Blockchain: Technology drives finance (Part 2)

Rage Review : Blockchain is a new application model of computer technologies such as distributed data storage, peer-to-peer transmission, consensus mechanism, and encryption algorithm. The so-called consensus mechanism is a mathematical algorithm that enables different nodes in the blockchain system to establish trust and obtain rights and interests. While this concept has become popular in recent years, it is not familiar to the majority of financial practitioners. What exactly is blockchain, and what qualitative changes will its application bring to the financial industry? The book "Blockchain: Technology-Driven Finance" answers this mystery in detail. Book sharing is a series of original content of the official account of the China Asset Securitization Research Institute. Today, we will serialize the content of the preface of "Blockchain: Technology-Driven Finance". Please look forward to the wonderful knowledge.

Author: Xiao Feng

The topic of what blockchain is may have become a cliché in China today, including myself. But we often see such a situation: some concepts that we think are common sense are often full of mystery! With the publication of the Chinese version of "Blockchain: Technology Driven Finance", I would like to write down my recent reflections on the concept of blockchain as a preface to this book.

Blockchain is first of all a social trend. It heralds the arrival of a new era of transformation and replacement of human society. The sociological basis of blockchain is the evolutionary laws of nature, society, and technology based on biological logic observed and discussed in Kevin Kelly's book "Out of Control": distributed, decentralized; from edge to center and then to edge, from out of control to control and then out of control. The behavior of Zhang Xiaolong, the father of WeChat, who regards "Out of Control" as his own guide to action best illustrates that the organizational and economic development laws of the Internet era have changed; the economic basis of blockchain is the free economics represented by Hayek's book "The Road to Serfdom", monetary democracy, economic freedom; the market should be voluntary, autonomous, and self-governing; the political basis of blockchain is anarchism, cyberspace, code is law, decentralization, and no regulation; the technical basis of blockchain is distributed network architecture. It is precisely because of the maturity of distributed network technology that decentralized, weak-centered, sub-centered, and shared, consensus-based, and shared organizational, commercial, and social structures can be effectively established. This book introduces blockchain technology based on distributed network architecture from the perspective of engineering technology. The influence and impact of distributed network architecture on human society may be beyond our estimation and measurement!

Of course, everything has its essence and dregs, and its advantages and disadvantages coexist and prosper together, and the same is true for blockchain technology. In social practice, we have seen that while traditional financial institutions have accepted the essence of blockchain technology, they have also abandoned the purely decentralized anarchist color of blockchain technology and the pursuit of deregulation and de-regulation of everyone being able to issue currency.

The blockchain is a combination of technologies. First, it is a distributed ledger: all institutions have one general ledger, and all kinds of affairs have one general ledger; second, it is a new type of database: there is no central computer room, no operation and maintenance personnel, and third parties enter data according to the consensus algorithm. The asymmetric encryption algorithm ensures data security, and the data is objective and reliable and cannot be tampered with; third, it is a smart contract: it is a computer program that can automatically execute the agreed conditions. Relying on smart contract technology, the ideal world is like a precision-running computer, everything can be agreed in advance, compiled into code, and act according to the program; fourth, it is a point-to-point value transmission protocol in the TCP/IP model (Internet model). Its invention marks that in the past 20 years, after helping people to better transmit information, Internet technology has begun to help people to transmit, trade, pay, and exchange value objects point-to-point, end-to-end, and P2P without the trust endorsement of any third party. The Internet has entered a new era: the era of value Internet has arrived!

Blockchain is also the core of Fintech. Following Internet finance, Fintech has recently become very popular. We noticed that when Internet finance was active in China in the past few years, European and American countries were almost unmoved. In the past year, European and American countries have in turn transmitted the torch of Fintech to China, and ignited a new hot spot for financial innovation in China when Internet finance was in a mess. At first, I also thought that Internet finance and Fintech should be the same thing. But if you think about it carefully, although there is no essential difference between them, they still have different focuses. Internet finance focuses on scene revolution, while Fintech focuses on technological revolution; further, Internet companies have scene advantages, so they are slightly better than traditional financial institutions in the Internet finance stage. In fact, even Internet companies themselves have different scene capabilities. E-commerce and social network companies have the strongest ability to create scenes, so Internet finance has the greatest ability. Other types of Internet companies are basically far behind. As for Fintech, the focus is on innovative technologies such as cloud computing, big data, machine learning, and artificial intelligence. Technology is neutral, which means: first, although technology companies have the advantage of being the first mover in technology, financial institutions do not have insurmountable obstacles in applying advanced technology; second, technology logic must be combined with business logic to create value, and financial institutions have advantages over technology companies in business logic, and the accumulation of experience in business logic also requires time and process. No wonder we have seen too many news about Internet companies poaching people from financial institutions recently, because in the stage of financial technology, Internet companies are in urgent need of financial talents who understand business logic.

Facing business competition from Internet companies, the response measures of financial institutions in the past few years can be roughly divided into three categories: one is to be powerless and become a channel; the second is to embrace enthusiastically and connect comprehensively; the third is to build scenarios and innovate models. In fact, we have seen the story of Fetion and WeChat many years ago, which has fully demonstrated the truth of not using your own shortcomings to compete with others' strengths.

Fintech may be the best opportunity for financial institutions to compete with Internet companies! Because everyone is equal in front of technology!

Therefore, we can see that this time Wall Street’s enthusiasm has surpassed Silicon Valley. Financial institutions on Wall Street have all declared that they are technology companies or will soon become technology companies.

Blockchain can be regarded as the core technology in financial technology. Because blockchain technology is the underlying technological revolution of the financial industry. As we all know, modern banking originated in Italy. The reason why it originated in Italy is that Italy was the first region in Europe to start maritime trade. Complex and high-risk maritime trade inevitably requires supporting financial services; second, the Italians invented the double-entry bookkeeping method, which makes complex economic activities measurable in accounting. The double-entry bookkeeping method has not been significantly improved for hundreds of years. Blockchain technology will be the first revolutionary improvement in the accounting method of human society since the invention of the double-entry bookkeeping method. As a distributed ledger technology, blockchain will surely bring opportunities to reduce costs, improve efficiency, innovate business and services to any industry that needs to keep accounts. The financial industry, because of its long-standing digital characteristics, will bear the brunt and will also benefit from it first!

Finally, I hope that the publication of this book can promote the development of blockchain technology in China from the engineering and technical level and promote the implementation of related applications. I wish "Blockchain: Technology-Driven Finance" will be a hit!