People's Daily: Three Questions on Blockchain

Recently, news about Bitcoin has attracted a lot of attention, and blockchain has also become popular. In the capital market, the stock prices of various blockchain concept stocks have risen and fallen like a roller coaster. From the sensitive capital market, it can be seen that blockchain is on the cusp of the trend and has received high attention from all parties.

What is blockchain?

A decentralized distributed ledger database with no center. Each node of data storage will synchronously copy the entire ledger, making the information transparent and difficult to tamper with.

In recent years, more and more institutions have begun to pay attention to and participate in the research and development of blockchain technology. From the initial Bitcoin and Ethereum to various types of blockchain startups, venture capital funds, and financial institutions, once they are labeled "blockchain", they will immediately become "golden". Not only that, many people's WeChat Moments have also been flooded with various articles interpreting blockchain.

So, what exactly is blockchain?

The "White Paper on the Development of China's Blockchain Technology and Applications 2016" issued under the guidance of the Ministry of Industry and Information Technology explains it this way: Broadly speaking, blockchain technology is a new distributed infrastructure and computing paradigm that uses block chain data structures to verify and store data, distributed node consensus algorithms to generate and update data, cryptography to ensure the security of data transmission and access, and smart contracts composed of automated script code to program and operate data.

He Fei, a senior researcher at the Financial Research Center of the Bank of Communications, gave a popular explanation: "Simply put, blockchain is a decentralized distributed ledger database." Decentralization means that unlike the traditional centralized approach, there is no center here, or everyone is the center; distributed ledger database means that the recording method is not only to store the ledger data in each node, but also that each node will synchronously share and copy the data of the entire ledger. At the same time, blockchain also has the characteristics of disintermediation and information transparency.

"Blockchain technology is essentially a database technology, specifically a ledger technology. The ledger records changes in assets and transactions in one or more accounts. It is actually a database with the simplest structure. The daily records we usually keep in small notebooks and the bank statements are all typical ledgers." Wang Jun, chief researcher of Tencent Financial Technology Think Tank, said that security is a major feature of blockchain technology, which is mainly reflected in two aspects: one is the distributed storage architecture. The more nodes, the higher the security of data storage; the second is its ingenious design of tamper-proof and decentralization. It is difficult for anyone to modify the data without following the rules.

Taking online shopping transactions as an example, the traditional model is that the buyer purchases the goods and then transfers the money to the third-party payment institution as an intermediary platform. After the seller ships the goods and the buyer confirms receipt, the buyer notifies the payment institution to transfer the money to the seller's account. The transaction model supported by blockchain technology is different. Buyers and sellers can trade directly without going through any intermediary platform. After the buyer and seller complete the transaction, the system publishes the transaction information in the form of broadcast. All hosts that receive the information record the transaction after confirming that the information is correct, which is equivalent to all hosts making data backups for this transaction. Even if a machine has problems in the future, it will not affect the data recording because there are countless machines as backups.

When it comes to blockchain, many people associate it with Bitcoin, and many people even equate blockchain with Bitcoin. He Fei said that Bitcoin is a form of blockchain, but blockchain is not the same as Bitcoin. Blockchain is the underlying technology and infrastructure of Bitcoin, and Bitcoin is a successful application of blockchain, but it does not mean that blockchain can only be applied to Bitcoin.

What is the use of blockchain?

It can solve the pain points and difficulties in many fields such as finance, public welfare, supervision, and anti-counterfeiting, but there are many applicable conditions

Financial services are the first application area of ​​blockchain technology. The use of blockchain technology can solve the pain points in payment, asset management, securities and other fields.

Taking the payment sector as an example, the cost of reconciliation, clearing and settlement between financial institutions, especially cross-border financial institutions, is high, involving many manual processes, which not only leads to high costs on the user side and the back-end business side of financial institutions, but also makes it difficult to carry out small-value payment business. The application of blockchain technology helps to reduce the cost of reconciliation and dispute resolution between financial institutions, and significantly improves the processing efficiency of payment business. In addition, the cost and efficiency advantages brought by blockchain technology to the payment sector enable financial institutions to better handle small-value cross-border payments that were previously considered unrealistic due to high costs, which helps to achieve inclusive finance.

For example, in order to solve the problem of high reconciliation costs between financial institutions, in August 2016, WeBank and Shanghai Huarui Bank launched the Weilidai inter-institutional reconciliation platform, which is also the first banking alliance chain application scenario in China to run in a production environment. Zhang Kaixiang, chief architect of WeBank's blockchain, believes that the high cost problem that the traditional "batch file reconciliation" model has long failed to solve is exactly where blockchain technology comes in. Subsequently, Luoyang Bank and Changsha Bank also successively connected to the inter-institutional reconciliation platform, and optimized the inter-institutional reconciliation process in Weilidai business through blockchain technology, achieving the goals of quasi-real-time reconciliation, improving operational efficiency, and reducing operating costs. So far, the platform has been running stably for more than a year, maintaining zero failures, and the number of real transactions recorded has reached tens of millions.

In the field of public welfare, blockchain technology also has great potential. Ant Financial's first application scenario involving blockchain is public welfare, helping a group of hearing-impaired children to obtain a sum of money, and then using blockchain technology to promote public welfare to be more open and transparent. Hu Danqing, a senior product expert at Ant Financial's Technology Laboratory, said: "The blockchain public welfare platform is like a post office we have built on the Internet specifically for mailing funds. Every donation from users will be packaged into a package, and this package will be delivered through the blockchain platform. Every time it passes a node, we will stamp a postmark and finally deliver it to the recipient. This ensures that every donation from users is transparent, traceable, and difficult to tamper with."

Blockchain technology can be very useful in combating counterfeiting. Hu Danqing introduced that Ant Financial has used blockchain technology to trace the origin of genuine products. At present, some overseas shopping products from Australia and New Zealand, such as milk powder, can be scanned with Alipay to know whether they are genuine. "Unlike the previous merchants who entered product information by themselves, blockchain allows multiple 'accountants' to complete accounting in a fair, independent and irrefutable manner."

Blockchain technology can also play a role in financial supervision. The "FISCO BCOS White Paper on the Underlying Platform of the Financial Blockchain" released by the Financial Blockchain Cooperation Alliance (Shenzhen) in 2017 believes that blockchain provides consistent and easy-to-audit data for financial regulators. Through data analysis of inter-institutional blockchains, financial businesses can be supervised faster and more accurately than traditional audit processes. For example, in anti-money laundering scenarios, the balance and transaction records of each account are traceable, and any link of any transaction will not be out of the regulatory sight, which will greatly enhance the strength of anti-money laundering.

Some industry insiders believe that blockchain 1.0 is mainly aimed at digital currency; blockchain 2.0 is aimed at smart contracts and can be applied in the financial market; blockchain 3.0 will be applicable to more scenarios and may even usher in a "blockchain era."

He Fei believes that blockchain can indeed solve pain points and difficulties in many fields, but blockchain is not omnipotent and has many applicable conditions.

For example, the decentralized nature of blockchain technology is suitable for scenarios involving multiple parties. If only one or two parties participate, the value is not great. Since each node needs to be checked, blockchain technology is not suitable for high-frequency trading activities.

For example, blockchain emphasizes openness and transparency and is not suitable for scenarios with particularly high requirements for data privacy.

Will blockchain become a new trend?

The technology is not yet mature, so we should be wary of concept speculation, especially to distinguish between technological innovation and fund-raising innovation. We should not use blockchain for the sake of blockchain.

The concept of blockchain is so popular, will it become another "Internet+" in the future?

In recent years, the development ecology of blockchain has gradually improved and enriched. Industry insiders believe that with the support of national policies, widespread attention and financial support, blockchain technology can achieve gradual and stable progress. Although the upward prospects of blockchain technology are broad, we must keep a normal mind.

"Although blockchain is very popular right now, we still believe that it is still in a very early stage." Hu Danqing said that there is currently a false enthusiasm for the blockchain concept. The enthusiasm is not in using technology to solve real problems, but in raising funds and hyping valuations. In particular, most of the so-called ICOs (initial coin offerings) are innovations in fundraising tools and have nothing to do with technological innovation.

Blockchain technology can indeed create great value, but some risks cannot be ignored.

"Blockchain technology is not yet mature and its application scenarios are relatively limited. We should be more vigilant against concepts hyped in the capital market." He Fei said that behind the blockchain craze there will inevitably be some companies that are trying to make a gimmick and speculate. They are not really conducting business, but are just trying to make a quick buck in the capital market. We must be careful to prevent the "bad money driving out good money" from happening, which will cause institutions that really want to conduct business to withdraw from the market and affect the application of blockchain technology.

Hu Danqing suggested that the regulatory authorities should intervene more proactively in the current blockchain craze, distinguish between technological innovation and fund-raising innovation, encourage government organizations, credible experts, and industry participants to help the public identify, comprehensively curb fund-raising innovation under the name of blockchain, and make the actual controllers of ICOs responsible for fund-raising activities. "The basis for judging whether it is technological innovation or fund-raising innovation is actually very clear, that is, whether it starts with trust and whether actual value is created by solving the trust problem."

In order to better promote and use blockchain technology in the future, we need to continue to improve the infrastructure and strengthen the formulation of relevant laws and policies.

Wang Jun believes that there is still room for optimization and improvement in the core technologies of blockchain, such as consensus algorithms; on the other hand, the processing efficiency of blockchain is still difficult to meet the requirements of some high-frequency application environments in reality. At present, the mainstream blockchain technology platforms all originated from abroad. Domestic blockchain technology service providers should patiently start from the bottom-level development, achieve independent and controllable technology, and strive to lead the development of global blockchain technology. Enterprises with blockchain application scenarios should actively embrace new things, and at the same time scientifically evaluate the needs of blockchain, and should not use blockchain for the sake of blockchain.

He Fei believes that the government can introduce relevant policies to guide companies that are interested in investing in the research and development and application of blockchain technology, while clarifying some scenarios in which blockchain is suitable for application and areas encouraged by the country.

The White Paper on the Development of Blockchain Technology and Applications in China 2016 recommends that government departments at all levels learn from the advanced practices of developed countries and regions, and in light of the development of blockchain technology and applications in my country, promptly introduce policies to support the development of blockchain technology and industry, with a focus on supporting key technology research, major demonstration projects, the construction of “mass entrepreneurship and innovation” platforms, the development of system solutions, and the construction of public service platforms. At the same time, it is recommended that key domestic enterprises, scientific research, universities, and user units strengthen cooperation to accelerate the research of core key technologies such as consensus mechanisms, programmable contracts, distributed storage, and digital signatures.