Crypto Veteran. Tokenization, DeFi and Security Tokens - Blockchain.
Ishan Pandey: Hi Jack, welcome to our series “Behind the Startup.” Please tell us about yourself and the story behind Wanchain?
Jack Lu: Hello Ishan, thanks for having me!
Though my blockchain journey is among the longest in the industry, I’ll try to be brief! For me, it all started back in 2012, during the very early days of Bitcoin. Back then, I worked as a software architect for traditional tech firms such as Xerox and Hewlett-Packard. A friend of mine introduced me to Bitcoin - a brand new concept that, frankly, changed my life. I was immediately hooked and started mining Bitcoin and trying to code Bitcoin applications. Those were exciting times.
After a couple of years, I heard about a young man named Vitalik Buterin and his new project. Reading an early draft of the Ethereum whitepaper reiterated my belief that blockchain was the future and I committed myself to the industry full time.
I co-founded my first blockchain project, called Factom, in 2014 and got a lot of help from Vitalik. It was here that the seeds of what would become Wanchain’s cross-chain infrastructure were planted. Since that time, I’ve been fully dedicated to blockchain interoperability. I saw, first hand, that it took the Internet industry approximately 20 years to solve the issue of network interoperability. I guess you can say we’re about halfway there!
Ishan Pandey: What are your views on the growth of Ethereum from its early days. Can you give us an overview of Ethereum’s history, forks, and the challenges it faced over time?
Jack Lu: There are no limits to the admiration I have for what Vitalik has accomplished with Ethereum. Vitalik and I have known each other since 2014 and truthfully, he has given me much help. As I’m sure you know, Wanchain itself started out as a fork of the Ethereum codebase back in 2017!
While Ethereum is an industry behemoth today, it certainly experienced its fair share of challenges over the years. Besides technical challenges like frequent forks, network congestion and the shift to POS, Ethereum also had to navigate human challenges like internal politics and team changes. What Ethereum’s journey really teaches us, however, is the need for perseverance. Ultimately, a single element -- smart contracts -- was enough to spawn the ICO craze of 2017 and 2018. This is what really helped establish Ethereum. As the blockchain industry continues to develop, the need for network interoperability will become increasingly clear.
Ishan Pandey: There can be two types of validator nodes on a blockchain network as PoS validator nodes and Storeman validator nodes. Kindly elaborate on the features of these two validator nodes, how they work and what is the significance and economics behind them?
Jack Lu: Certainly! Let me introduce them one at a time.
Validator nodes are the nodes tasked with confirming transactions and reaching consensus on the blockchain network. They use a proprietary Proof of Stake consensus algorithm – for example, we used Cardano’s Ouroboros’ provably safe model as a starting point while adding our own improvements such as a proprietary on-chain random number generator algorithm as well as a more efficient algorithm to select leaders.
Storeman nodes, on the other hand, power blockchain’s cross-chain technology. These nodes are tasked with performing and verifying cross-chain transactions. When a user initiates a cross-chain transaction, the Storeman nodes lock the asset on the origin chain and mint assets on the destination chain. Storeman nodes make use of multiparty computing and threshold secret sharing technology to ensure both security and decentralization.
PoS Validator node and Storeman node systems are fully decentralized and scalable. Each node is also required to stake tokens as collateral. This ensures the security of the network as well as the cross-chained assets.
Ishan Pandey: What is a decentralized direct bridge and how can it address interoperability issues within the DeFi ecosystem?
Jack Lu: Let’s look at these terms in reverse order:
“Bridge.” A bridge is an infrastructure that connects two distinct and separate blockchain networks. This infrastructure allows the two networks to share data and assets. Bridges essentially create a single, aggregate network.
“Direct.” This means that we can move from blockchain A to blockchain B without needing to pass through an intermediary. For example, a direct bridge allows your BTC to move to Ethereum without first passing through Wanchain or Binance Smart Chain or any other chain. Based on our research, Wanchain’s decentralized Bitcoin - Ethereum direct bridge is the only truly decentralized Bitcoin-Ethereum direct bridge on the market.
“Decentralized.” Simply, there is no single controlling entity. Control and operation of the direct bridges are spread out across a theoretically infinite number of participants. Additionally, there are no hard, artificial barriers forbidding or limiting who can participate.
Therefore, a decentralized direct bridge is an infrastructure that connects two distinct and separate blockchain networks without relying on an intermediary network that operates freely and independently without any kind of central or controlling authority.
Decentralized direct bridges are incredibly important to the future of DeFi. Right now, I think it’s fair to say that no blockchain has achieved mass adoption. I believe that a major reason for this is because of a lack of interoperability between isolated chains. There is a contradiction inherent to the notion that Decentralized Finance is constrained to a single network. A similar contradiction presents itself if we rely on centralized and semi-centralized solutions to solve this problem. Ultimately, truly decentralized cross-chain solutions are needed to unlock the full potential of DeFi and blockchain.
Ishan Pandey: The recent XRP integration with Wanchain has further affirmed that the DeFi ecosystem is expanding in the Asian region. Do you think the DeFi wave will intensify in the coming years?
Jack Lu: Absolutely. I think DeFi will continue to expand around the globe. In Asia in particular, there are huge swaths of unbanked and underbanked populations. Many people are cut off from existing investment channels and are growing frustrated with what they deem to be an unfair financial market.
These people are growing aware of the potential benefits of DeFi. Despite the speculative nature of cryptocurrency, people are willing to try a new approach because - despite the inherent risks - they still see cryptocurrency as being fairer than the traditional markets. As the industry continues to mature, I’m sure that DeFi will continue to grow. I don’t think this trend will end any time soon. Eventually, everything will be decentralized and connected.
Ishan Pandey: The Basel Committee has initiated a public consultation on preliminary ideas for treating banks’ crypto-asset exposures prudentially. What will be the impact of this on banks and does crypto-asset exposure to banks increase non-performing assets or other financial crisis?
Jack Lu: I am not familiar enough with the Basel Committee’s public consultation details to comment authoritatively. However, in general terms, I think the inherent risks of the top crypto assets compare favourably to many fiat currencies and other traditional financial assets. As crypto-assets become more mainstream, banks will undoubtedly have to provide services related to crypto-assets. As more professional financial products emerge, the crypto asset markets will begin to stabilize.
Ishan Pandey: DeFi has been the talk of the town within the blockchain ecosystem in recent times. However, there are a few roadblocks on the way which have been holding DeFi back, for example – smart contracts exploit, exit scams etc. How can smart contract issues such as logic error, coding mistakes can be addressed while designing and coding a decentralized protocol?
Jack Lu: It is important to remember that we are still in the earliest days of DeFi. Certainly, as the industry continues its incredible growth, there will be growing pains. I can guarantee that we have not seen the last big hack or exploit. However, over time, best practices and standards will develop. Not only will these help with interoperability, but as with most crowd-sourced endeavors, the cream will rise to the top.
Personally, I myself have been involved in many discussions about formal verification, smart contract audits, etc. Many companies specialize in this area, and many tools have been built. This industry segment is developing quickly and has learned a lot from past experiences. We may not yet be able to get rid of all coding bugs, and the battle with hackers may never truly end, but our industry is becoming more secure every year.
Ishan Pandey: In your opinion, how important is interoperability within the DeFi ecosystem and how can DeFi be integrated with legacy systems?
Jack Lu: Interoperability is vital to the future of DeFi and blockchain. Much as was the case with the Internet, DeFi has no chance at mass adoption until this problem is solved. What would the Internet look like today without interoperability? Can you imagine if transfers between different banks weren’t possible? Or if Gmail couldn’t send an email to Outlook? Any benefit of these systems would be completely undermined!
Frankly, this is the current situation with blockchain. Having all these isolated blockchains makes it impossible for the world to enjoy the full benefits of blockchain and DLT. Cross-chain interoperability is the key to unlocking the full potential of blockchain technology.
Connecting to legacy systems will also happen eventually, though I expect it to be a slower process. I believe the most likely scenario to play out is that enterprises and governments will first upgrade their legacy systems using private or consortium chains. The larger of these enterprises may need multiple private chains, each dedicated to a different business vertical. From there, these private chains will be connected to one another and, over time, will connect to the public networks. As an aside, Wanchain and its partners are also hard at work on this front -- Wanchain’s technology is currently being used and tested at the State Grid of China, as well as in some Smart City and supply chain finance projects.
Ishan Pandey: Chinese authorities have recently announced that they will be moving towards stricter cryptocurrency regulations which promptly led to falling bitcoin prices. How will Chinese regulations affect the market as a whole?
Jack Lu: While it is, of course, necessary for everyone to remain abreast of the laws and regulations impacting the blockchain industry, I believe that China’s new regulations are being blown out of proportion. In many ways, the regulations that China published in 2017 were more restrictive than this year’s updates. That being said, these announcements and policies undoubtedly impacted the market as a whole. From my point of view, I remain very optimistic about the future of cryptocurrencies and blockchain because it is an unstoppable global trend.
Ishan Pandey: What are your views on NFTs, and do you think the NFT market has lost its steam now as the hype has settled?
Jack Lu: To be honest, I was caught a little off guard by the sudden surge in NFT popularity. The technology itself isn’t very new, and there wasn’t any major technical innovation prior to the surge in popularity. Wanchain itself has already supported NFTs for years! That being said, it appears as though the excitement surrounding NFTs is slowing down. If nothing else, I think that this period will serve as a proof of concept for NFTs. The term “NFT” itself has achieved a level of mainstream consciousness that is quite impressive.
Personally, I view NFTs applied to gifs, artworks and other visual mediums as the low hanging fruit. Similarly, we’re likely to see NFTs applied to intellectual property and copyright sooner than later. I see this as a natural progression. NFT technology becomes more exciting as we project further into the future. When applied to all the world’s data, NFT technology opens all sorts of opportunities. To give you an example, the concept of copying digital data is rooted very deeply in how most people understand the digital world. This makes the notion of unique data both incredibly disruptive and powerful. In some ways, this is a commodification of data that is counter to the philosophy that launched the Internet. But younger generations have a drastically different relationship to the digital world. They only know a world of data, so it makes sense that we’d see these ideas collide at some point.
Disclaimer: The purpose of this article is to remove informational asymmetry existing today in our digital markets by performing due diligence by asking the right questions and equipping readers with better opinions to make informed decisions. The material does not constitute any investment, financial, or legal advice. Please do your research before investing in any digital assets or tokens, etc. The writer does not have any vested interest in the company. Ishan Pandey.
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