Guest introduction

The 53rd phase of the "Blockchain in Korea", the Rotation host Michael Wu who is Co-founder & CEO of Amber Group invited Daniel Lyu, Co-founder and COO of the Nervos Foundation to talk about "Nervos' New Idea of Cracking the Existing Public Chains' Pain Points".

Daniel Lyu: 

Co-founder and COO of the Nervos Foundation. Senior Architect & Blockchain Technology Specialist, 5 years of experience in digital cryptocurrency and blockchain technology development. Former imToken project co-founder and CTO, EthFans Ethereum enthusiast community co-founder,security network co-founder, Brave troops open source crypto digital asset trading platform core developer, former cloud exchange CTO, technical community Ruby China’s founder, technology podcast & host.


Michael Wu:You are currently the Co-founder and COO of the Nervos Foundation.How did you connect with the blockchain industry? It is best not to start a business with good friends. The core founding team of Nervos have deep relationship with each other. And Nervos's performance makes the market eye-catching. What is the secret?


Daniel Lyu: Thank you, let me first introduce how I joined the blockchain industry. I have been in the digital currency and blockchain industry for more than five and a half years. Five and a half years is not a short time relative to this young industry. I started to focus on and research this industry at the end of 2013, and officially joined the industry at the beginning of 2014. When I entered this field at the beginning, I didn't really understand the blockchain. I think I joined the digital currency field.


Because the concept of blockchain was not popular in 2014, most people didn't know what the blockchain was, what they could do at that time.  They just knew Bitcoin and discuss Bitcoin. Joining this industry stems from a thing I did at the time. I made a podcast with a few friends called, which is a technical audio podcast because I am an engineer technical background and interested about startup-related topics. So we invite many tech entrepreneurs to chat about their entrepreneurial stories through this podcast.


I was invited a guest at the time, and he was also a friend of the Ruby technology community. At that time, Qiu Liang, CEO of the Yunbi Exchange, came to my podcast to introduce digital currency technology. I was the founder and administrator of the Ruby community in China.The Yunbi network mainly uses the Ruby language to develop the exchange system,so we have known each other quite a long time and get along well. This was the podcast interview at the time, and you can still listen to it online


After that, Qiu Liang invited me to join the Yunbi network and join the digital currency trading industry. I have been talking to Qiu Liang for a long time. He introduced me from a perspective of an industry expert, and he know a lot of knowledge that is difficult to obtain from the outside, as well as the cognition and judgment of the future development of the blockchain industry. This has aroused my great interest. After a period of research, I firmly believe that this industry will developand even change the world, so I accepted the job of Yunbi and my position was the CTO.


After that, I pulled my former colleague and friend Jan, Terry, and Ben to join the company. Then we launched the Ethereum enthusiast community and incubated the Spark Pool. I founded the imToken project with Ben, and Jan and Terry founded Cryptape which provides blockchain technology solutions for Chinese banks and financial institutions. Later, Terry and Jan invited me to launch the Nervos project. We have beenworking together for more than ten years and have been working in the blockchain for more than five years.


It is best not to start a business with good friends. I think there is a cognitive bias. Entrepreneurship itself is a very high risk and a very high failure rate. As an entrepreneur, every day is fighting against various uncertainties. Uncertainty from the market,uncertainty from technical challenges, how to find the best people to join the team, how to manage finances, and so on. Entrepreneurs must hedge their risks and increase the probability of success through all available resources and their own efforts. In the process, if your entrepreneurial partner is your good friend, and the ability and resources can complement each other, this is very helpful for entrepreneurship.


In particular, the long-term trust foundation that friends identify with each other and establish, and the shared values and visions of what they do, can be sustained together, especially in adversity, entrepreneurship is never simple, in most cases everyone must persist in adversity.


There are many examples shows that many friends who have started a business together and succeeded may oppose each other when they discuss how to distribute the benefits. I think that as an entrepreneur, you should consider this question with adult thinking. If it is not fair and reasonable, then the venture itself will not succeed. When the startup team decides to start a business, they should think about it clearly and solve it. Otherwise, you may not be ready yet. Besides, I don't think there are other secrets.


Michael Wu:Please introduce the Nervos and its mainbusinesses. What is the current progress of Nervos?


Daniel Lyu: Firstly, let me introduce the business of Nervos. Nervos' goal is to use blockchain technology to secure the encryption economy. So Nervos proposed a layered architecture solution toaddress the various issues  the blockchain infrastructure is facing, especially the scalability issues. This solution is divided into two layers, Layer 1 as the bottom layer, used to protect the security of assets. Layer 2 is used to support high performance applications.


The layer 1 layer of Nervos, we call it the CKB layer. On May 18 this year we released the test chain for Nervos CKB. After the test chain went live, we launched a monthly test chain mining competitionon the test chain. Currently, we have carried out three rounds. The fourth round will be officially started on September7.Https://

This is the introduction page of our testchain's fourth mining competition. We took out a large token to reward the miners who participated in the test chain mining.


This mining competition is also the last round before our main network publish online. Over the past few months, we have gathered a lot of feedback through a series of activities carried out in the test chain to further improve the network. At the same time, we are also working with well-known security audit institutions at home and abroad to conduct a comprehensive code security audit of our projects to ensure the safety of the project. Our main network is expected to be officially launched in the fourth quarter of this year.



Michael Wu:Nervos proposed the Hierarchical Extension Solution for the blockchain, clarifying that Layer 1 committed to security and Layer 2 focued on the performance. What impact will this solution have on the industry?What is the main reason that Nervos team choose the PoW?


Daniel Lyu: The layered expansion solution is actually a technical direction that may change the entire blockchain industry. There is a wave of public chain boom from 2017 to 2018. The technology of these public chains is complicated, but if we look at it from a higher perspective, the development of the public chain has only two directions, one is the expansion of the chain, and the other is expansion outside the chain.


Most of the projects focus on the expansion of the technology on the chain, and there are several ways to expand the chain:

The first method is "larger block", BCH is doing this.

The second way is to use a faster consensus algorithm. Because you find that one chain is not performing well and the TPS is too low, the increase in consensus nodes will lead to performance processing bottlenecks, so there are new high-performance consensus algorithms such as PoSand DPoS emerged to improve efficiency.

The third method, "Parallel Computing- Sharding Technology", the goal of Ethereum 2.0 is to implement sharding to solve scalability problems.

The fourth method is "Improve the data structure of the ledger model", DAG, a new top ology data structure, is more suitable for processing massive amounts of data and massive transactions than the chain structure.


In our opinion, using these solutions to solve the problem is to solve the performance bottleneck in the current system through technology replacement. The expansion plan on the chain is achieving one goal: to make a stronger chain. However, each technical solution faces various trade-offs when it is implemented. Each solution will make some compromises in other aspects while bringing better performance improvement. Sharding achieves complexity problems, PoS consensus algorithms lead to centralization problems, DAG theory lacks the oretical testing, and so on.


From an architectural point of view, the network is divided into different levels, different problems are solved by different levels, and finally these levels are combined to achieve the maximum effect in a holistic manner. We have seen a lot of out-of-chain expansion solution, such as lightning network, state channel, Plasma, Truebit and etc.The biggest development bottleneck of these out-of-chain expansion solutions comes from the fact that the current layer of network does not support them.


So we Nervos proposed a layered solution to provide a better Layer 1 for various Layer 2 solutions to support them. We believe that this layered approach can really solve the problem of the scalability of the blockchain. The main reason behind the choice of PoW is that the location of layer 1 is to ensure the security of the underlying systems and assets.


It has been discussed that between the PoW and PoS algorithms, which one is safer? In fact, currently no way to prove that PoS algorithm is safer than PoW, but we can be sure that PoS is more complicated than PoW. There is no way to guarantee  from both design and engineering implementation that it is safe for this complexity. PoW has been verified inthe production environment for a decade. Layer 1 is the foundation of the encryption economy. The blockchain that assumes the Layer 1 role must be a network without a license, because Layer 1 must be a globally shared, neutral facility. If we want Layer 1 to be decentralized and secure as much as possible, Layer 1 has only one option which is PoW. PoS is not unusable, just not suitable for Layer 1.


Michael Wu:You once said that “The goal for the next generation blockchain economic model should be these three: 1. Long-term security and lasting stability; 2. Coordinating the interests of various participants; 3. Value acquisition.” How should we understand this opinion?


Daniel Lyu: 1. Long-term security and lasting stability.

2. Coordinate the interests of the various participants.

3. Value capture.

This is the three issues that we must consider when we think of designing the economic model of the next generation of blockchains.

Let me explain briefly, firstly explaining long-term security and lasting stability.

An important design criterion for economic model design has to solve the right problem. In other words, how do you judge that your economic model is a good design?


Being able to make this system lasting for a long time is a fundamental core goal. Use this economic model to examine the blockchain to ensure long-term operation of the entire system, rather than sacrificing long-term sustainability for short-term benefits. The economic model design of Bitcoin is a typical example. As Bitcoin halved the block rewards every four years, Bitcoin’s economic incentives for these curity-protected miners will rely more on transaction fees than on  the generating block reward.


When the block reward is reduced to a very little level, can the system provide enough miner fees to support the miners' income?Make up for the miners' expenses?

This is currently an inconclusive issue and will continue to be discussed. What we see is that the economic model design of Bitcoin leaves this question, and whether this problem can be solved in the end is uncertain, so whether the economic model of Bitcoin can be maintained for along time is also uncertain.

Ideally, at the beginning of the model design, you should consider the long-term sustainability of the system, and not sacrifice long-term sustainability for more incentives for miners in the earlydays.


The second point is about coordinating the interests of the various parties.

The design of the economic model is different from other models. It considers an economy, how many people participate in this economy, what value each person will provide for this network, and what kind of benefits he can get, then how to balance the value and meaning of each role in the network is must be considered. When designing an economic model, consider for each role that all participates in the blockchain who are contributing to the network and thus gaining the value he deserves. The most important thing is to find a way for everyone to be in a fair position in this ecology, such as miners, developers, users, ecological builders, everyone's contribution and harvest in the ecology is positively related, then everyone will contribute value together. I like to use the cake to make an analogy. As long as everyone thinks that the cake they have is fair,then everyone will be willing to make the cake bigger together.


The question of coordinating the interests of the various parties is how to make the cake bigger. This is a very complicated issue, but the problem with the public chain is to understand how each party's interests are distributed. “Aligning interests and pursuing fairness” is the core principle. In particular, if a participant pays a small amount of effort and can easily obtain greater value that others have tried to create, such a system is difficult to grow.


The third point is about value capture,which I can also explain with an example.


This is a recent trend. The largest stable currency USDT has migrated from the OMNI network to the Ethereum platform, and this migration speed is fast, which is equivalent to a total value of more than $3 billion which is an asset with excellent liquidity migrated to the Ethereum platform. The Ethereum platform suddenly added more than $3 billion in assets.Does it bring additional benefits to the miners who maintain the safety of the Ethereum? The answer is no!


Ethereum still uses the PoW consensus. Its biggest security threat comes from 51% attacks. The main way to fight against 51% attacks is to raise the threshold of attack, which is to increase the market price of Ethereum, thus stimulating miners to invest more energy and computing power to ensure the security of the network and improve security barriers. But the reality is that the miners in Ethereum will not get any extra income from the USDT migration to the Ethereum platform, but to protect the platform with additional $3 billion in assets. Then there may be another market value of $3 billion asset migrated tomorrow. How about the same happened the day after tomorrow? If one day, the value of the assets carried on the Ethereum platform exceeds the boundary of the ETF's attack cost, what will happen?


Security has border, if we do not increase security boundaries, and there is no way to take on more assets. If the scale of the assets on the platform increases, but it is unable to provide additional benefits for the miners who protect the underlying assets, the finalhigh-value, high-net-worth assets cannot be finally guaranteed, so this is the dilemma faced by the smart contract platform. The value of the new assets has not been captured by Ethereum itself, and the miners in Ethereum are not getting more economic incentives, so they will not increase the input of computing power. How to design to allow the upper level of ecological prosperity to stimulate the lower level of security assurance? Nervos proposed a very simplevalue circulation and capture model. The upper level of ecological prosperity can increase the value of the underlying platform token, increase the value of the bottom layer, and increase the interests of the miners, so that more security will be invested in the bottom network, which will provide better security for the upper network.


Michael Wu:The blockchain 3.0 era is coming. People are paying more attention to a public chain application scenario and subsequent project lauching. What is the application scenario of Nervos? How the Nervos Network is committed to a thriving encryption economy?


Daniel Lyu: Nervos focuses on different senarios on each levels. Nervos is a layered network, with the underlying focuson asset security and support for the upper layers.

Asset security refers to the use of computing power to protect system security, as well as allowing users to easily distribute their assets at the bottom and provide computing protection for assets issued by users.

The support for the upper layer is mainly that we have introduced a very flexible implementation mechanism of virtual machines and smart contracts. This mechanism can flexibly extend the underlying support for various encryption algorithms to verify and liquidate  the clearing requests submitted by the upper layers.


At the Layer 2, we focus on a variety of Layer 2 application frameworks and technologies, such as Lightning Networks,Plasma, and Celer Network, Counterfactual, Matic Network, etc., which can be more easily deployed to the underlying Layer 1. And then based on these Layers 2 solutions cut into specific scenarios, such as payments, games, decentralized finance and etc., to provide better performance and user experience. Nervos' future planning and development goals will be achieved through the underlying asset security and more flexible clearing support, coupled with the rich application ecosystem in the upper layer to realize a prosperous encryption economy.



Michael Wu:Nervos is at the forefront of internationalization and has received investment from a number of investment institutions at home and abroad. What are the differences between blockchain industries or projects in various countries?


Daniel Lyu: First of all, if any blockchain project would like to have further development, then the direction and ideas of international development should be considered at the beginning. However, blockchain projects in different countries may rely on some local advantages to achieve some early development advantages in the early stages.


Even if early development relies on local advantages, it is still necessary to consider as early as possible to be able to develop internationally at some point in the future. From the point of view of the final situation, projects do not think about international development, and not build a world-wide ecosystem and community to support the project does not have any future. If you understand this at the beginning, you should layout as early as possible, go out and communicate with overseas users,communities, developers, and investors to win their understanding and recognition. This is reason Nervos went for overseas investment institutions and investors in the early stage.


The blockchain development in various countries is not balanced, especially in Europe and the United States. The blockchain has certain development advantages in both cryptography, game theory, and economic model design theory, but the blockchain team in the Asia-Pacific region, projects, community and ecology achievied the rapid development, we see the gap is shrinking, and more and more project teams have a larger vision and more international, this trend is very obvious. So the current gap is the difference between the resources and endowments of each team, and the difference will disappear in the future.


Michael Wu:Marc Andreessen, Facebook board member and a well-known Silicon Valley venture capitalist, compared the early days of cryptocurrency and Internet development. He personally believes that cryptocurrency is very close to mainstream applications and hints that the encryption community has all the raw materials needed to cast this tool for economic development.What do you think of this point of view?


Daniel Lyu: I am a fan of Marc Andreessen.I have read the book "The Hard Thing about Hard Things" and I have read many times, and in the past entrepreneurial experience, it has had a great impact on me. The investment institution a16z which he founded has an unparalleled influence in the Internet entrepreneurship circle.


We have had contact with a16z. This is an investment institution has entrepreneurial spirit. They will do their utmost to help entrepreneurs learn, grow, and constantly spread the core values of entrepreneurship  to influence more entrepreneurs. This investment institution is highly respected by entrepreneurs, and many entrepreneurs are proud of their investment from the a16z because it is an approval and a certainty.


As far as Marc's point of view is concerned, I feel it is very far-sighted. I agree that he mentioned the current stage of cryptocurrency development. With the continued development of technology and ecology, the technological advantages of digital currency will be further reflected and will continue to be amplified by engineers using engineering methods. The law of social productivity and economic development is that the type, scale, frequency, and scope of transactions between human beings will continue to be amplified by continued development. Digital currency is in line with this development trend and law, so in the future it will play an increasingly important role in promoting economic development.


Michael Wu:What is the latest activities and future plan of Nervos? In what ways does Nervos hope to cooperate with projects or institutions in China and South Korea?


Daniel Lyu: Nervos is currently focusing on preparing for the fourth quarter of the mainnet release. After the successful release of the mainnet in the fourth quarter, we will focus on the design and implementation of the cross-chain protocol of the underlying Layer 1 and upper Layer 2, as well as support for layer 2 access. This part of the work includes a tool chain for the development of the contract for Layer 1, SDK improvements and it's easier and more economical to run Layer 2 on the Nervos' Layer 1. And continue to develop the community, and connect the technical community behind each Layer 2 project to blend with Nervos' technology community.


The main force in the future is to expand the ecology of Layer 2. South Korea is one of the most important areas we consider in the Asia Pacific region. We have been working with Korean community builders and partners very early, and we will go to Korea for promotion every month and hold offline meetups, including this month, we will be participating in some of the meetup and events in Korea.


Next, we will further develop Korea's Nervos technology community, find and develop more ecological partners, generate more cooperation. Welcome any organization that has potential cooperation with us. If you are interested in Nervos, please contact us.



Michael Wu:As a well-known person of the Chinese blockchain, you may know a lot of outstanding practitioners in the blockchain industry. "Blockchain in Korea" interview program is launched by [Coinin],is dedicated to exploring high-quality blockchian projects and practitioners. Could you recommend three honored guests to our program?


Daniel Lyu: I don't know if the guests I am going to introduce have already been introduced by other guests, because today we discussed the economic model design of Nervos, so I would like to take this opportunity to recommend three people. I think they have considerable research,vision and insight in cryptography economics.


The first one is Chao Pan, who is the head of MakerDAO China. MakerDAO is the largest and most successful Defi application. Chao Pan himself has an economic background. He has made outstanding achievements for China's MakerDAO, Defi promotion, and the development of stable currency DAI in China, and his economic views and sharing are very worth listening and sharing.


The second guest is called Yue Xiong. He is also has the background of economics. He is actually the alumni of Chao Pan. Yue Xiong is the earliest Austrian economics researcher and promoter in China. The earliest Austrian economics books in China were translated by Yue Xiong. He was also the first early evangelist to promote digital currency and blockchain in China. Currently, he is the dean of the Bixin Research Institute.


The third guest is Ajian, the editor-in-chief of the Ethereum enthusiast community, and a senior economics research scholar. He has published many influential economic analysis articles in the Ethereum enthusiast community. He also translated and introduced of the best foreign content into China, he is one of my most respected researchers in cryptography economics.

Q&A Session

Q1: What is the value of the publicchain in your opinion?

Daniel Lyu: Thank you, very good question.

From a metaphysical point of view, the greatest value of the public chain is trust and fairness.The responsibility ofthe public chain is first and foremost the security, especially the high-intensity security achieved through PoW and cryptography, which can be used to protect a very large amount of asset security. The value of the blockchain is already very high and will be higher in the future. This is directly related to the security guarantee provided by the blockchain. If security is not guaranteed, the blockchain will be worthless and trust willcome from security.

Fairness refers to process fairness. One essential feature of blockchain is decentralization. The core value of decentralization is actually anti-censorship. Decentralization and security are two completely different concepts. Decentralization is not for safety, but forfairness. The opposite of decentralization is centralization, and the biggest risk of centralization is the review mechanism. In a decentralized system, you don't need to rely on any third party to run a node yourself, connect to the decentralized network to send transactions, and the network will not conductany review and interception of your transactions. A manifestation of fair rights. And to participate in the network, become a block node, you only need to provide computing power, without the need for access system, without the permission of anyone, this is also a fairness. You get the income through the proof of the workload. The bigger the workload, the higher the income. For the first-in-comers, the income is the same under the same workload, which is also a kind of fairness.

In my opinion, the blockchain is a system that guarantees asset security and participation equity from the top. This system is very different from the existing centralized systems that our society depends on, but it can provide huge value. This is the source of the value of the public chain I understand.

Q2: Will digital currency become another reconstruction of the global monetary system?

Daniel Lyu: Yes, it will happen. The global monetary system that I understand, no matter which currency, is essentially using currency as the trading medium and unit of account. However, the existing global monetary system still has many problems, such as inefficient payment,high transaction costs, and many core issues are caused by different countries' monetary policies and regulatory policies.


In particular, the scale of cross-border trade is growing, and it will certainly pose increasing challenges to the existing global monetary system, as well as digital currencies, especially decentralized digital currencies that transcend sovereignty will even challengethe issuance, regulation, and monetary policy of weak currencies in some small and medium-sized countries.


The technology behind the digital currency,ecological development will not stop, such as the recent Libra project launched by Facebook, although Libra is not a pure blockchain project, but it used blockchain technology to solve some existing technologies that are not solved.Once Libra develops and relying on the digital currency of the blockchain, will further become a more common credit currency worldwide, or it will become a tendency. While digital currencies continue to be challenged by regulatory and compliance issues around the world, I have always believed that the power of technological evolution will eventually reshape the global monetary system. By the way, I am not an expert in the global monetary system. The answer above is my personal understanding.