Blockchain technology: A real revolution is coming, but regulation cannot lag behind

As civilization develops, some achievements are inevitable. The Internet is changing our lives, and mobile Internet, big data, cloud computing and the Internet of Things are coming one after another. Now, blockchain is here. In the future, how will it change our work and life?

Yunqi Blockchain

To borrow a popular saying in the financial world, "If you don't manage your finances, your finances won't manage you." When it comes to the currently popular blockchain technology, it means "If you don't pay attention to blockchain now, you may be out in the future."

It is no exaggeration to describe the current blockchain market as a market that is full of people flocking to it. According to the reporter's observation, recently, both individual entrepreneurs and public companies have focused their attention on blockchain. On October 9, Wanglu Technology, a blockchain company that was founded less than two months ago, announced that it had completed a tens of millions of yuan angel round of financing in September, led by Dahe Venture Capital and followed by Wanxiang Distributed Capital.

Recently, Minsheng Bank also announced in its quarterly report that it has officially joined the R3 Blockchain Alliance. The R3 Blockchain Alliance was established by R3CEV, a blockchain startup headquartered in New York. Currently, the alliance members include more than 60 large international financial institutions such as Morgan Stanley, Wells Fargo, Goldman Sachs, HSBC, ING Group, and Citibank. Previously, the alliance released Corda, a distributed ledger platform for financial institutions, which is used to record, manage, and simultaneously accept and supervise financial agreements between financial institutions. Before Minsheng Bank, Ping An of China, China Merchants Bank, and China Foreign Exchange Trading Center have successively joined the R3 Blockchain Alliance.

The reason why these institutions and funds are investing in blockchain is, in the words of Liao Li, professor at Tsinghua University PBC School of Finance and director of the Internet Finance Laboratory, "blockchain will become the key technology for turning the dream of Internet finance into reality."

As Internet finance develops in depth, blockchain technology and its applications have become a hot topic of increasing concern. Blockchain technology has begun to move from concept to practical application, and more and more funds are flowing into blockchain entrepreneurship and related innovation fields. As financial institutions and even large traditional companies from various countries join the exploration of blockchain technology, a real revolution is quietly coming.

At a breakfast sharing session held by the Internet Finance Thousand People Forum, Huang Zhen, director of the Institute of Financial Law at the Central University of Finance and Economics and president of the China Internet Finance Innovation Research Institute, told reporters that the advantage of blockchain lies in its ability to solve identity recognition and personal credit reporting for online transactions at a very low cost, as well as the use of peer-to-peer transactions to avoid traditional centralized clearing structures, thereby greatly improving the operating efficiency of the financial system and even the entire economic system.

Zhang Jian, founder of blockchain data website and head of Huobi Digital Huobi and Blockchain Research Center, pointed out that although blockchain was born as a technology, what it brings has far exceeded the scope of technology itself, just like what the Internet has brought us. In his view, blockchain is not only a technology or a tool, but also a thought. Openness, sharing, decentralization, these core spirits of blockchain coincide with the Internet. However, unlike the Internet, blockchain has further expanded such thoughts from the transmission of information to the transmission of value.

With the evolution and development of blockchain technology, its true value to the financial industry provides a greater imagination space. Blockchain can essentially improve the efficiency of the financial industry and create new value links and business models. This is a more ambitious future, not just to transform or replace the existing system.

Future financial commanding heights

As a new type of Internet technology, blockchain provides a possibility for reshaping the infrastructure of the financial industry with its decentralization and immutability, especially in payment, securities registration and settlement and other business areas, which are characterized by the existence of multiple market entities and frequent transactions of assets between entities. Mao Junhua, managing director of CICC, believes that although it will take some time for blockchain to have a substantial impact on the financial industry, as blockchain matures, it will be one of the hot spots in the field of financial technology.

The important characteristics of blockchain decentralization are based on distributed ledger, trust without intermediaries, asymmetric encryption, intelligent integration, timestamp authentication, etc. "Blockchain solves the trust problem of financial activities at a low cost, and evolves financial trust from bilateral mutual trust or the establishment of a central trust mechanism to multilateral mutual trust and social mutual trust, and seeks ways to solve the credibility problem with mutual trust." Huo Xuewen, secretary of the Party Committee and director of the Beijing Financial Work Bureau, said on many occasions besides the breakfast meeting of the Internet Finance Thousands of People, "Compared to centralization, blockchain is distributed ledger technology." Huo Xuewen believes that blockchain has extremely broad application prospects in the financial field. Blockchain technology does not subvert the essence of finance, but more subverts the form of financial implementation. Huo Xuewen emphasized, "Some current views believe that the 'decentralization' of blockchain finance is inappropriate. The center still exists, but it used to be a physical center. In the future, it will be centered on the Internet. Whoever provides blockchain publishing and trust services is the center, and the blockchain generation platform is the center." The Internet era not only changes the way information exists, how it is transmitted, and how it affects society, but also changes social organizational relationships, hierarchical structures, and corporate organizational systems. Therefore, as a technology, blockchain subverts and innovates the form of financial implementation by changing the form of communication between finance and the outside world.

Regarding the impact on the financial industry, Mao Junhua pointed out that first of all, blockchain will help the financial industry reduce costs and improve efficiency, such as reducing multi-party communication costs and faster settlement cycles; secondly, it will reduce counterparty risk and systemic risk. At present, the number of financial institutions joining the blockchain exploration is increasing rapidly, but blockchain technology is still in its early stages and will still be mainly experimental in the short term. It will take some time for it to have a substantial impact on the financial industry.

In Mao Junhua's view, what is more critical is that in the future, blockchain will change the basic structure of the financial industry. Blockchain is more suitable for multi-party high-frequency financial businesses with obvious "pain points". Blockchain is easier to implement in financial businesses with multi-party participation, high-frequency application, reliance on centralization, low efficiency and high cost: the cross-border payment field is costly and time-inefficient, and will be the first to bear the brunt of blockchain applications. Blockchain can realize peer-to-peer payment functions, which may weaken the functions of transfer and clearing organizations. Blockchain will have a great role to play in the fields of securities registration, clearing and settlement. The related middle and back-end businesses of financial institutions will have opportunities to improve efficiency, while intermediaries such as clearing houses will face challenges. There is also room for application in private equity crowdfunding, P2P, trade finance and other fields.

This means that whether it is traditional financial services, or Internet financial innovations such as P2P and crowdfunding, or in strengthening financial supervision, preventing financial risks, and combating illegal fundraising, blockchain technology has a very broad application prospect, which also drives blockchain technology to gradually become the key underlying infrastructure of Internet finance and even the entire financial industry. Especially for the banking industry, blockchain, as a highly digital, secure and anti-interference ledger, can be used to realize the core function of banks: that is, as a safe storage and transfer center for value. In recent years, many banks feel that blockchain technology can be used in many aspects from remittances to securities exchanges to improve efficiency. A research report released by Santander Bank in Spain suggests that by 2022, blockchain technology can save the banking industry $15 billion to $20 billion each year by reducing costs in cross-border payments, securities transactions and compliance.

However, it is worth noting that if blockchain wants to truly realize the interconnection of value, it must solve the standardization issues of underlying technology, business and data. In addition, blockchain also faces a series of technical challenges such as performance, capacity, security, and scalability.

Supervision cannot lag behind

It is worth noting that as an emerging technology, blockchain has also produced a mixed bag of good and bad.

Huang Zhen told reporters that recently, people have a hope that blockchain can cure all diseases, but the main application of blockchain is still Bitcoin. This reminds him of the situation five years ago, when people believed that the application of P2P technology to the field of private lending might solve the problems of asymmetric information, irregular operation, and the government's inability to monitor the flow of funds. Therefore, they spared no effort to promote P2P technology, especially P2P lending. However, there have been many frauds and illegal fundraising in the field of P2P lending recently, and there has also been a situation close to bad money driving out good money.

Reflecting on this period of history, Huang Zhen borrowed a line from Heine's poem and said: "I sowed dragon seeds, but harvested fleas." Strictly speaking, there is nothing wrong with the P2P business model itself. The problem lies in its application level. Many platforms have gone astray in the application level, and even misappropriated the name of P2P. Some people just use the name of P2P, but they are not doing P2P business. This happens a lot, so it is a very critical institutional arrangement to let P2P return to the position of information intermediary.

The blockchain is the result of the development of the P2P network distributed structure. Many people rush into the blockchain without understanding its basic principles and applications. This is an unhealthy tendency. If it continues to be so popular, it will become "sick". We need to stay sober and rational.

Huang Zhen frankly admitted that the current chaos in blockchain is no less than the chaos in P2P back then, and a China Blockchain Anti-Fraud Alliance should be initiated. If anti-fraud measures are not taken in a timely manner, the newborn blockchain may be thrown out along with the bath water.

This also reflects from one aspect that the supervision of regulatory agencies is obviously lagging behind, and the introduction of policies and regulations is also slow. On the one hand, it is due to the rapid development speed, and on the other hand, it is due to the slow speed of solving problems, which leads to time lags and differences in understanding, thus causing many problems. How can supervision be done? If it is timely but not comprehensive, appropriate reminders can be given and early monitoring can be carried out.

Yang Tao, assistant director of the Institute of Finance of the Chinese Academy of Social Sciences and director of the China Blockchain Research Alliance, suggested that the current situation of blockchain should be cooled down. Due to professional requirements, blockchain will be difficult to be open to the public for a long time. Therefore, we should avoid forming a concept similar to "Internet finance for all" and avoid hype to prevent the spread of risks and uncertainties, so that the innovation of blockchain can become a controllable experiment that can truly help the transformation of the digital economy. In addition, rules can be formulated. A new technology and the institutional rules that accompany it are the result of compromise and constant trade-offs among all parties in any field of application. Many arrangements and models are not optimal, but they may be the most cost-effective. The key is to use the rules of the game in different fields to integrate the distributed rules brought by blockchain. It is not a simple decentralization, but how to achieve multiple centers and several centers.