Guest: Shenyu, Co-founder and CEO of Cobo

Moderator: Colin Wu, Founder of WuShuoBlockchain

Original link: "Shenyu talks about Bitcoin halving: Can it be the starting point of the next bull market?"

Colin Wu (host): Hello everyone! Although people in the industry are familiar with each other, there are audiences outside the industry here. Please let Shenyu introduce himself briefly.

Shenyu: Hello everyone! My name is Shenyu. I am an old miner. I officially participated in the early construction of China's blockchain in 2011. In 2013, I launched the first Chinese mining pool, which once became the world's largest Bitcoin and Ethereum mining pool. At its peak, it accounted for more than one-third of the Bitcoin computing power. There is a small episode. We are also the only team in the world that has successfully carried out a double-spending attack on Bitcoin.

After 2017, we found that blockchain began to have a large number of applications, but it exposed a lot of risk exposure around security and private key management. As a company that is good at infrastructure, Cobo was established to focus on private key management and its derivative risks. The company has been in business for more than six years, mainly focusing on underlying security and wallet custody, ranging from fully centralized and semi-centralized MPC co-management to fully decentralized on-chain smart contract multi-signature product forms.

Colin Wu (host): Let me briefly introduce ourselves. If you read the news, you can search for "Wu Says Blockchain" on Twitter, Telegram, and public account platforms.

Shenyu is the person who is most willing to share in the Chinese Crypto community. He has published many news in various interviews and articles. You can also search for some of his past opinions on the Internet. To some extent, he should be the early boss in the Chinese industry who is most willing to share with everyone.

The cryptocurrency circle can be divided into several stages. The earliest ones are those who joined the industry in 2015. In China, they are mainly miners. Please share with us what opportunities you had when you first entered the industry and what the atmosphere of the circle was like at that time. Many early articles are very interesting. For example, everyone is in a QQ group, which is a very interesting consciousness. You can search for some articles. I remember Shenyu also accepted a video interview. Please share it with everyone.

Shenyu: I entered the circle by chance. I was in college at the time. One boring afternoon, I was reading a book and surfing the Internet in the library when I suddenly saw news about Bitcoin twice. It might be the news that Bitcoin broke through 1 US dollar. I was curious and searched what Bitcoin was, and found Satoshi Nakamoto’s white paper. After reading the white paper, I was shocked. I spent the next three months, basically lying in bed and reading Bitcoin forums and community discussions. I basically didn’t get out of bed, and my food was brought back to me by my roommates.

After browsing the forums for more than three months, I found that the crypto world at that time was still a group of crypto geeks. Everyone had all kinds of wild ideas. At the time, they seemed unlikely to work, but the underlying logic seemed to be logical. The core issue of cryptocurrency is that after the currency is digitized, it can circulate freely around the world without being double-spent. Although these are all very mature technologies, they are combined very well.

As an engineering student, I was deeply attracted by these technologies and discussions, so I didn't study hard in college, and I did construction and exploration in the Bitcoin community. At first, I translated foreign technical articles into Chinese, and I also made a lot of friends in China. The earliest domestic community revolved around QQ groups as a means of communication. For example, some groups that you can still see and hear, such as "Peace Hotel" and some very mysterious groups. In my impression, there are about 40,000 to 50,000 people. On the one hand, there are a group of crypto geeks, and on the other hand, there are a lot of people in China who coincidentally have a large number of graphics card resources. This group of people first cracked Nokia mobile phones. Suddenly, the iPhone became popular, and these parallel mobile phones had no market. They had a large number of idle graphics cards in their hands, and just discovered Bitcoin, so they cut in and used graphics cards to mine. Basically, in the stage of 2011-2013, the Chinese crypto ecology was these two groups of people, one group was full of ideals. Crypto punks, and the other group was down-to-earth miners who secretly mined with graphics cards.

Fortunately, China got involved in the very core mining field in the crypto track very early. At that time, there were not many things to do in the crypto ecosystem, only two things: trading and mining. After 2013, many exchanges with Chinese backgrounds began to emerge. After everyone experienced a round of group buying wars in the Web2 world, some companies switched to the Crypto exchange track and became the predecessors of the well-known crypto exchanges. At that time, it was basically like this. Everyone discussed various exciting ideas and thoughts every day. But more than ten years have passed, and many ideas and thoughts have now become reality, such as the idea of ​​stablecoins discussed at that time and the idea of ​​early decentralized exchanges have now been realized.

Looking back from now, it seemed that many incredible innovations and ideas could be realized at that time. Today, we have reached a better stage and have a large number of on-chain infrastructure and applications, so the future is becoming clearer and clearer.

Colin Wu (host): Thank you Shenyu for sharing his earliest state, including the QQ group of "Peace Hotel" he mentioned. If you are interested, you can search on Baidu and Google. There are many interesting things about how the early Chinese Bitcoin world community was formed. There are also many video interviews, including the familiar Bao Erye, the bank president, etc. You can see a lot of information in the search engine.

2017 is the Mesozoic era, and 2017 ushered in the industry’s biggest bull market. Many well-known figures now became more dazzling at that time, such as Brother Sun who has been very popular these days, CZ Zhao Changpeng, and many China-related public chains, whether it is Neo or Quantum Chain. However, many people also feel that it is full of chaos of ICO.

Looking back at the significance of the industry in that era in 2017, is there anything worth recalling and sharing?

Shenyu: Looking back today, the ICO market in 2017 was of great significance and was overlooked by everyone. There were many ICO bubbles in 2017, and many speculative and even direct fraud projects emerged. Looking back in 2020 and 2021, it brought a large number of on-chain asset products to the Ethereum ecosystem, which is also the factor for the explosion of DeFi in the past two years, because there are absolutely more assets. In 2017, there were 20 or 30 ICO projects. Analogous to ICO and IPO, it is unimaginable that such a large IPO will happen in the real world, and even in ten years, it is impossible to have such a large order of magnitude. Although a large number of fraud incidents emerged in an endless stream at that time, after a year of precipitation, good projects and good protocols still settled down and continued to iterate. New innovations emerged from the ruins. The industry is a round of bubbles.

There is a set of infrastructure at the bottom layer, which is a process in which the underlying performance of the blockchain, the underlying public chain infrastructure, and the application layer drive each other. Once there is a large amount of bubbles, which brings about a large number of application explosions, it will force the underlying blockchain infrastructure to improve itself. But at the peak of the bubble, it was found that the underlying infrastructure of the blockchain could not support the technological development of applications. At this time, the bubble burst and entered a precipitation period. There are many geeks of all kinds who will iterate the underlying infrastructure and lay the foundation for the next explosion in the future. This is also the internal driving factor for the industry to continue to iterate so quickly. Bubbles are a good thing, but every individual in the bubble needs to remain calm and do logical things. From the perspective of the long-term industry cycle, it is a good thing.

Colin Wu (host): It makes a lot of sense. Ordinary people would think that 2017 was full of bubbles, and the entire ICO industry was in a very chaotic state. Now, the projects that emerged in 2020 and 2021 were also started in 2017 and 2018, whether it is Uniswap or the current more DeFi-related protocols, as well as public chains such as Polkadot and Filecoin, they all started at that time. The protocol level itself is not as efficient as centralized institutions, and it will take some time to do things better. In 2017, many projects were invested, but in 2020 and 2021, there were thousands of times and tens of thousands of times of coins. Looking back, it turned out that they were so-called high-quality projects invested in 2017 and 2018.

You just mentioned DeFi. The most important thing in 2020 and 2021 is the rise of DeFi. You were also the most famous DeFi miner at the time. From a physical miner to a DeFi miner, at what stage did you become interested in DeFi? After several years of development, what new views do you have on the DeFi industry?

Shenyu: I personally came into contact with DeFi at the end of the bull market and the beginning of the bear market in 2018 and 2019. Some DeFi protocols began to emerge. There were early protocols on EOS and Ethereum. At that time, DeFi was not widely used due to lack of driving factors. I spent some time exploring it and found that I had lost almost all my money, so I didn't continue. DeFi has clearly reached a turning point since 2020 and 2021, and a new wave of liquidity incentives represented by Compound has emerged.

I have a good habit. I am willing to spend some time, energy, and cost to try and fail in the forefront of the industry, observe, and set an indicator. When the turning point of the indicator comes, I will spend more time and energy to further study. In 2020 and 2021, when I found that DeFi data was improved and users were pouring in, I spent some time. After watching for two or three days, the market was completely different and grew spontaneously. Later, I invested a lot of energy and put a lot of assets in DeFi to do a series of operations, calling on friends and people in the group to take a look at DeFi. The qualitative change has already taken place. I am also lucky to catch this wave of DeFi and make a good transition to a miner.

From a miner in the physical world to a player in on-chain DeFi, I am less constrained by the real world. For a long time in the past, I had to work hard to find electricity, mine, and deal with various physical worlds. The pressure on technical students was quite high. After DeFi, I found that the entire industry had experienced a lot of early technology accumulation and had many advantages. The extreme pursuit of private key management and underlying security can be better utilized in the on-chain world. Therefore, I built various internal infrastructures in DeFi to improve efficiency. In the near future, the internal self-use tools will be gradually opened up to everyone for use. Everyone is welcome to experience it.

Colin Wu (host): 2020 was the "Summer of DeFi", and 2021 has entered the era of NFT explosion. Surrounding NFT, various small pictures, and games, to some extent, the momentum should be greater than DeFi, because DeFi faces various regulatory factors, especially the problems after the Terra explosion, but NFT seems to be more clearly integrated with the mainstream.

I remember Vitalik said that what surprised him most was the explosion of NFT. He had never imagined that NFT would have such a big explosion, especially the completion of the title confirmation, transaction, and circulation of digital collectibles, which actually changed the demand for rigid demand.

Shenyu has a characteristic, he likes to play with everything, there is basically nothing he doesn't play with, and he plays with NFT a lot. From the current perspective, is the prospect of NFT very good? And there are also many entrepreneurs. What are your own ideas or suggestions for NFT entrepreneurs?

Shenyu: Although I personally play a lot, I also lose a lot.

The NFT market is a very interesting and fun market. It has very big characteristics and is relatively decentralized. Unlike other markets, such as DeFi, which has a very strong head effect and carries high-value transactions on the chain. After all, the space of the blockchain is very valuable. But the NFT market is different. There are a large number of fragmented communities, each with its own native characteristics and cultural characteristics. It is easy to find a sense of identity in such a community. When NFT first emerged in 2021, many friends couldn't sleep at 3 or 5 in the middle of the night and called us to talk about NFT. They said how good this protocol is, how much it hits the heart, and what kind of cultural value it has. They talked all night. We have seen that many values ​​that can meet the inner emotional needs of various cultural groups have begun to emerge, including social capital and other values. From this dimension, the success and existence of NFT have certain value and significance.

For the majority of young people, the entry threshold of the NFT field is much lower than that of the Crypto world. You don’t need to know a lot of cryptography knowledge or have a lot of money. As long as you have a certain artistic appreciation ability and humanistic spirit, you will see different scenes and experiments. In particular, there are a lot of post-OO people in the NFT world, and in the early stages, everyone wanted to create IP and build a community, so the cost of entry was basically very low. We also saw a lot of stories of getting rich overnight in the NFT market, which brought a lot of fresh blood.

From today's perspective, the NFT cycle may be very short, that is, a sentiment cycle of about 3 months, and may have experienced 3 or 4 rounds of rapid cycles. In today's relatively bearish market, NFT is combined with many IPs and traffic to make the Crypto world more diverse, which is particularly important because the future still belongs to the younger generation. Under such conditions, NFT has brought a lot of new forces to the industry. Although I personally lost a lot of money, I am still very optimistic about the fresh blood that the NFT market will bring to the future of Crypto.

In addition, we can see that many assets in the real world are non-standardized. These assets are difficult to express on the chain through standardized tokens. NFT is a very good asset category that can carry many real-world assets. From this perspective, the future NFT market still has great potential, not just the PFP collectors we see now. There may be a lot of value combined with the real world, but more efforts are needed behind the scenes to promote a better integration of the industry with the real world. The road will be a little longer, but it should become a reality in the not too distant future.

Colin Wu (host): We have been talking about history and have come to 2022. 2022 was a very tragic year for the Crypto industry, and it was even the year with the largest amount of explosions in history. Whether it was the small Chinese exchanges at the beginning, such as Hufu, AEX, or Terra, which caused huge vibrations. Then Terra detonated Three Arrows Capital, the best-ranked capital in Crypto venture capital. Then Three Arrows Capital continued to detonate and detonated the industry's largest group giant DCG. Everyone realized that the giants with such a glamorous appearance were so fragile. When everyone thought that this matter was about to end, the most ferocious in the second half of the year came. Sam, the founder of FTX, who was the most glittering person at the top of the industry in the world, donated to politicians and religious leaders, and was altruistic and attended various excellent meetings every day, actually misappropriated users' assets, was insolvent, and made a large number of ridiculous transactions.

With a simple news report and a tweet from Changpeng Zhao, a multi-billion-dollar empire can collapse in a breath. 2022 must be a very painful but exciting year in the history of cryptocurrency, and it also leaves a lot of lessons for everyone. In the mining circle, many well-known companies have closed down, and even many problems have not been dealt with. Of course, Shenyu is still relatively stable in 2022. From your perspective, what are the most impressive lessons in 2022, or do you think the industry needs to learn any lessons?

Shenyu: 2022 is indeed a very cruel year. Many old friends around me can’t have dinner together because of various reasons.

In the past year, the industry as a whole has been very volatile, with various accidents emerging one after another. But looking back, the underlying logic of various unknown security accidents is the same as in the history of Bitcoin for more than 10 years since its birth, and the essence is a problem of human nature. Although the industry is widely criticized for its high volatility and various uncertainties, the industry has been very certain in the past two years, because a large number of friends with very glamorous resumes and a lot of Wall Street capital have come. The industry has begun to have native applications, DeFi, NFT, and GameFi, and it is no longer air. In such a thriving environment, a big pit suddenly fell, the bubble burst, and many things were disillusioned. A long time ago, we also experienced rounds of such things. The bottom line is that everyone's self-esteem, personal, and company are getting more and more inflated. After reaching a certain psychological state, many decisions are no longer so rational. They firmly believe that the price may not fall below a range, the leverage may be higher, and the returns are considerable, which deviates from the original intention of blockchain. Blockchain gives us a lot of freedom and gives us technical means and tools to provide a more transparent and open world.

However, because the rights are ultimately transferred from the end users to the owners of centralized institutions, although it looks very bright and shiny on the surface and participates in various political events, in the process every user has not mastered the technology given to us by the underlying industry, and has transferred the strongest sword to a third party for safekeeping. This is a very big challenge currently facing the industry, and it is difficult for the person who helps us manage this key to resist his inner greed.

Put yourself in his shoes. As a manager, he easily used everyone's keys without many people knowing. The industry volatility is very high, and there is a lot of high-quality information. It is easy to make a lot of money. When the industry is in a state of rapid expansion and prosperity, there is a certain probability that people cannot resist the temptation in their hearts and secretly use the key. They may make a profit by using it once, and their hearts will further swell, and they will use it more and more. The final state is an extreme black swan, and a sudden accident causes the assets to be destroyed.

So I think 2022 is a year of disenchantment. We have learned a very important lesson. We must deeply realize that any company can go bankrupt. What can we believe in? We should not believe in human nature, but in mathematics and the underlying technical principles. We must master the technical means that blockchain has given us in the new era and master the key in our hands.

After the industry experienced extreme events throughout the past year, everyone is also discussing and actively thinking about how to enable everyone to better use blockchain technology in the future, increase industry transparency, and avoid things that go against human nature. Now we see that the private keyless technology based on MPC multi-party computing is developing rapidly. I believe that in the near future, everyone can have a key out of the box, but your counterparty and service provider may only have one key. All transaction processes and assets will not be in the hands of any party. They are all open, transparent and visible, and can fully use the underlying characteristics and mathematics of the blockchain as a basic guarantee. Although we may have learned a very painful lesson in 2022, basically 40%-50% of the centralized institutions in the industry have been wiped out for various reasons and affected, but this makes us more determined to go on the decentralized side. We can clearly feel that the industry has basically reached a consensus. The private keyless solution based on MPC has gone a long way in terms of decentralized transparency.

We can see a more obvious example. Large hedge fund teams have actively requested to use MPC technology to assist in asset management, rather than placing assets in centralized exchanges with confidence. We have also seen that the trading volume and derivative trading volume of DEXs, which are decentralized and transparent on the chain, are also developing rapidly. From this dimension, we have learned a great lesson in 2022, but industry practitioners, these crypto geeks have already taken the lesson. We are coming out of the trough, and the next 2-5 years will inevitably bring us more technical means and give us more freedom.

Colin Wu (host): I would like to add that although 2022 was indeed a very tragic year, the industry has made many improvements. For example, centralized exchanges have also begun to have on-chain reserve proofs (POR). Although there are many criticisms and problems, it is still a very important thing. For example, if there are some new users who are watching our videos and present, if the exchange where the coin is located does not publish the POR proof, please withdraw your coins decisively. If an exchange does not even dare to prove the POR proof, why does it operate an exchange? Where did it move the user's money? It has become a very simple choice.

Let's take a brief look into the future. Next year will be the next halving of Bitcoin. Generally, there will be changes in the market along with the halving. Now many people believe that the price of Bitcoin may have a deeper relationship with the Federal Reserve and will no longer be affected by the Bitcoin halving cycle. Please reiterate your opinion on the halving of Bitcoin next year, and the impact of the halving on the price and market. This is your personal judgment and it should not be regarded as financial investment advice.

Shenyu: First of all, I would like to state that I am not suitable for secondary investment. I discovered this three months before I entered the industry, so I embarked on the path of mining, otherwise I would have gone to speculate in coins. After 2017, the correlation between cryptocurrencies and macroeconomics is very high, especially since the interest rate hike this year, the correlation is even higher, although there may be some event-driven results brought about by some industry-native factors.

From the perspective of this year and the short term, there are two major core driving factors: one is the macroeconomics. We are a small pond, and one factor that depends on the water level of the pond is whether the macroeconomics will release water. At present, the macroeconomics may improve. In addition, a large number of US banks collapsed in March, which made everyone regard Bitcoin as a safe-haven asset. From this perspective, the macroeconomics is improving, which is at least a neutral factor.

Second, the endogenous driving factors of the industry. From an economic perspective, halving does not play a big role at present, but it is a good narrative logic, and everyone has a framework. In the narrative framework, there is a high probability that there will be another round of halving from Q4 this year to next year. The mainstream mining machines in the world are still S19 mining machines. If the price of the currency cannot stabilize above 30,000 US dollars after the halving next year, these mining machines will have to be shut down. This situation rarely happens in history, and even if it happens, it is very short-lived. So I personally think that the halving from Q4 to next year is worth looking forward to.

Colin Wu (host): Shenyu is the founder of Cobo. Please let Shenyu introduce Cobo. Cobo mainly engages in custody business, which requires a very large investment and is a relatively long-term business. I would like to ask Shenyu to introduce the future development direction of Cobo and how to compete with mainstream Western custody institutions and how to become more advantageous?

Shenyu: We have just talked about the development paths of many industries in their early stages. We can see that there are two core problems in this industry: one is the TPS problem, the performance problem. Each round of industry development is application-driven, which ultimately leads to the inability of applications to keep up, the bubble bursts, and the infrastructure continues to iterate. The core issue is the TPS problem.

The second is to provide a set of solutions for end users. This solution can make it very simple and easy to use for users, while ensuring the security of users, allowing users to access the blockchain and prevent them from transferring their rights to hold keys to third parties. These are two major problems in the industry.

The current performance issues should be resolved in the near future. After 7 or 8 years of exploration, the industry has finally come up with a solution using Layer 2 and Layer 3 networks.

The next question is the security of the underlying private keys. Cobo has discovered that there have been endless security incidents in the crypto world since 2017. People have started to interact with the chain more and more, exposing many helpless people and those who do not master the technology to hackers. We are trying to build a set of solutions around the underlying risk security private keys and their private key risk management. The underlying logic is to find its core application scenarios around different stages of the industry, and provide a set of solutions around private keys in the application scenarios.

The first stage is represented by Bitcoin. The core blockchain applications are sending, receiving, storing, transferring, and trading Bitcoin digital assets. In this stage, Cobo Custody was developed, a purely centralized custody solution. The blockchain wallet was made into a SaaS product, Wallet as a service, so that users who need to send, receive, store, and transfer money can use it by calling the API. This is very suitable for the current situation in Hong Kong, where there are a large number of compliant funds and emerging transactions that need to find a set of products that are compliant, secure, easy to use, and have a Web2 experience. This is the Cobo Custody and Wallet as a service.

In the second stage, we found that everyone started to interact a lot with the chain. At this time, we needed chain capabilities and contract account management capabilities. We packaged the large number of capabilities accumulated in the DeFi field into Cobo Argus products. The underlying layer is on-chain multi-signature, and it has a lot of capabilities to interact with various blockchain DeFi protocols. At the same time, it has a series of risk management modules and automation programs to better support 7×24-hour response on the chain and handle extreme situations.

In the third stage, the post-FTX era, people are increasingly aware of the importance of mastering the key. Many large institutions are beginning to ask whether we can have a transparent and isolated asset pool, and all assets need my authorization and consent before they can be used. Therefore, based on the earliest centralized custody, the underlying technology is iterated to MPC technology. The end user controls the key, and we control a key to assist in asset management. Our key is mainly used for risk control, and another key is used for cold storage in a third party, which may be a security company or an insurance company. Later, many companies found that this solution is very good. They iterated on the basis of our solution and provided products to end users. When the end user only has the account password, they can quickly enter the blockchain. A large number of game companies use our solution to allow end users to enter the Crypto world with the Web2 experience. When the end user grows to a certain extent, there may be high-priced assets on the chain, such as scarce NFTs that are suddenly obtained in the game. At this time, the account can be upgraded and the third key can be granted to the user. The user already has the willingness and motivation to learn the basic concepts of reasonable understanding, and can use it better after getting this key.

We basically provide three different products around these three stages: a purely centralized custody solution based on encryption machines, a multi-signature solution for on-chain smart contracts, and an MPC solution for decentralized co-management. These three solutions are basically aimed at different scenarios, and the core is to solve everyone's asset security and private keys, as well as risk management around the use of private keys in various scenarios.

We hope that through the company’s efforts and iterations, more users will be able to enter the blockchain more safely, easily and confidently, and explore the exciting on-chain ecology on the chain.