Application of blockchain: Technology that is not for application is just a hooligan

The person who said this is Zhang Jian, the head of Huobi's blockchain laboratory. In Zhang Jian's view, the blockchain industry is still in a very early stage and does not have the conditions for large-scale applications. At present, it is imperative to improve the infrastructure and solve the core problems of the scenarios according to the application scenarios of various industries.

The Internet has brought us information interconnection, and blockchain will realize the interconnection of value. Due to its unique and unchangeable record characteristics, it makes it possible to transfer assets freely like email. Similar to the Internet, blockchain is also a system that requires large-scale collaboration, so it will go through a long accumulation period in the early stages of development, but after reaching a critical point, it will show an exponential outbreak.

If we compare the development of the Internet, blockchain may currently be at the stage of the Internet in the early to mid-1990s. At that time, the local area networks that gradually developed in governments, enterprises and other institutions promoted information exchange within organizations and helped solve some internal problems. However, these local area networks were not yet connected to each other through the Internet, so large-scale applications such as email and social networks were impossible.

Capital generally maintained a wait-and-see attitude at this stage. Except for Bubi Blockchain, which received RMB 30 million in investment, there was no large amount of financing in China. Due to the relatively advanced technology, foreign countries are more active in investment and financing than in China. Blockstream, which develops side chain technology, completed a $55 million Series A financing in February this year, and Circle, which uses Bitcoin as an intermediary for currency exchange, received $60 million in financing from IDG not long ago, which also attracted widespread attention. Below we will explore the application of blockchain in several fields:

Perfect application scenario: mutual insurance

Mutual insurance was very popular a while ago. Let’s talk about mutual insurance first here, not because mutual insurance will be one of the main application areas of blockchain. In fact, due to the semi-public nature of mutual aid itself, it is difficult for blockchain to achieve great commercial value in this field. However, mutual insurance is indeed a perfect scenario for blockchain application. Waterdrop Mutual Aid, which has received the largest investment in this field, is also conducting blockchain research.

The reason why mutual insurance is a perfect application scenario for blockchain is that mutual insurance itself is also a decentralized system involving multiple people, and members enjoy equal rights and obligations. The application of blockchain can ensure that the flow of funds is open and transparent, and cannot be forged or tampered with, allowing every user to exercise the right to supervise.

One of the main principles of mutual insurance is that the incidence of the members in the group is basically the same, otherwise it would be unfair to the members with a low probability of getting sick. Recording user information on the blockchain allows participants to understand the situation of the mutual aid group members and avoid the mistaken entry of high-risk members such as those who are over the age limit. In addition, all fund transfers can only be executed according to public smart contracts, which also increases the transparency of the system.

The main demand of mutual insurance for blockchain applications is to solve the problem of open and transparent accounting. It does not involve complex transactions and does not require high performance of the underlying blockchain, which is easier to achieve than the Bitcoin system. As a digital currency system, Bitcoin requires a sophisticated incentive mechanism, and because its blockchain itself stores huge value, it needs to properly solve the problem of malicious node attacks. The blockchain of mutual insurance only undertakes the accounting function, and the value is not stored on the blockchain, so the motivation for hacker attacks is not strong.

On the other hand, because the value is not stored on the blockchain, an intermediary is still needed to custodian the assets. The blockchain has not completely solved the problem of decentralization, and when there are not enough participating nodes, it is impossible to guarantee that the blockchain is not controlled in terms of computing power. From a business perspective, although mutual insurance is a perfect scenario, it is not expected that there will be blockchain companies that specialize in mutual insurance. It is more likely that mutual insurance companies will complete the relevant technical development themselves.

One of the most valuable applications: cross-border interbank settlement

The interbank clearing market is another extremely suitable application scenario for blockchain. Similar to mutual insurance, the banks participating in the clearing system are also equal. However, unlike mutual insurance, bank clearing has great market value, but it is difficult to achieve.

Each bank has its own clearing system. When users make payments and transfers, transactions are formed between banks and recorded by two banks. This involves the issue of interbank reconciliation and settlement. Since the central bank is the clearing party for each bank, the clearing efficiency of domestic transactions is relatively high. However, since there is no authoritative agency as an intermediary for international transactions, the clearing systems and processes of various countries are very different, which makes clearing very troublesome and seriously occupies funds in transit.

If a blockchain alliance is established between banks and all transactions are recorded on the blockchain, it is equivalent to all banks using the same unified accounting system. There is no need to settle transactions after the transaction date, and cross-border transactions can be settled in real time. According to McKinsey's calculations, blockchain technology can reduce the cost of cross-border transactions from $26 per transaction to $15. Goldman Sachs also pointed out in a report that blockchain technology will save $6 billion in costs for the capital market each year.

Currently, the leading alliance in this field is the R3 CEV Alliance, which includes 44 major banks around the world, including Goldman Sachs, JPMorgan Chase, and Barclays. Not long ago, Ping An Group also joined as the first financial institution from China.

The core demands of the interbank clearing system and the Bitcoin system are different. The Bitcoin blockchain system is not suitable for interbank clearing in many places. For example, the underlying blockchain of Bitcoin is a public chain, which is mainly used to solve the security problem of malicious nodes. It sacrifices efficiency to a certain extent and cannot meet the needs of frequent transactions between banks.

R3 has made many customized optimizations for bank clearing scenarios. Richard Gendal Brown, CTO of R3, said in a blog that R3's product Corda is not a blockchain, but a distributed accounting solution that uses blockchain technology. The blockchain behind Corda is a consortium chain, and in order to protect the confidentiality of financial institutions' transactions, transactions only require confirmation from both parties, without the involvement of a third party, and third parties cannot obtain relevant information.

In addition, considering the needs of financial supervision by regulators, R3 allows regulators to monitor each node, and when regulators take action, the banks involved will be notified. In short, security is the biggest consideration for financial institutions. As the industry closest to money and with the lowest fault tolerance, the banking industry may still have a long way to go before it can apply blockchain technology on a large scale. It is also difficult for startups to advance this process on their own. Participating in and serving industry alliances is a more feasible way.

The most mature application areas: digital currency and payment

At present, the only truly mature application of blockchain is digital currency. After 8 years of development, no serious technical loopholes have been found in Bitcoin. With the current computing power of the entire Bitcoin network, it is difficult to be attacked by computing power. Currently, Bitcoin has a value of nearly 10 billion RMB and has obtained some actual payment scenarios, completing the first stage of initial acceptance.

Digital currency is safe, convenient, has low circulation costs, and can be used for online transactions without relying on banking services, allowing people in some remote areas to enjoy financial services. Currently, there are 2.5 billion people in the world who do not have basic bank accounts, which is a huge market opportunity.

At present, some countries have issued digital currencies, and some mainstream countries such as the United Kingdom, Sweden, Australia, and Russia are also conducting research on digital currencies. Digital currencies can reduce the cost of currency issuance and circulation, increase transaction transparency, more effectively combat crimes such as money laundering and tax evasion, and enhance the central bank's ability to control money supply and circulation.

As the field closest to currency, payment is likely to become the second mature blockchain application after digital currency. Circle and Ripple are leading companies in this field. For users, Circle provides a transfer service similar to the Alipay experience, but the difference is that Circle's payment architecture is built on Bitcoin, which can help users convert one currency into Bitcoin, and then convert Bitcoin into another required currency, thereby realizing cross-border and cross-currency currency exchange.

If R3 is a mild improvement to the banking industry, Circle may bring about a revolution. If digital currency becomes popular, people will no longer need to rely on banks to provide financial services such as fund custody and payment, and the financial industry landscape will undergo fundamental changes.

Conclusion:

Distributed ledger technology has the potential to change financial services as profoundly as the Internet changed media and entertainment. This paragraph on the homepage of R3 CEV basically represents the views of industry insiders on the future of blockchain: this will be a disruptive technology.

In addition to the above-mentioned areas, blockchain will also be widely used in supply chain and digital assets. However, the characteristics of various fields and industries are different. It may not be realistic to hope to use a public chain system as the bottom layer and achieve coverage of various scenarios through the application layer. Blockchain is a system that requires large-scale collaboration, so the core difficulty of blockchain's popularity lies not in technology, but in wider participation.

In addition, a fundamental problem of the current blockchain system is that there is no value carrier similar to Bitcoin that is also recorded on the blockchain. The blockchain only plays a recording role and cannot realize the interconnection of value. Therefore, the real maturity of blockchain applications in the future may need to be based on the popularity of digital currency.

In the long run, the impact of blockchain on the world may be no less than that of the Internet. It is difficult for us to judge its development path. Companies are generally secretive about the progress of technology applications, but overall there is still no breakthrough progress. We look forward to seeing more mature applications.