Will blockchain dominate future finance? Resources are rapidly converging towards “blockchain + payment”

Capital, intelligence and other resources are accelerating to converge on blockchain. However, blockchain technology is still in its early stages of development, and there are still problems such as the need to improve its performance and efficiency, and to strengthen privacy protection and security.

Perhaps one day, small cross-border payments between people in different regions will be as simple as sending a red envelope on a mobile phone.

The technology that is needed is blockchain. Blockchain was originally a technology used to develop a Bitcoin trading platform. However, the potential of blockchain - providing efficient, fast, secure, reliable and auditable transactions - makes its application in the financial field full of imagination.

On October 18, the Ministry of Industry and Information Technology released the "White Paper on the Development of China's Blockchain Technology and Applications (2016)". The "White Paper" defines finance as the first application area of ​​blockchain technology, which is specifically reflected in multiple sub-scenarios such as payment, asset management, securities, clearing and settlement, and user identity recognition.

"Chinese regulators attach great importance to the new blockchain technology, which has greatly promoted the development of the industry. Currently, the standards for financial technology are in the hands of foreigners. If China can actively develop the application of blockchain technology in the financial field, it may be able to overtake others." OKCoin founder and CEO Xu Mingxing told the International Financial News reporter.

“Blockchain + Payment” has a bright future

Among the numerous blockchain application scenarios, "blockchain + payment" is one of the most concerned areas. Among them, the advantages of "blockchain + payment" in the field of cross-border payment are more obvious. It can not only reduce the costs between financial institutions and improve the processing speed and efficiency of payment services, but also open up a broad space for "small-amount cross-border payments" that were previously unrealistic.

According to statistics from the World Bank, the scale of global cross-border payments has been growing at an average annual rate of 5%, reaching US$601 billion in 2016. However, the cost of cross-border remittances is currently high, with the average handling fee rate borne by each remitter reaching 7.68%. The main sources of costs are bank remittance fees and SWIFT (Society for Worldwide Interbank Financial Telecommunication) telegram fees.

In order to solve the "pain points" in cross-border remittances, many blockchain companies around the world have set their sights on this market. This year, the US blockchain company Circle landed in China, focusing on the cross-border small-amount payment market. Ripple focuses on cross-border clearing between international banks, and the cross-border clearing alliance led by the R3 community includes more than 60 of the world's top banks.

Xu Mingxing explained to the reporter of International Financial News that there is no unified clearing center in the world at present, because no organization or institution can obtain the endorsement of credibility and gain the trust of different financial institutions. However, with the advantages of blockchain distributed ledger technology, the problem of transaction authenticity and reliability is solved.

In traditional transactions, third-party institutions usually need to review the authenticity of transactions. Blockchain companies can significantly reduce transaction costs by sharing real-time ledgers among participants. Circle claims that its exchange settlement costs are between 0.2% and 0.3%, and it is currently free.

In addition, blockchain companies also have an advantage in terms of the speed of receiving funds. Ripple took only 20 seconds to help ATB Bank in Alberta, Canada and Reisebank in Germany complete the world's first blockchain international interbank remittance.

Chinese companies actively digging for gold

As the world's largest Bitcoin market, Chinese companies are also making money from it.

Xu Mingxing told the reporter of International Finance News that this year OKCoin launched a cross-border financial transaction platform based on blockchain technology, which has now covered 18 countries, including Southeast Asian countries, Japan, South Korea, etc. The main customers are small and medium-sized financial participants around the world, including banks, remittance companies, Internet financial platforms, etc., with monthly transaction volume reaching several million US dollars.

"Blockchain helps companies establish credit internationally. This is not the credit of our company or the credit of investors, but the credit of technology. So we have some partners in Africa and Southeast Asia who are willing to believe in the security and resonance of the network," said Xu Mingxing.

In terms of blockchain applications, more and more Chinese companies are also participating. In September, Wanxiang Holdings and its subsidiary "Distributed Capital" jointly invested 150 million yuan in Juzhen Finance, a domestic blockchain startup. They are working with a number of financial institutions to independently develop blockchain underlying architecture protocols, as well as full-amount transactions and settlements of current securities, blockchain equity trading systems, and IoT security authentication blockchains.

According to a Moody's research report, many blockchain startups are attracting venture capital, with more and more funds coming from institutional investors interested in the technology. As of mid-July 2016, about 149 Bitcoin and blockchain startups had raised a total of more than $1.2 billion from venture capital.

Xu Mingxing told the International Financial News reporter that compared with other companies engaged in similar businesses internationally, the advantage of Chinese companies is that they have a large market space and the regulatory authorities are more supportive of innovation. However, their disadvantage is that they do not have good standards.

Regulators in many countries are paying close attention

In response to this technology, relevant application models are being explored at home and abroad. At the same time, regulators around the world are also paying close attention to the progress and potential applications of blockchain technology. On the one hand, they support technological innovation, but on the other hand, they dare not relax the bottom line of supervision.

For example, the UK Financial Conduct Authority (FCA) has proposed a "regulatory sandbox" project to address regulatory issues in emerging industries such as "financial technology". Entrepreneurs can use this tool and their customers' "informed consent" to experiment with their ideas in a regulated environment.

In February 2016, the Bank of Korea proposed in a report to encourage the exploration of blockchain technology. At the same time, Korea Exchange (KRX), the only stock exchange in South Korea, announced that it was developing a trading platform based on blockchain technology.

The Australian Stock Exchange (ASX) has already established a partnership with the cryptocurrency company Digital Asset Holdings to develop solutions for the Australian securities market using blockchain technology. Greg Medcraft, chairman of the Australian Securities and Investments Commission, said: "This technology has the potential to fundamentally change the market and financial system. Blockchain has far-reaching guiding significance for our regulatory approach."

"Blockchain has broad application prospects, but it also has its own limitations." Tang Wenjian, partner of Ernst & Young Consulting Services, analyzed to the media 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.