Exclusive interview with Shenyu: There may be no "copycat season" in this bull market, pay attention to the development of modular blockchain

Original title: "Exclusive interview with Shenyu: What do you think of Bitcoin halving? The future of mobile and custody in the mining sector, predicting the integration of the metaverse & AI and blockchain"

Original source: BlockTempo

During the Hong Kong Web3 Carnival, Dongqu was fortunate to invite Shenyu, co-founder and CEO of Cobo, a digital asset custody solution provider, and co-founder of F2Pool, the world's largest mining pool, to join the interview to talk about Shenyu's understanding of the industry cycle. In addition, with the Bitcoin halving imminent, Shenyu shared how the changing pattern of the mining industry will affect the market. Interestingly, he also shared his current state of mind in investing.

How does Bitcoin halving impact mining companies

First, Dongqu raised questions about the competition and elimination mechanism of Bitcoin mining companies, asking Shenyu what preparations the major mining companies have made before and after the Bitcoin halving event, and what types of mining companies are more likely to survive in the process. Shenyu said that in fact, there are three main types of companies in the Bitcoin mining industry, each of which has different characteristics and strategies to cope with market challenges.

First, North American mining companies are mainly listed companies, mainly relying on cheap oil and gas field resources and some redundant power resources in North America. In the last round of bear market, a large number of such mining companies went bankrupt and reorganized due to high leverage ratios... and other reasons, and cleared a large amount of debt at a discount.

In the past six months, with the sharp rise of cryptocurrency-related stocks in the US stock market, these mining companies took this opportunity to raise a large amount of funds, strengthened cash flow, and began to expand into new business areas such as Bitcoin's second-layer solutions and NFT.

The second category of companies is mainly supported by Chinese capital and distributed in South America and Africa. These non-listed companies do not have such strong financing capabilities and pursue low-cost operations. Their business models rely on traditional mining payback period calculations. In the past six months, many low-cost, high-speed expansion mining plants have emerged in Africa, with costs about half of those in North America. Especially after the Bitcoin halving, these mining companies are expected to expand rapidly due to their ability to run high-power machines.

The third category is emerging mining companies supported by national investment institutions. The goal of these companies is not only to make profits, but also to participate in market competition and obtain early Bitcoin production. Some small countries have also begun to use national funds and local surplus electricity to invest in the construction of mining farms.

Overall, the main players in the market are divided into these three categories. At present, the Bitcoin halving has a greater impact on the second category of mining companies because they are more sensitive to cost changes and are undergoing large-scale mining machine relocation to optimize mining costs.

The alt season may not come

Currently, the daily emission of Bitcoin is about 60 million to 70 million US dollars. After the halving, the block reward will be directly reduced by half. In this regard, Dongqu asked Shenyu about his views on the altcoin market after the Bitcoin halving this time, how much will the increase and expectations be?

This time there is a high probability that there will be no "alt season" because the current market players are different from the previous players. From the perspective of miners, after the Bitcoin spot ETF was passed on January 10, risk hedging has been carried out several months in advance to cope with the risk of Bitcoin halving. In addition, we have seen that many listed companies have used the good news of the ETF's passing to raise a large amount of legal currency funds.

Some mining companies have moved their mines to South America and Africa, where costs are lower, which reduces their sensitivity to costs and allows them to maintain a gross profit margin of about 10% to 20% even with the previous generation of mining machines. Therefore, even in the case of Bitcoin halving, the economic impact on these miners is relatively small, especially considering that the price of Bitcoin has risen before the halving.

For investors, especially those who invest in altcoins, this cycle is characterized by the flow of funds into Bitcoin mainly through channels such as ETFs. As for when these funds will flow to other cryptocurrencies, we are still observing.

In May last year, Shenyu once assessed that it was in the "early stage of the bull market", the absolute bottom of the bear market had passed, and the cryptocurrency industry was in a state of looking for new narrative logic and development. So what does he think the cryptocurrency market is in for this cycle at this stage?

I think it is likely that in the middle of the bull market, the market has begun to pick up and has found a new narrative logic, but it is not yet in a very high leverage and FOMO state.

Shenyu also reminds readers that since the market is a dynamic, multi-party game complex system, relying only on a single indicator or historical data to predict the market top is often not suitable for the current situation. He suggested that the best practice is to continue to observe market developments and rebalance and reallocate assets when a certain stage is reached. This approach can help keep a stable mentality when the market falls rapidly or enters a bear market, and may increase their absolute returns.

Changes in the mining landscape due to AI chip crunch

With the increasing global demand for chips and advanced processes, the demand for the new Bitmain S21 mining machine (using 3 and 4 nanometer technology) is in direct competition with the demand for AI chips. Shenyu explained the chip demand pattern of AI companies and mining machines, and expressed how he sees these factors affecting the future of Bitcoin mining.

From my perspective, the two sides may not be in a competitive relationship. Since the Bitcoin chip structure is relatively simple and pursues the ultimate power consumption ratio, this has promoted the rapid iteration of chip technology and greatly shortened the traditional 18-month development cycle. As early as 2018 and 2019, some mining chip manufacturers have begun to develop AI-oriented chips because the two have similarities in computing and power consumption control.

A new chip design philosophy has emerged in Bitcoin, called full customization methodology. In essence, it means that through some manual wiring, the same technology is used in the chip process to further squeeze its performance and make its power consumption ratio better. These methodologies have also begun to be applied to the design of some AI chips. We have also seen some AI-oriented chips made by Bitmain and Shenma, which have already had millions of shipments on the market.

Looking to the future, I believe that mining and AI chip companies will gradually merge, and the boundaries between products will become blurred. Although the mining market is currently a cash cow, with an output of tens of billions of dollars each year, the growth focus of the chip industry in the future may shift to AI. The experience and technology accumulated in Crypto mining will contribute to the development of the AI field.

In addition, for readers who are not familiar with mining, it is necessary to understand that there is a time delay between the fluctuation of crypto market prices and the change of computing power, which usually lasts for 6 to 12 months. Therefore, the change in computing power in the next six months will depend on the price of chips, unless the price reaches an extremely high level, it will affect the demand change on the entire production capacity side.

The necessity of Bitcoin ecological expansion

In the review at the end of 2023, Shenyu once said that he was slightly surprised by the development of the Bitcoin ecosystem, which may be a kind of "unnecessary" for many Bitcoin "valueists". Judging from the current situation, it is not just Layer2, Side chain, Rollups, NFT... etc. The BTC ecosystem is now flourishing, and the amount of money invested by users is also quite amazing. Shenyu shared his views on the current Bitcoin ecosystem.

The current Bitcoin system can be divided into two parts. First, the Bitcoin main chain is mainly used as a store of value, and it is difficult to make major updates or iterations. Its core function is to ensure decentralization and relative stability. On this basis, many innovative attempts that have gradually emerged from the bottom are also underway. Over the past year or so, we have also seen many interesting attempts emerging from the bottom up. In the end, everyone found that it was still difficult to innovate on the first layer of Bitcoin, and eventually had to choose a second layer or a side chain to develop

In addition, although technologies such as the Lightning Network lack bottom-up application scenarios, the recent economic incentives have solved this problem to a certain extent, attracting a large number of real users to try in the BTC ecosystem, which is a gratifying progress. At the same time, we are also closely observing the development trends of these second-layer and sidechain technologies, which are still in the early stages.

Now it is such a state: with the sedimentation of a large number of assets on Bitcoin, but these assets have an urgent need to obtain income and interest on Ethereum, and these needs have not been met for a long time in the past. These scenarios that suddenly emerged, everyone will test and try them out.

What is the final state of the Bitcoin ecosystem? It is not so obvious now, but these attempts are good, we need to try, and finally find a path.

Talking about the Bitcoin ecosystem, Shenyu also shared what challenges he is currently facing. He believes that although it is in the early stages, the ecosystem is moving in an optimistic direction.

The early views of some large companies and Bitcoin Core on the Bitcoin ecosystem, I think, show a positive trend. Even if some members of the Core team may not like the emerging changes, they cannot stop these developments, which is the charm of decentralized networks. This kind of network naturally promotes many market demands and innovative gameplay, even if these innovations may seem clumsy in the early days.

Just like many things that emerged on Ethereum in the early days, it was also a mess and full of various problems, but in the end there were indeed successful cases. The same is true for Bitcoin. We need to observe more and give it enough time and patience to develop, and there should be some revolutionary new developments. At present, we are still in the early stages of this process.

In December last year, Bitcoin Core developer Luke Dashjr posted a post on X, saying that the inscription was actually a spam attack on the Bitcoin network, and hoped to fix it before the latest version in 2024. Therefore, it became one of the main factors for the plunge of $ORDI at the time, and the dynamic zone also asked Shenyu for his insights.

The Bitcoin ecosystem is a three-party game: core developers develop code and submit proposals; miners use computing power to vote to decide whether to support and implement these proposals; and finally users vote.

This structure ensures the decentralized nature of the system, meaning that even the Core Team cannot unilaterally reject a feature or new idea. This decentralization is a major advantage of Bitcoin over other tokens or chains. In its current state, it is difficult for any new development on the chain to be determined by a single entity.

Current situation of competition in custody business and introduction of DeFi

With the maturity of the cryptocurrency market, including the launch of Wall Street ETFs and the gradual compliance of exchanges, traditional banks and custodians have entered the cryptocurrency field. What does this mean for Cobo, which has been committed to wallet custody since 2017?

First of all, this is a good thing. For a long time in history, new users in the crypto industry, especially novice users, have a problem, that is, "I know that cryptocurrency may have value and a future, but after purchasing it, how should I store it and how can I store it safely?"

With the development of modular blockchain narratives, the performance of blockchain will be gradually resolved in the next two to three years. The final possible state is that many of the applications we use use blockchain technology at the bottom layer, but users are not aware of it, such as the development of MPC keyless wallets, smart wallets (Smart Contract Wallet/Account, SCW), and AA wallets based on Passkey.

Users have the key without realizing it, and in a relatively decentralized way. The development of a large number of good experiences on the chain and the keyless wallet technology will eventually allow a large number of users to truly use blockchain technology in a variety of scenarios.

For Cobo, we have always been very focused on how to safely store and use private keys, as well as a series of risk controls during use. We provide different underlying private key management methods for different stages of the development of the entire industry, from the earliest centralized HSM (hardware security module) solutions to these institutions, so that they can meet the requirements of internal risk control and auditing, while meeting the permission management of multiple users.

With the development of the industry, we also provide a multi-signature solution based on MPC, which avoids the single-point risk of institutions and allows multiple institutions and insurance companies to perform a private key sharding and a similar multi-signature solution; at the same time, we have also developed on the chain based on the smart wallet level, including the user Control Wallet solution

Cobo faces the entire encryption market and focuses on some attempts and wallet innovations in the future scenarios after a large number of users pour in. From my perspective, the influx of traditional institutions will make the path wider. In the end, there are two core issues, first of all, performance issues, and secondly, user experience. Especially after the experience of no private key is solved, we will usher in a better and truly grounded Crypto development state.

Looking back on the development of the industry, at this point in time, does Shenyu think that it is contradictory to the "decentralized" idea of parochialism?

The cryptocurrency industry has been developing all the way, and has tried many technical routes in the blockchain, from the earliest impossible triangle to the performance problem of the discovery chain, and then the problem of expensive block space.

After nearly five or six years of trial and development, everyone finally chose the modular blockchain method, making some compromises and balances at different levels, and finally making the cost of the entire blockchain low enough for end users to adopt. To some extent, it sacrifices a certain degree of decentralization, but at the top level, high-value applications that have a great demand for decentralization can still choose to go to Layer1, which is more expensive at this level. It is OK to be willing to pay this price for this freedom and decentralization.

However, most of the messages that are ultimately formed by the value network we transmit will not be of high value. There must be a large amount of low-value application-side messages, which can be guaranteed to be secure and open and transparent through the degree of weak decentralization. It can be said that there are now various choices and combinations to make the blockchain scene richer.

Big Whale's Investment Method, Keeping the Balance of Mind

During the Lunar New Year this year, Shenyu provided encouragement to investors in the crypto circle on the X platform and reviewed his previous "Crypto Asset Accumulation Plan from $1,000 to $100 million". He suggested that when personal assets reach $10 million to $100 million, 10-15% of the assets can be invested in the track you are optimistic about, which can not only keep investors busy, but also prevent unplanned investment behavior. It can also be seen that he is keen on tracking hot spots on the X platform.

Therefore, the dynamic zone also asked Shenyu, what track has he paid special attention to recently? What trends must be paid attention to this year?

My style is like this, I will try something new and interesting, try and fail, and observe the development of these technical routes. Today in 2024, I pay special attention to the development of "modular blockchain".

It took seven or eight years from the expansion problem of Bitcoin ecology in 2017 and 2018 to the expansion problem of Ethereum ecology. The market finally handed in the answer, that is, modular blockchain, and has demonstrated practical application cases. We don’t know what its final status and its upper-level applications will be, but the trend is very certain. This market may be the next market of more than 100 billion US dollars, so I personally put more energy and focus on the large sector of modular blockchain.

Interestingly, Dongqu also asked Shenyu what his current state of mind is when investing in cryptocurrency. Is he still Fomo now?

Everyone will definitely have FOMO, because groups have emotions, and the underlying biological principle is that there will be Fomo. The best thing I did in 2023 was to spend more time reading after the market turned bearish, and then reflect on the pits I stepped on and the things I did not do well. The biggest gain in 2023 is to make the FOMO mentality less.

Many times you only need to do a thought experiment, for example, if you see something new and you are very excited, you have to think about it for a day or two, and this thing will pass, and you may not really execute it or try it.

You just need to figure out what its core value is and what value it can capture? Then you may not do it, because you figure it out, it may only be a short-term thing.

Expand yourself from a local perspective and stand at a higher level to look at the entire market, and you will find that many actions are actually meaningless. You will not do those experiences that may seem good in the short term, and sometimes even give you a lot of incentives in the short term, making you feel good, but in the long run, it is actually harmful. When you are used to thinking about things from a larger and farther perspective, you can get rid of the FOMO mentality at that time.

In the interview, Shenyu also shared that investors of different generations have different perceptions and reactions to the market, especially the rise of a new generation of investors. Shenyu noticed that investors born after 2000, who have lived in a digital and online environment since childhood, are more sensitive and adaptable to market changes.

The new generation of 2000s is more adapted to the entire process of Internet development because they are Internet natives since birth.

They are more sensitive to market sentiment. As old leeks and old currency circles like us, our sensitivity on this side is definitely not as good as everyone thinks. We are also aware of this trait, so we look at it less and pay less attention to short-term market sentiment changes.

You need to be clear about what kind of money you are making, whether it is money from market sentiment or money from cycles.

Different money has different return targets.

For the new and younger generation of kids, they may have less original capital accumulation; but they have a lot of time and a better sense of the Internet. Under these advantages, the path of looking at market sentiment is more suitable for them. This is a big difference between the old and new currency circles. Many post-00s no longer play with us... (laughs)

I think the new generation of post-00s is also very good. They are more adaptable to the entire process of Internet development because they are native to the Internet since birth.

AI and the Metaverse Era for Future Cryptocurrency People

Towards the end of the interview, as a wallet custodian and crypto OG, Shenyu spoke frankly about the industry transformation process, and responded frankly to what impact AI will have on the cryptocurrency industry and wallet custody, and what kind of better understanding should people in the cryptocurrency circle have of AI? What will the future era look like when everyone in the cryptocurrency circle will use AI?

I think we are standing at a very good time intersection now, because we are basically in a period of rapid and vigorous development of multiple technologies. Blockchain technology has solved performance problems in the past decade, AI technology has begun to be widely used, and future autonomous driving and robotics technologies are also gradually taking shape.

What is exciting is the integration of these technologies, such as the native interaction between blockchain and AI, and the direct interaction between a large number of IoT devices and AI Agents. In this direction, each terminal and AI Agent may have its own smart wallet and key, which can autonomously purchase, trade and invest data within the scope of human authorization.

In the future, this cross-industry integration will require the improvement of more basic modules, including improving the accuracy of encryption technology and AI models, in order to achieve large-scale implementation of blockchain technology and applications.

In the past two years, as technology giants have launched more advanced VR hardware devices, the market's expectations for the metaverse have gradually grown. These innovative hardware devices not only improve the quality of the immersive experience, but also lay the foundation for the application scenarios of the future metaverse. How does Shenyu view the "metaverse" that everyone is talking about in the future? Will it still be dominated by Web3?

The final metaverse may be quite different from our imagination of Fomo in the bull market in the past two or three years. The core is that the data and ownership in the virtual space will be stored and presented through blockchain technology, and the user experience will be more imperceptible. In the past, we first issued assets on the chain, hyped assets, and then looked for their application scenarios, but in the future, with the improvement of chain performance and the reduction of data storage costs, a large number of games and metaverse applications will make high-value data assets stored on the blockchain imperceptibly.

In addition, combining the native features of blockchain such as DeFi and AMM will promote spontaneous value discovery and enhance financial attributes. Instead of relying on NFT to find applications as in the past, it is better to do the opposite and put the assets of mature applications on the chain. This process will be driven by the development of hardware technologies such as AI and VR.

In the previous metaverse craze, many investors and users rushed to buy virtual land, which was regarded as valuable digital assets on multiple platforms. However, after the initial investment frenzy, many people began to question the actual value and purpose of these investments, especially when they found that in addition to owning them, they did not know how to effectively use these assets to create value. Shenyu said at the end of the interview:

Looking back, Crypto has done two things in the past 10 years: First, we issued a large number of on-chain assets, such as a large number of ICOs in 2017 and 2018. At that time, issuing a large number of assets was purely conceptual and pure speculation, just like the Internet bubble in 2000, when everyone could speculate as long as they bought a domain name. In the early stage, it did promote the development of the industry, and this was the bubble period.

The same is true for NFT. We first issued a large number of assets, and then trial and error, the bursting of the bubble, and ultimately it still depends on applications. In the end, the Internet relied on a large number of applications that truly solved real problems, and everyone benefited individually. It developed in this process, and the future of Crypto may be the same. There are a lot of time machine rules, and there are opportunities hidden in them. Let's make a rough analogy, and the final state may be similar.

So a technology will go through a bubble period, then the madness of the masses, and finally it will be truly mature. The typical cycle of technological development, Crypto cannot escape this process.

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