Deng Xu is co-founder of Yunphant Blockchain. Graduated from the University of Electronic Science and Technology of China, he is a senior researcher of blockchain technology and its application scenarios. He has extensive experience in market management and participated in the writing of Decryption of Blockchain: Building the Next Generation Internet Based on Credit.
He published an article on the importance of economic design of a token, which is also regarded as an essential part of a token. Meng Yan, VP of CSDN: Design of Token Economy Should Weight At Least 50% In Crypto Rating

The economic model is a macro top-level framework design in the application and landing process of blockchain technology. Its design and architecture are prerequisites for the sustainable development of a blockchain-based business.

Although the awareness and attempt to integrate blockchain technology has been widely spread in recent years, there are little practical cases. Yunphant has been working in the application and development based on blockchain technology in the past 4 years.
The commercial value of technology itself is quite limited

From a technical point of view, compared to the traditional centralized database, blockchain technology is a database where distributed accounting is completed under consensus system. Its design determines that data security and consistency is achieved at the expense of performance. Blockchain technology really needs breakthroughs, such as architecture, processing performance, privacy protection and consensus algorithms.

The development of blockchain technology can be discussed further. However, this is not the fundamental reason for the slow application and acceptance. The core problem is that any application must serve real business. The blockchain technology itself has limited commercial value. Technology should be capable of improving efficiency or reduce costs. With regard to the development of blockchain technology, blockchain technology has been able to meet the needs of low- and medium-frequency transaction scenarios.

Applicable scenarios must have certain adaptability

From the perspective of application scenarios, blockchain technology is not a panacea, and not all application scenarios are suitable for using blockchain technology to solve problems.

The establishment of a private blockchain within the organization to manage the work of various departments can be regarded as an attempt to utilize blockchain technology. But to a certain extent, there is no difference in using blockchain or not. Because blockchain has little improvement on the business. It’s more like a rebuilding of information system, which could be achieved even better using other technologies. Many attempts utilizing blockchain in the industry block are suspended after POC verification. Some cases that are deployed in real business environment has no real business running since the participants’ enthusiasm was fading.

Blockchain technology is currently more suitable for application scenarios where multiple organizations participate and trust costs are too high. In July 2017, Yunphant Blockchain won the bidding of L/C(letter of credit) project in China. The domestic L/C business process is relatively complex. The information system architecture, security standards and network control mechanisms of the participating financial institutions are inconsistent. A good information transmission system between these traditional domestic L/C entities is missing. Without a supervisory unit or an authoritative department as an intermediary, blockchain technology is used to build an inter-agency L/C platform. With a unified standard, interconnection between different institutions can be improved with lower costs.

Blockchain technology is well adapted in the domestic L/C scenario and is deeply loved by the banking sector. However, it’s very difficult to promote blockchain in those scenarios that are not adaptable. However, there are not many application scenarios like letter of credit.

Economic model is a prerequisite for sustainable development

Blockchain technology is different from other information technologies. The traditional information technology is customized to serve specific business needs. It is a “one to one” supply and demand relationship service model. There is no need for economic model.

The blockchain application scenario requires “multi-participation” to maximize the commercial value. The landing process of blockchain technology is slow as it is a peer-to-peer network with multiple entities. The actual situation of participant’s business varies a lot. Member management and permission control can solve the data permission problem of different participants in the blockchain network, but it is difficult to solve the interests of different participants. Blockchain is an incentive network that can solve some of the benefits problems, but the advancement of offline promotions is a complicated and lengthy process. Although there are so many practical problems, the exploration of blockchain technology, application ecology and the blockchain business model will not be slowed down.

The economic model is a macro top-level frame design in the application and landing process of blockchain technology. Its design and construction are prerequisites for the sustainable development of the business.

How to construct an economic model for a specific scenario?

Firstly, the participants are categorized. Different participants take different responsibilities and are granted with different rights and enjoy different benefits. Such design does not change the equivalence of the blockchain in the network, but it is only for the construction of the blockchain network. Responsibility for the definition of rights. It can be broadly divided into initiator, participant, operator, constructor and manager.
Secondly, a reasonable incentive mechanism is designed to formulate different incentives for different roles and different types of contributions in participating in the blockchain network, balancing interests of various participants. For example, some institutions are responsible for building blockchain infrastructure and some are responsible for the management and operation of blockchain networks.
Meanwhile, smart contract could be utilized to store the agreements reached offline, supervise and manage all parties involved in the implementation, and form a shared blockchain application ecosystem.
The economic model is just like the rules of a game. The construction of the ecosystem requires the participation of sponsors with a certain industry status. Only with input from various entities in the design of economic model, the development of the blockchain technology can be smoothed.