making control to algorithms, which makes them feel troubled. If it is unclear and impossible to know who the trading counterparties in the network are, undoubtedly, leaders will have concerns and want to understand what it means to derive value from resources (i.e., blockchain) over which they have no ownership or control. These complex governance issues need more attention