Why separating blockchain applications from cryptocurrencies can benefit consumers, companies, and wider society?
Red Date Technology CEO, Yifan He, recently expounded in an online interview several ideas about how Red Date and the BSN see the coming decades in terms of how the blockchain revolution will develop from here.
By now there is mainstream acceptance of the potential of blockchain technology to revolutionize areas as diverse as finance, supply-chain management, data storage and transmission, and even insurance. However, the debate rages on about how best to deploy this technology.
Crucially, He argues that unleashing the full potential of blockchain technology may require a radical decoupling of the underlying blockchain concept from the more well-known ‘surface phenomena’ of cryptocurrencies.
Blockchain technology in the shadow of cryptocurrency
The Chinese government’s unexpected move to ban all use of cryptocurrencies back in 2017 has since paid an unexpected dividend — the development of blockchain-based applications, as opposed to blockchain-based cryptocurrencies, has moved ahead by leaps and bounds in China.
Whilst similar initiatives have been launched in Europe, the UK and the US, the pace of development and the willingness of firms to ‘take a chance’ on a new technology has been noticeably slower in Europe and the US than in China.
This has resulted in a certain duality within the blockchain world, with China on the one side focusing on blockchain use-cases, and the rest of the world primarily focused on cryptocurrencies.
He argues that cryptocurrencies can be viewed as just the first, and most basic, of all possible applications that can be built on the underlying blockchain technology. The key point is that blockchain technology represents a fundamentally different and, in many ways, revolutionized the method of transmitting data. Cryptocurrencies were just the first applications developed using such method of data transmission. Just as nobody thought the internet should stop developing after the invention of email, no one should see the potential of blockchain as having fully explored by the relatively simple application of cryptocurrencies.
BSN, focuses on the essence of the technology and solves the real pain points
Former President of France, Charles de Gaulle reportedly once said that, ‘Politics is too serious a matter to be left to the politicians.’ The same could be said of blockchain technology, which has far too much potential to transform business, government, and society to be left to the cryptocurrency gurus. Because the essence of blockchain is that it represents a novel way of broadcasting data, it will make a vast number of business processes more efficient, and thus unlock tremendous gains in productivity, as He explained in a recent article published in Coindesk.
This brings us to the mission of the BSN system — to focus on the fundamentals of this new technology, alleviate the pain points of the industry, and accelerate real-world adoption. BSN is the global public blockchain infrastructure, which significantly lowers the costs of entry to build, deploy and manage dapps and enhances the interoperability of all chains and dapps. The vision of BSN is to enable everybody to have access to the revolutionary potential of blockchain technology, and to facilitate innovation in this space beyond the development of cryptocurrencies.
To learn more about BSN, check out the information package here.
Blockchain applications with cryptocurrencies — a risky business
Given that the vast majority of uses that blockchain has been put towards are cryptocurrencies, it is unsurprising that one of the main criticisms of the technology has been that it lacks real-world uses and therefore has no real or measurable impact.
He has a clear answer to this, and one which has huge implications for the future development of blockchain applications. He argues that the core problem arises from the fact that whilst certain cryptocurrency projects may have very well-designed business purposes, the required use of cryptocurrencies to access and pay for services on these platforms effectively neutralizes many of their benefits.
The best example would be Ethereum, which allows the integration of smart contracts onto its platform as well as the development of decentralized apps, and on which all payments must be made using the ‘local’ currency, the Ether. As can be seen in the chart below reproduced from Coindesk.com, the volatility of the exchange rate of the Ether versus the dollar since its inception makes the above proposition extremely risky for businesses to undertake.
Assuming a given smart contract within Ethereum was to be settled for one Ether in return for services rendered, in March 2020 to make this payment would have required around an input of around $130 to obtain the required Ether; to make the same payment today would necessitate upwards of $2,000.
Given that the vast majority of businesses earn their revenues in ‘ordinary’, central bank-backed currencies (£, $, ¥, etc.), the risk entailed by entering into contracts via Ethereum simply cannot be ignored. These so-called ‘fiat’ currencies are much more stable because they are backed-up by the authority and power of established central banks who stand ready to guarantee their value through the use of monetary policy instruments.
While it is true that businesses can’t and don’t expect to make all of their decisions under conditions of perfect knowledge and where there is no uncertainty, a cost that can increase by as much as 10 times in 12 months is simply impractical for many businesses to countenance when their fiat money revenues over the same period are unlikely to have changed.
Open permissioned blockchains, an early model of public chains with fiat currency
One project currently being worked on BSN is the open permissioned blockchain (OPB), which modifies public chains — allowing gas fee to be paid with fiat currencies and permission for node deployment, thus complying with Chinese regulations to accessing the Chinese market.
The ability to pay for the service in fiat currencies in OPB removes what economists call ‘exchange rate-risk’ from the equation when a business is estimating its operating costs over a given time-frame. As we can see from the graph above showing the Ether-dollar exchange rate, this risk is very substantial in the case of cryptocurrencies, and the OPB can also deliver increased functionality at a vastly reduced price.
According to Yifan He, “No matter it is a public chain, private chain or OPB, the ultimate purpose is to utilize blockchain technologies for real business. Public chain technologies have many competitive edges over permissioned chains, but you have to admit the fact that an economic model with uncontrollable costs is wobbly to start off any way, and such business built on it is doomed.
Allowing payment of gas fee with fiat currency makes everything more tangible and predictable, and I truly believe public chain with fiat currency is the future. OPB is the early-stage version to transition to this futuristic model. We have launched the OPB based on Cosmos/IRISnet SDK in China, and we’re glad that more public chains are approaching us, willing to try out this model with BSN.”
Please visit either bsnbase.io for international clients, or bsnnbase.com, for Chinese clients, for more information.
