Blockchain: A gold mine similar to the Internet in 1994

2015 is regarded as the first year of blockchain by the industry , and 2016 is the year of deepening development and accelerating progress of the blockchain industry. The focus of the industry has also shifted from "what is blockchain" and "what can blockchain subvert" to a new stage of building diversified application scenarios.

Blockchain is the underlying technology of Bitcoin , but it is not limited to Bitcoin and can also be applied to other industries. When banks and other financial institutions can no longer rely on third parties, directly connect consumers and suppliers, and automatically settle, their overall security factor will rise to a higher level, so "Blockchain + " will have a disruptive impact on the industry. The current blockchain industry is just like the Internet in 1994, everything is in the ascendant, and there is a huge gold mine behind it.

Mainstream technology companies fully involved in the investment scale and explosive growth

First, more and more players are participating in the blockchain industry, from financial institutions forming alliances to technology giants competing for layout, plus booming start-ups. As Dr. Xiao Feng, the founder of Wanxiang Blockchain Lab, said, the comprehensive and vigorous involvement of mainstream technology companies will accelerate the maturity and systematization of technology, which is an important sign that blockchain has entered a new stage.

As for the platform, Microsoft, IBM and Amazon have successively established blockchain technology platforms since last year. Recently, Google Cloud Service also announced that it will provide blockchain testing services for banks. The open source nature of the platform is also increasing day by day, which helps to quickly develop applications. At the " 2016 Second Blockchain Global Summit" held by Wanxiang Blockchain Laboratory from September 22 to 24 , Wang Yunzhen, the innovation division of IBM Greater China, disclosed IBM 's new strategy for China, which will provide a code version of the hyperledger certified by IBM and more active platform support.

As for the financial institutions involved in blockchain technology, the R3 blockchain banking alliance established in the second half of 2015 has included more than 40 international financial institutions, including Citi, Bank of America, Goldman Sachs, JPMorgan Chase, UBS, Morgan Stanley and other financial giants. Currently, China Ping An, AIA and China Merchants Bank have joined R3 , and there are many other companies involved in blockchain research and development.

The pursuit of capital is a direct reflection of the "great financial prospects" of blockchain . Since 2013 , the scale of investment in the blockchain field has exploded. In 2015 , the total amount of investment and financing in the blockchain field was about 474 million US dollars, a year-on-year increase of 43.51% . In 2016 , the investment in blockchain technology in the financial field alone will reach 1 billion US dollars.

The influx of talent and capital has promoted technological progress and also incubated a large number of excellent blockchain start-ups at home and abroad. Wanxiang Holdings and Distributed Capital recently announced that they would invest 150 million yuan in Juzhen Finance, a blockchain start-up. This is currently the largest A- round investment in the domestic blockchain field.

According to Mr. Shen Bo, the founding managing partner of Distributed Capital, the Distributed Fund, which started operating on October 1 last year, has invested US $ 30 million in 30 projects , including 5 domestic projects.

Alliance chain is the first choice for the financial industry and has unlimited application prospects in non-financial fields

At present, China is still one to two years behind the international advanced level in terms of technology, but it is developing rapidly and actively trying to implement applications. According to the latest interim results disclosed by the China Distributed Ledger Foundation Protocol Alliance ( ChinaLedger ) at the summit, blockchain technology may be implemented in the financial industry in the following order.

The first is the over-the-counter business , because it is discrete, low in liquidity, relatively small in volume, and involves relatively few users, so it can be implemented first. The next is the post-trading business on the exchange . For example, in the securities market, it may involve post-trading processing, clearing and settlement reconciliation between the exchange, China Securities Depository and Clearing Corporation, and securities companies. The third is the business sandbox , which is similar to the Shanghai Free Trade Zone . As a business special zone, its risks can be strictly controlled within a certain range and are relatively controllable. Finally, there is international business .

It should be made clear that, based on its technical attributes, blockchain will not fundamentally shake the business model of financial institutions represented by banks, but will start from the underlying framework and use technology as the core force to promote industry development.

However, based on the future strategic planning, financial institutions must pay close attention and increase investment. At the summit, Ma Zhitao, Vice President and Chief Information Officer of WeBank, revealed that WeBank chose to develop in the alliance chain and established the "Golden Chain Alliance" which has included more than 60 financial institutions. They will share the ledger or copy of the ledger, and the use of blockchain technology will greatly reduce the cost of clearing and settlement.

At the same time, Mr. Sun Lilin, founder and CEO of Juzhen Finance , further revealed that more national financial institutions will participate in the actual exploration of blockchain applications. Juzhen Finance, which has just received an investment of 150 million yuan, has long-term operation and management experience in financial institutions such as UnionPay. In 2012 , it began to enter the field of digital currency and is committed to promoting blockchain technology to bring great changes to the financial industry, especially the clearing and settlement business.

Although the application of blockchain in the financial industry is currently in full swing, the application of blockchain is far from limited to this, and the prospects in non-financial fields are even broader. For example, ownership certification and transactions, including digital intellectual property levels and transactions based on smart contracts; existence and fairness certification, such as commodity tracking and valuables authentication; and more importantly, the architecture of the Internet of Things, including Internet of Vehicles, and Internet-connected devices in the field of health.

Compared with the financial sector, which is subject to many constraints, these other fields have significantly fewer technological innovations and restrictions on business models, relatively loose supervision, and relatively low frequency of value transfer. However, these scenarios still have insufficient centralized trust and high costs for gaining trust. Many of them may become fertile ground for the budding development of blockchain technology.

Still in a very early stage. The main feature is shifting from "decentralization" to "distribution".

From the perspective of policy supervision, after Governor Zhou Xiaochuan said at the beginning of this year that the People's Bank of China deployed forces to study blockchain applications, government regulators have frequently expressed their support for the development of blockchain technology. However, on this basis, the feasibility of applying the original "decentralized" characteristics of blockchain technology is actually questionable.

As Li Lihui, the leader of the blockchain research working group and former president of the Bank of China , pointed out at the summit, a completely decentralized structure is only suitable for low-quality transactions such as Bitcoin with relatively small traffic and a few transactions per second. With the iterative evolution of blockchain technology, decentralization is no longer an inherent feature of blockchain. For high-quality, especially in the financial field, decentralization may not be a good choice. Therefore, it is recommended to define distribution as the main technical feature of blockchain finance.

At the same time, the essence of finance is to use other people's money to do your own business, so it must be within the cage of law and regulation . The application of new technologies in finance should not be decentralized, and it cannot be subject to government and regulation.

In addition, regarding the current hot concept of blockchain and the capital chasing after it, Wall Street News also had further exchanges with Mr. Sun Lilin, the founder of Juzhen Finance. Mr. Sun Lilin said that the current enthusiasm is a normal phenomenon in the development of the industry, and the bubble is a side proof that capital is optimistic about this direction in the long term.

But in fact, blockchain technology is still in its early stages, and there are no mature solutions at home and abroad . In particular, how to integrate it into the logic of the financial industry still requires a lot of exploration, so the "disruption" in the short term is really an exaggeration. It takes 3-5 years for the technology to mature, and as an institution providing "financial infrastructure services", it will take at least 10-15 years to lay a solid foundation, and it is not something that can be achieved overnight.

Mr. Sun Lilin also pointed out that those who always try to catch hot spots will end up catching nothing. Only those who stick to an industry can make it to the end. To really do well in this field, it is not enough to have in-depth research and deep accumulation in technology. It is necessary to have a deep understanding of financial logic through long-term accumulation. Therefore, we hope to see cross-border companies find their own foundation, rather than blindly chasing business concepts.

The following is a transcript of the conversation between Wall Street Journal and Mr. Sun Lilin, founder of Juzhen Finance:

Wall Street Journal: Can you introduce the business content of Juzhen Finance and the impact of blockchain technology on ordinary people in the simplest and most intuitive way?

Sun Lilin: Juzhen Finance is a provider of financial infrastructure services and a technology service company. For everyone, we must first make it clear that blockchain is a technology, and its current development is still in a very early stage, so it is too early to change the application level. In addition, blockchain is essentially a B2B business model, not a B2C one . It will not be immediately reflected in everyone's daily life like mobile payment . Its main users are institutions, and the main usage scenarios are transactions between banks, peers, and institutions. It is the operating logic behind such transactions.

At present, everyone is curious about blockchain, or there is a so-called hype cycle, but in fact, it is far from a mature solution so far. Especially when it comes to its application in the financial industry, the financial industry has its own inherent technical standards, business rules, risk control principles, pricing methods, business models, etc., which have not yet taken shape.

But for banks, they must pay attention to this, invest relevant human and material resources, and plan for development in the next 3-5 years. But fundamentally, blockchain technology will not touch or subvert the fundamental business model of banks.

In the long run, the public's financial life will definitely become better because of this, because the development of technology makes the operation process of the middle and back-end more secure and cannot be tampered with, but it will not be as direct as mobile payment.

Wall Street Journal: So to what extent will blockchain technology have an impact on financial institutions, especially the banking industry?

Sun Lilin: The banking industry is far from panicking, and large financial institutions are still a long way from real change. This is because banks are only users of technology, and technology is not completely overthrowing business. The business model of bank deposits, loans and remittances will always exist, and so will users.

In fact, there will not be a huge disruption in the organizational structure. Just like mobile payment and cloud computing in the past, banks will also have new organizational structures, such as the Internet Finance Department or the Mobile Finance Department. However, blockchain will definitely improve the efficiency of banks. This improvement does not mean faster speed, but a reduction in the original approval process. The automatic balance of accounting is achieved through code and algorithms, which reduces a lot of manual intervention, so banks can free up resources and make the overall efficiency higher. However, in the short term, I don’t think banks will have a huge change, and they still need a process from quantitative change to qualitative change.

In general, blockchain is a strategy and a vision, but it is not yet a mature solution. But there is a gold mine behind it because it has touched many underlying technologies and created new ways of playing.

Wall Street News: So from the perspective of banks, are they embracing this technology? And what do you think of the fact that many financial giants at home and abroad are actively engaging in independent research and development?

Sun Lilin: People in the financial industry can intuitively realize that this technology is highly self-consistent in logic, and therefore it must be the future of finance; but people in the financial industry are also conservative and cautious, so they will definitely encounter certain obstacles, which is normal.

Whether financial institutions choose to develop their own products or introduce third-party technology products depends on their size. However, large enough institutions or systems will be greatly constrained in terms of innovation, while third-party technology companies will be more neutral.

Wall Street News: From the perspective of policy control, what is the prospect of blockchain technology? Based on the current level of technology, to what extent can existing products be advanced?

Sun Lilin: The policy attitude is actually public, and many central bank officials have repeatedly stated that they want to promote the development of blockchain technology. But the concept of "decentralization" is actually worth discussing. Because auditing is necessary, every smart contract will still be subject to auditing. At most, it can be called "multi-centralization", but it can never be true "decentralization" .

At the same time, due to the particularity of global research and development of blockchain technology, relevant security issues will inevitably be given special attention. The underlying technology will draw on relevant technologies, but it is impossible to copy them completely. It will definitely be customized and improved. After reconstruction, it will be audited and evaluated by regulatory agencies. The final results may be "neither fish nor fowl". It will no longer be the "blockchain" that everyone understands, so we prefer to call it "distributed ledger technology."

As for the current products, we are still promoting the alliance chain. As just disclosed, we will cooperate with WeBank. More national financial institutions will also participate in the future.

Wall Street Journal: What do you think about the current popularity of the blockchain concept and the enthusiasm in the entrepreneurial and capital fields?

Sun Lilin: First of all, I think this is a normal phenomenon in the development of this industry. Bubbles are not negative, but prove that capital is optimistic about this direction, and capital always pursues profits. Even if the bubble bursts, relatively weak or unsuitable companies will be eliminated, and money and people will remain, which is the time when giants emerge.

For entrepreneurs, I think that those who always try to catch hot spots will end up catching nothing. Only those who stick to an industry can make it to the end. To really do well in this field, it is not enough to have in-depth research and deep accumulation in technology. It is necessary to have a deep understanding of financial logic through long-term accumulation. Therefore, I hope to see cross-border companies find their own foundation, rather than blindly chasing business concepts.

Wall Street Journal: Finally, can you describe the development path of blockchain technology in the next few years?

Sun Lilin: The development of blockchain technology requires a process. It takes about 3-5 years for any small technology to mature . As an institution that provides "financial infrastructure services", it takes at least 10-15 years to lay a solid foundation, and it is not something that can be achieved overnight. For example, Alipay's entry into the field of mobile payment also impacted the field through different forms, from barcodes, sound wave payments, POS machines, and finally QR codes. So there must be a process of continuous trial and error, which is also a process of getting closer and closer to users.

But there may be new changes in 5 years, and the development of technology will open up new application possibilities. Therefore, a company that survives for a long time must not rely on getting money in rounds, but on finding a direction and finding a way out.