Xiao Feng: The core of blockchain is distribution rather than decentralization

Sina Finance News: On August 21, the "China Blockchain Industry Conference" co-organized by the Global Shared Finance 100 Forum and Contemporary Financier magazine was held at the Beijing National Convention Center. Xiao Feng, Vice Chairman and Executive Director of China Wanxiang Holdings Co., Ltd. and Deputy Director of the China Blockchain Research Alliance, attended and delivered a speech.

The following is the full text of the speech:

Xiao Feng: Dear leaders and colleagues, good morning! Today our meeting is called the Industry Conference, so I would like to share my thoughts on how blockchain will be applied in the financial industry. The core of blockchain is distribution, not decentralization.

I would like to start with a book, "Out of Control" by Kevin Kelly, the core idea of ​​which is distribution, decentralization and autonomy. In the last chapter, the first of the nine laws is called distribution.

It has four characteristics. First, there is no mandatory central control. It does not mean that it does not need a center, but it may be weakening certain centers. Decentralization is a process, not the ultimate goal. When some centers become rigid, costly, or monopolistic, new centers may replace them. This is a process, and there is no mandatory central control.

Second, secondary units have the characteristics of autonomy, which is actually the same as self-organization to some extent. The changes in the organizational form of our enterprises in the Internet era echo his conclusion.

Third, the sub-units are highly connected to each other. This is about changing from a pyramid structure to a network structure, and the connections between them are like a mesh, not a pyramid structure.

Finally, there is the influence between points, which forms a nonlinear causal relationship through patterns.

Let's look at the background of the blockchain. I think there are four backgrounds. The first is the sociological background, which is the biological evolution in "Out of Control". Second, the economic background, liberal economics. Third, the political background. Blockchain was originally created by some people with very strong anarchist values. Many people want to get rid of control, but no one has succeeded for thousands of years, because human society always needs some centralized mechanisms, always needs regulation, and always needs supervision. So it doesn't matter. These people have innovated some technologies under this value trend. We can modify, optimize and refine it to enhance the welfare of our human society. Finally, the technical background , blockchain was born based on distributed network technology. Without distributed network technology, blockchain would not be possible. We have to look at its background. Although blockchain is a social trend, it represents the background factors I just mentioned. It is the culmination of the distributed network and the blockchain was born.

The core of blockchain is not decentralization, but distribution. If we are not sure about this, it will be difficult for blockchain to be accepted by the financial system, and it will also be difficult for it to be accepted by fields such as intellectual property. If you want to completely decentralize, it will not be able to be applied in many existing systems.

But if we view it as distributed, then it can be well connected with many of our existing systems, thus bringing out its greatest value. So I said that weak centers, sub-centers, and network structure autonomy mechanisms should be the greatest common denominator of blockchain, the greatest common denominator reached by all parties involved in blockchain, and then we can apply this technology well, on a large scale, and in a wider range in the financial system.

If we agree with this, let's take a look at how blockchain will be applied in the financial industry.

The first observation is that there are two routes for the application of blockchain in the financial industry. One route is the route advocated by anarchic technology geeks. They hope to build a completely virtual world on the Internet without central control. However, if we return to reality and use it in the financial system, we see that the blockchain in the eyes of financial institutions is not called blockchain, but distributed ledger. My first observation is that blockchain is a distributed ledger. There are four differences between them. First, the distributed ledger does not necessarily carry the native currency. Second, the distributed ledger is not a completely decentralized thing. Third, the consensus algorithm of the distributed ledger is completely different. Fourth, the privacy protection policy. We know that on the Bitcoin public blockchain, account information is completely public, but if our bank wants to use blockchain technology and distributed ledgers, it is impossible to make our customers' account balances public on the entire Internet, so there are big problems with the scope of privacy protection.

Blockchain is a distributed ledger, but a distributed ledger is not necessarily a blockchain. It represents two routes, and these two routes are represented by two typical cases, which I will not go into detail about.

The application of blockchain in finance has two levels. The first level is the database. Blockchain becomes a distributed ledger, which is a database. In comparison, the database technology is relatively mature and there are already many practical applications. However, there are big problems with the database on the shared blockchain, efficiency and cost. We know that someone has calculated that the Bitcoin blockchain consumes the same amount of electricity as Denmark in a year. This cost is actually very, very expensive. The value of Bitcoin blockchain is currently carried by them. The total market value of Bitcoin is only about 11 billion US dollars. Such a system consumes a lot of energy, so it must be transformed. There are also very mature cases for the use of data. I will not talk much about it. Everyone should know about it.

The second application level of blockchain in finance is three applications. It can also be said that our various industries from Internet + to blockchain+ will bring three very big changes in commercial applications. Because of the characteristics of the general ledger of the distributed ledger, financial transactions will be changed from net settlement to transaction-by-transaction settlement, and it can operate 24 hours a day, 7 days a week.

The second change is to change the way financial services are provided. In the future, in the era of Internet finance, we have already seen that financial services will be integrated with life scenes and work scenes. In the future, there will be no separate financial services. Any financial services must become services that are available anytime, anywhere, on demand, and on the go. Internet finance has brought about a very strong scene revolution. Any financial services are high-counter, and even non-cash services are provided by thick bulletproof glass. Finally, all financial services must leave the physical branches of banks and go into life scenes. This blockchain can provide a good help.

The third change is that it will change the organizational structure and business structure of our financial institutions. Wall Street financial institutions are very sensitive to this. The CEO of Goldman Sachs has publicly stated at its annual investor conference that we are actually a technology company. If a financial institution is a technology company, then its capital structure will be different, and its organizational structure will also change greatly. The status of these technology departments in financial institutions will also change greatly. We are very worried that our existing financial institutions, as they are now, will call themselves technology companies.

Finally, I would like to share a few concepts about the application of blockchain technology in the financial industry. If we grasp a few conceptual ideas and understand them, you can imagine how blockchain may be used in the financial industry in the future.

First of all, the first one is the settlement coin. The characteristic of the settlement coin is the programmability of digital currency. If we do not have such a programmable currency in many financial transactions, it is difficult for us to achieve programmable finance and use smart contracts. So this is a very important concept. The second concept is that transaction-by-transaction settlement will change the clearing and settlement methods of our financial system. The third concept is Coin. There are three words in English to express the concept of currency. These three correspond to different angles. Tokens are viewed from the perspective of blockchain. Tokens are basically a form of digital currency. Coins are programmable. As long as someone recognizes you, you do not have a country-specific control problem.

The last concept is digital assets, which is also a very important concept used in the blockchain financial industry. All assets that are connected to the Internet and registered on the blockchain are called digital assets, so the concept of digital assets is much broader than digital currency.

Thank you! I will share here!