Full text of Xiao Feng’s speech: “Meeting the “1995 Moment” of Web3”

On April 9, at the closing ceremony of the 2024 Hong Kong Web3 Carnival, Dr. Xiao Feng, Chairman of Wanxiang Blockchain and Chairman and CEO of HashKey Group, published an in-depth observation on the explosion of blockchain and Web3 industry applications. Dr. Xiao Feng believes that Web3 is about to usher in its own "1995 moment", and comprehensively analyzes the basic framework for the arrival of this moment and the timing of its arrival. In addition, Dr. Xiao Feng released the white paper "The First Principles of the New Economy of Web3" at this carnival.

Dr. Xiao Feng believes that blockchain has gone through the stage from "0-1", and has gone through the stage of building basic protocols and infrastructure, and it has been 15 years since the birth of Bitcoin. Next, blockchain will enter the stage of application explosion, that is, from the stage of "1-10". If we want to talk about "Web3's '1995 moment'", we have to extend the time and observe when such a great moment will begin to arrive from the time dimension of the past two hundred years.

First, four "technological paradigm revolutions"

In the past 200 years, there have been four important revolutions in the technological paradigm:

The first technological paradigm revolution was "mechanization", represented by the British Industrial Revolution, which occurred in the mid-18th century.

The second technological paradigm revolution was "electrification", which occurred in the late 19th century and was the "electrification" era represented by electric lights and telephones.

The third technological paradigm revolution was "informatization", which occurred in the 1920s and was represented by the emergence of computers and the Internet, which is called the "informatization" era.

The fourth technological paradigm revolution was "digitalization", which occurred at the beginning of this century, and the representative things were cloud technology, blockchain, and AI development. The underlying technology of cloud computing is also distributed computing. The very important characteristics of the digital age are distribution, decentralization, and self-organization.

Along with the four technological paradigm revolutions, the financial paradigm and capital paradigm also have a great transformation and upgrade.

Second, the fourth "capital paradigm shift"

In conjunction with the first technological paradigm revolution of "mechanization", the Main Street model characterized by consortium capital has entered the main stage of the financial market. Although the famous consortiums including Morgan Stanley, Carnegie, Rockefeller, etc. are no longer at the center of the historical stage, they are still there. With the revolution of several technological paradigms, the protagonists of financial capital are constantly changing in the center of the historical stage.

Along with the electrification revolution at the end of the 19th century, the "Wall Street model" characterized by financial capital began to become the protagonist in the financial market, and representative companies include Goldman Sachs and Morgan Stanley.

In the information revolution era in the middle of the last century, the Silicon Valley model characterized by venture capital began to emerge. I once walked back and forth on the sand dune road in Silicon Valley, counting those famous VCs, and feeling how they changed finance and also changed the financing method of technological innovation.

The revolution of digital technology paradigm that occurred at the beginning of this century was accompanied by a new financial capital, so-called crypto capital, which began to gradually move to the stage of history and to the center of the financial market. We call this model the "crypto model", such as BTC, ETH, ICO in 2017, and the crypto capital such as STO, IEO, RWA, stablecoins, etc. that everyone is discussing now. These crypto capitals have a common feature, which is a new asset class based on cryptography and distributed ledgers.

Third, the first principles of blockchain: a new accounting method

We focus on the development and changes of 200 years to the last decade, and then look at the paradigm revolution based on digital technology. Due to the change of the technological paradigm, crypto assets have emerged in the capital paradigm. Crypto assets are new asset categories and capital models based on distributed ledgers and cryptography technology.

If we look at blockchain fundamentally, from the underlying logic, from the essence, from the perspective of first principles, its first principle is a new accounting method.

Human society has experienced three different accounting methods. The earliest accounting method was single-entry accounting, which only recorded income and expenditure, and each kept its own account, which was a private account book.

Later, double-entry accounting appeared, which brought assets and liabilities into accounting on top of income and expenditure, but it was still recorded in private accounts.

Blockchain, which came out in 2009, is a distributed ledger (DLT). It records digital value and network value, and no longer records accounts in private ledgers, but in an open and transparent global public ledger. Everyone records accounts together, and all stakeholders record accounts in one ledger. This is the first principle of blockchain, a transparent and open "global public ledger". All Web3 innovations are based on the first principle.

Fourth, the millennium change of accounting methods

In the more than 5,000 years of human society with written records, there have been three iterations or innovations in accounting methods. It can be seen that the millennium change of accounting methods is indeed of great value to human social economy.

The earliest single-entry ledger was found in 3500 BC on a clay tablet unearthed in the Sumerian region. The ledger used the single-entry accounting method to record only income and expenditure. The double-entry accounting method was born in the early fourteenth century in the city-states in the northern Mediterranean of Italy. Because maritime trade made trade very complicated, more complex accounting methods were needed. Maritime trade involves partnerships, borrowing, and taxation. The single-entry accounting method is obviously no longer able to adapt to such a complex new maritime trade. The third accounting method was more than 700 years after 1900. In 2009, with the emergence of Bitcoin and blockchain, a new accounting method was developed, a distributed accounting method that records digital value and network value. Distributed ledgers can also be said to be an accounting system created by human digital survival needs.

The book "Digital Survival" predicts the digital migration of human society in a few decades, and the distributed accounting method is designed for digital migration and digital survival.

Fifth, the three-layer structure of the distributed accounting system.

Any computing system has a three-layer architecture, and the distributed computing system is no exception.

The distributed accounting system first has a set of accounting methods, and both the double-entry accounting method and the distributed accounting method belong to accounting methods. At the same time, there is an account system. The double-entry accounting method uses bank accounts to record value, store value, and transfer value. In the Web3 era, bank accounts have been transformed into encrypted accounts. Whether it is Bitcoin's UTXO or Ethereum's account system, they are all encrypted accounts. In addition to the account system, there are also accounting units. The accounting unit of the double-entry accounting method is the legal currency of each country. When it comes to the distributed accounting system, the accounting unit becomes digital currency.

Sixth, accounting method - the foundation of economic and social civilization

Accounting method has great value to human economy, society, politics, etc., and is the foundation of economic and social civilization. Both economists have discussed that double-entry bookkeeping is the core of capitalism and the origin of capitalist economic and political system. If the account cannot be recorded, then the capitalist economic civilization system cannot be born, and the company system, partnership system, financial market, etc. cannot be born, including taxation.

Taxation is very important for modern countries. To collect taxes from business, the accounts must be calculated first. The Italian double-entry bookkeeping method started in 1300 and has been continuously improved. China was probably in the Ming Dynasty. The "15th Year of Wanli" summarized the reasons for the failure of the Ming Dynasty and mentioned that the Ming Dynasty lacked the ability to "manage numbers". At that time, China used the single-entry bookkeeping method, which recorded running accounts, and the ability to manage numbers was relatively less developed and perfect than Europe. Accounting and financial argumentation are actually two sides of the same coin. The Ming Dynasty obviously lacked a good bookkeeping foundation for accounting and financial argumentation.

Seventh, the "1995 Moment" of the Internet

Back to the topic, welcome the "1995 Moment" of Web3. This concept is proposed relative to the "1995 Moment" of the Internet. Almost all the large Internet platforms that are now familiar to everyone were born in the decade from 1995 to 2005, of course there are some exceptions. We have studied this phenomenon in depth and found that before 1995 was precisely the period of maturity of the basic architecture of the Internet.

Maturity is reflected in two aspects:

First, the Internet shifted from the architecture of the ARPANET (ARPRNet) to the architecture of the World Wide Web, and the TCP/IP model of the Internet architecture was established.

Second, in addition to the infrastructure being determined before 1995, browsers and graphical operating systems that are very friendly to end users have also gradually improved, allowing end users to use the Internet well.

The Internet's infrastructure is determined, and the tools and means of using the Internet are perfect. Therefore, 1995-2005 is the "golden decade" of the explosion of Internet applications, and almost all large Internet platforms were born at this time.

Eighth, Web3's "1995 Moment" (I)

When will Web3's "1995 Moment" occur? The development of Web3 has two major supports: one is blockchain, and the other is AI.

The earliest blockchain "Bitcoin Network" was born in 2009, and the earliest AI was born more than 60 years ago, but it was not until the emergence of AlphaGo in 2014 that everyone realized that deep learning might be a new path for the development of AI. The first half of the 2010s was also the period when the two pillars of Web3, blockchain and AI, began to undergo a phased transformation.

In 2015, the hot topic discussed in the blockchain circle was "the relationship between blockchain and AI", and everyone came to the conclusion that "AI is a revolution in productivity, while blockchain is a revolution in production relations", and the two are complementary.

Ninth, Web3's "1995 Moment" (Part 2)

When the time moves to 2024, we find that the two pillars of Web3: blockchain and AI have reached the critical moment of the ultimate solution in 2024. Blockchain has always existed in the "impossible triangle". If you only do things on the L1 basic public chain, directly deploy contracts and directly deploy applications, then your scalability and performance cannot support large-scale applications. At the same time, gas fees and costs do not support large-scale applications.

Blockchain has solved the "impossible triangle" of the basic public chain through Ethereum sharding. The basic public chain L1 is only responsible for decentralization and security, and scalability and performance are solved through layering. Today, Vitalik also talked about solving the scalability and performance problems through L2 and even the future L3. This proves that the basic architecture and ultimate technical solution of blockchain have been determined here.

At the same time, the same is true for AI. The AlphaGo deep learning model in 2014 has come to the current neural network model. The AI ​​technical architecture has basically established the technical architecture of AI through a general multi-modal large model.

When both technical architectures mature in 2024, we may expect that the "1995 moment" of Web3 will start from this year and last for the next ten years. 2024-2034 should be the "1995 moment" of Web3, which is also the best moment for Web3 application innovation.

A large number of disruptive innovations at the application level should be supported only after these two basic system architectures are determined.

Tenth, disruptive innovation

Speaking of Web3 application innovation, what is the disruptive innovation of the Web3 platform? Everyone says that blockchain is a value network and the Internet is an information network. From the underlying logic of disruptive innovation, the disruptive innovation of the Internet platform, whether you are e-commerce, social networking, Didi Taxi, or Meituan Takeout, in fact, what you do is the same thing. From the most basic and essential first principles, you are all matching information, collecting information, collecting data, accurately profiling, and efficiently matching.

The most basic and essential thing of the disruptive innovation of the Internet platform is "information matching", while the most essential thing of the disruptive innovation of the Web3 platform is "value matching", creating a virtual world and a digital native world.

In the digital native world, through distributed ledgers, all participants have data sovereignty in their hands and are no longer deprived by the platform. Everyone can have their own data sovereignty, and the rights to these data can be taken away.

Then in the Token economic model, we can share and create value together, and at the same time share value. Through the stakeholder economic system, everyone can create and share value together, rather than having your value deprived by others.

I think from the underlying logic of disruptive innovation, the Web3 platform is engaged in value matching.

Eleven, Web3 disruptive innovation principles

From the underlying logic, I personally think that Web3's disruptive innovation may need to follow the following five principles:

(1) From the edge to the core. From nothing to something, from zero to one, rather than transforming popular products in the Internet era or subverting a popular product. Instead, it should start from the edge and slowly grow and become the core of the Web3 world.

(2) From native to twin. Don’t go in the wrong direction. Don’t go from twin to native. Digital native things are the foundation of disruptive innovation and can produce disruptive innovation. Any method of using digital twins is to improve the marginal effect, which is obviously not an innovation of disruptive business model.

(3) From nature to explicitness. I often encounter people saying that WeChat is very popular, so I want to use blockchain and AI to make decentralized WeChat. Decentralized WeChat does not exist. Socializing is human nature and has been like this for thousands of years. WeChat is a way of matching information in the Internet era to meet the social or essential needs of others. In the Web3 world, there will definitely not be social tools/social networks like WeChat. Instead, some new tools, new means, and new models will be used to meet the social needs of everyone. Don’t reverse these two relationships.

(4) Innovate Web3 from the first principles. The so-called first principles are to create a new business model that matches value on an open and transparent global ledger.

(5) The "1995 moment" of the Internet is not only the maturity of the basic system architecture, but also the maturity of browsers and operating systems that are very friendly to terminals, which allows more people to use the Internet. I believe that Web3 is now also exchanging terminal-friendly tools such as "browsers" and "graphical operating systems" in the Internet era.

As Mr. Jiang mentioned earlier, the operating system in the AI ​​era may not be a graphical operating system, but a natural language operating system. Therefore, the operating system of Web3 may be based on natural language. This is an original, native, edge-based, and nature-based innovation of terminal-friendly tools. I believe that the graphical operating system is indeed a product of the information Internet era, and the natural language operating system may be a product of innovation in the Web3 era.

12. Technical architecture of Web3 application innovation

Innovation at the application level must be based on the modules and protocol stacks built in the past decade. What have we done in the past decade? There are distributed networks and Web3.0. We have built a distributed ledger on the distributed network - blockchain. At the same time, we have built a distributed finance, DeFi, on the distributed ledger.

On this basis, all Web3 application innovations are based on such a network, such an accounting system, and a financial support system to make Web3 innovations, so it is called distributed business.

13. Economic model of Web3 application innovation

In the closing speech of the 2023 Hong Kong Web3 Carnival, I talked about the economic model of blockchain applications. The economic model of blockchain applications is different from the economic model of blockchain infrastructure. Blockchain infrastructures such as Bitcoin and Ethereum are basically single-token economic models because they are basic protocols. But after the application protocol comes out, it can design many more economic models and tools than the basic protocol.

I proposed the "three-token model" at that time, but I won't explain it in detail today. The "three-token model" mainly refers to three types of tokens: one is the functional token, which is the tokenization of the right to use; the second is the security token, which is the tokenization of the ownership; and the third is NFT, which is the tokenization of digital goods and digital services.

All Web3 application innovations may use one, two or three tokens to build your economic model. The space for innovation is much larger than that of technical protocols.

Fourteenth, the integration and interoperability of Web3 application innovation

The bridge between traditional finance and Crypto finance is both a prerequisite for Web3 technology innovation and a result of Web3 application innovation. The integration and interoperability of the two is the trend of the future.

There are at least five bridges that help the traditional financial market and the Web3 financial market/Crypto financial market to connect with each other.

First, the crypto asset ETF.

Second, the legal currency stablecoin. There was no legal and compliant legal currency stablecoin before the stablecoin, but now Hong Kong and Singapore are starting to come out with legal currency stablecoin.

Third, STO. This afternoon's discussion was about the legal and compliant tokenization of STO equity.

Fourth, RWA, the tokenization of traditional financial assets. HSBC Hong Kong tokenized gold, and BlackRock in the United States tokenized U.S. Treasury bond funds. These are all RWAs, which are all to build bridges to enable traditional finance and Crypto finance to connect with each other.

Fifth, licensed exchanges. Compliance of exchanges is a major trend. Licensed, compliant and regulated exchanges can also effectively connect traditional finance, traditional investors and the crypto market and crypto asset investment. Licensed, compliant and regulated exchanges play two roles: (1) Investment and trading of crypto assets; (2) Exchange of fiat currency and digital currency. For example, on Coinbase, a large amount of USDC is issued through the trading platform, which completes the exchange service of fiat currency and digital currency. The above may be the overall framework for complete Web3 application innovation for the next decade.