Mining machines, exchanges, and oracles, is "selling water" more profitable than "panning for gold" in the blockchain industry?

In the investment world, there is a theory that almost everyone knows - the selling water theory.

The story goes like this: "In the middle of the 19th century, 17-year-old farmer Ammer followed the gold rush into California with the mentality of getting rich. There was a severe shortage of water in the valley, and the most painful thing for people looking for gold mines was that they had no water to drink. Ammer thought carefully and felt that selling water here might make more money than digging for gold. So he gave up looking for ore, turned the shovel in his hand in a different direction, and changed from digging for gold to digging canals. Finally, he finally found cool and delicious water. He put the water in buckets and pots and sold it to gold diggers. As a result, in a very short period of time, Ammer made a lot of money selling water and became a rich man. His approach was praised by later generations and formed the "water selling theory."

It is almost a well-known "consensus" in the investment community that selling water is more profitable than panning for gold. When everyone is chasing the trend, you become the "supplier" of the trend and provide everyone with tools to chase the trend, then you will make more money than chasing the trend!

However, the problem is that many people know it, but few can do it.

Just like when WeChat public accounts became popular a few years ago, many people became famous by using public accounts and made a lot of money. Almost everyone was creating public accounts at that time. Some smart people discovered this "gold mine" and started to make WeChat operation tools, WeChat rankings, and even taught others how to operate WeChat. As a result, the popular public accounts came and went, but those who made rankings, tools or taught courses have always been doing well. They can be said to be a group of people who have made the best use of the water selling theory.

In fact, there is a more famous example of the water selling theory, that is "success studies"! In other words, selling and peddling success studies to others. In the past two years, various types of knowledge payment and selling anxiety can also be regarded as a perfect presentation of the water selling theory in another field.

So what methods or projects in our blockchain circle are more like the application of these water selling theories? These tracks are likely to have a much higher success rate than directly looking for gold.

01 Selling mining machines

Representatives: Bitmain, Canaan Creative, Ebang International

In the early days, if "mining" was regarded as digging for gold, the mining machine would undoubtedly be like a hoe.

Then the people who sell hoes, or produce hoes, will earn more than most people who use hoes to dig for gold.

Founded in 2013, Bitmain is undoubtedly the most well-known company in this trend. At its peak, 80% of the world's mining machines were manufactured by Bitmain, and its mining pool computing power accounted for as much as 40% of the entire network.

Compared to miners who run around to save electricity, and have to worry every day about whether the country will crack down on the mining industry, and what to do if the price of the currency plummets...producing or selling mining machines can be said to be making money without doing anything.

Of course, trends are also time-sensitive . Canaan Creative, the second largest mining machine manufacturer, successfully rang the bell at Nasdaq at the end of last year, which was a major event in the industry. However, whether it is the mining industry itself or the big cycle of currency prices, the "selling hoes" after 19 years is far from being comparable to that in 2013. In half a year, Canaan Creative's stock price has fallen from US$9 at the opening to US$2 today, which also shows that this trend is "outdated."

02Trading Platform

Representatives: Binance, OK Ex, Huobi and other DEXs

If cryptocurrency speculation is regarded as digging for gold, then providing venues and platforms for cryptocurrency speculation is undoubtedly the behavior that best conforms to the water-selling theory.

This is also why Binance, the leader in this field, gave early investors a 200-fold return in just half a year, and its quarterly profit in just one year surpassed that of Deutsche Bank, which had been in operation for a century.

Compared to cryptocurrency traders who stare at the K-line every day in fear and anxiety, and end up with a miserable ending of one win, two draws and seven losses, trading platforms can earn transaction fees whether the price goes up or down. Don't be too relaxed or happy.

However, things are not that simple.

There are too many smart people in this industry, and everyone wants to sell water. When blockchain was popular, there were tens of thousands of trading platforms around the world, even exceeding the number of projects. This year, as expected, a large number of small and medium-sized trading platforms have closed down or even run away, which has made many people realize how cruel the competition in the "water selling business" is, and traffic has begun to gather at the top.

However, the three major platforms that seem to be sitting on the Diaoyutai and accepting this kind of traffic have also felt a strong sense of crisis in the past few months. In the past few months, DEX has increased its share of CEX trading volume from 0.1% at the beginning of the year to 0.6%, a six-fold increase in half a year. It will not take too long to reach 1%. Although even at 1%, CEX has an absolute crushing advantage, it is difficult for CEX leaders to feel at ease with this growth momentum of DEX. Holding BNB, HT, and OKB in the past two years is like holding the stocks of the largest water sellers. What about the next two years? Perhaps you can find opportunities on DEX.

03 Oracle

Representatives: Chainlink, Band, TRB

It is no exaggeration to say that Link has ushered in an era of "universal plug".

In 2017 and 2018, influenced by the famous "fat protocol, thin application" blockchain investment philosophy, everyone's focus was on the public chain that could capture the most value. Ethereum killers emerged one after another, each of which looked very impressive and wanted to beat Ethereum to death. Link, which was working with this one today and that one tomorrow, seemed extremely different and even made people laugh.

Three years have passed. Looking around, most of the Ethereum killers have disappeared, and the rest are just barely surviving. Not only has Ethereum not been defeated, its dominant position has become even more solid, giving it a feeling of being the only one seeking to be defeated.

Chainlink, which does not have its own chain, does not compete with any public chain, is ridiculed for only knowing various cooperation, and is even called a scam, has climbed to the thirteenth place in the list as an oracle with a market value of tens of billions. Is it surprising? Surprising?

The definition of an oracle is this: an oracle writes external information into the blockchain to complete the data exchange between the blockchain and the real world. It allows a certain smart contract to respond to the uncertain external world. It is the only way for smart contracts to interact with the outside world and the interface for data exchange between the blockchain and the real world.

You see, if blockchain wants to connect with the outside world, it must use oracles. After DeFi became popular recently, it is necessary to use oracles to feed prices in large quantities. Therefore, no matter which public chain wins, whether thousands of chains are unified or hundreds of chains coexist, no matter how popular a DeFi project is, you have to use oracles, right?

Therefore, if the competition for public chains is seen as a gold rush, the oracle is like the water vendor next door. When you are thirsty, you always come to buy some water.

04Interoperability​

Representatives: Cosmos, Ren

Because of Chainlink’s success, people shifted their focus from public chains to “middleware”. Investors suddenly discovered that instead of squeezing into the public chain that has become a red ocean, the value captured by middleware is still considerable, and the middleware in the circle can be said to be still a blue ocean.

Middleware, as the name implies, is a component that is compatible with multiple blockchains and provides services to users of different blockchains. It can be a chain, a protocol, etc. Although it is impossible to accurately calculate how much value middleware can capture from each blockchain, because it is not limited to a single blockchain, it can steal value from compatible blockchains. Just like Chainlink.

Different middleware are like different water vendors, except that some sell water, some sell drinks, some sell food, some sell clothes, or tools, etc. The most typical representative of middleware is not the oracle, but interoperability.

After all, unless all chains become one in the future, as long as there are multiple chains coexisting, if you want to transfer value to each other, cross-chain, or to put it more professionally - inter-chain interoperability, it is the most indispensable middleware.

The focus of attention in this field is undoubtedly on Cosmos' IBC cross-chain protocol. However, the current progress of IBC is only about 80% and has not yet been completed. Secondly, IBC's ability to capture the value of Cosmos' own tokens is quite limited. Before changing the economic model, it is probably more of a technical driving force.

The current hot DeFi has made two interoperable currencies popular, Ren - bringing BTC (or other main chain currencies) into the ETH DeFi ecosystem in a completely decentralized way, and a cross-chain version of DEX. Before Polkadot is launched and IBC is not completed, at least in terms of pure value transfer between chains, these two projects have already done most of what needs to be done.

05 Privacy Layer Protocol

Representatives: Enigma, NuCypher

The privacy layer protocol can be said to be another major representative of middleware. It should be said that it is not very popular at present, but it is likely to be a very popular and important track in the future.

Readers may be familiar with privacy-focused currencies, such as DASH with mixed currencies, Monero with ring signatures, and Zcash with zero-knowledge proofs... But these are just anonymous transactions. The privacy layer protocol, or privacy computing, is something of a higher dimension.

As Vitalik once said, if Ethereum wants to attract corporate users, the two most important points are scalability and privacy.

Most people focus on TPS, sharding, and other things that improve scalability. However, there are still some projects that are quietly working on the equally technically difficult problem of privacy.

Take Ethereum as an example. The nodes on Ethereum verify public smart contracts, and the contract calculation results are also transparent to the entire network. This also means that the operation of smart contracts can theoretically expose all personal information of relevant users.

What if there is a privacy-preserving method to keep data encrypted and still allow the network to perform general computation? This would maintain the decentralized network advantages of Ethereum while preventing the computation process itself from being too public. Developers can build truly decentralized applications while ensuring user data privacy.

Simply put, it is to put a "shell" on the data flowing on the blockchain. The nodes cannot see what is inside the shell, but it does not affect their operations on the shelled data as before and return the correct results.

The privacy computing layer is currently still in a "beta" stage. First, several projects have not yet launched their main networks or have just launched them. Second, the performance is relatively poor due to technical limitations. Third, the current blockchain center and ecosystem have not yet reached the stage where privacy computing needs to be applied on a large scale. But once it reaches that stage, in theory, all blockchains will apply this privacy computing middleware, so you can think of it as a "water stall that may be popular at some point in the future."

What other "water selling" projects do you think are promising? Please leave your comments in the comment section.

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"Disclaimer: This article is the author's independent opinion and does not represent the position of Vernacular Blockchain. This content is only for popular science learning and communication among crypto enthusiasts and does not constitute investment opinions or suggestions. Please view it rationally, establish correct concepts, and improve risk awareness. The copyright and final interpretation rights of the article belong to Vernacular Blockchain. "