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. Li Lihui, member of the Financial and Economic Committee of the National People's Congress, leader of the Blockchain Research Working Group of the China Internet Finance Association, and former president of the Bank of China, attended and delivered a speech.
Li Lihui: Good morning, everyone!
The topic of my speech is "The path of blockchain technology in financial applications is feasible, credible and reliable". Recently, blockchain technology has become popular in the financial industry. The International Monetary and Financial Organization pointed out in its first monetary report that blockchain has the potential to change finance. As a new technology that has just been launched, most of them are still in the stage of exploring new things. Some people think that decentralization will weaken macro-prudential supervision? Are there any potential risks in the application of timestamps and smart contracts? More people are concerned about whether blockchain technology can be used to create a platform for inclusive finance with lower costs and higher efficiency? Here I would like to talk about my personal opinion.
First, the distributed structure is technically and economically feasible. When blockchain technology was first applied to Bitcoin, it was indeed a decentralized technical structure. Existing information technology systems all have central servers to implement all information exchange and data storage. Blockchain, on the other hand, forms a large-scale database system that does not require a center by building a distributed structural system and a protocol for participants to work together. All agreed participants participate in the recording and verification of data, which is then sent to each node through distributed communication. Even if some nodes are attacked or damaged, it will not affect the integrity and information update of the entire database. This structure actually has high hardware requirements. First, massive data storage requires more space. Second, data synchronization requires a high-speed network. Third, the capacity of each node needs to meet the standards and be balanced. Once the capacity of the transaction chain result system is not generated, the transaction will automatically enter the queue, which will bring a bad experience to the experiencer.
Therefore, a completely decentralized structure can only be applied to transactions such as Bitcoin. In financial application scenarios, high transaction volumes are the norm, and financial products and services are usually cross-platform. For example, the application of blockchain technology to build digital bills requires the problem of connecting the digital bill system with the electronic bill system platform, as well as the problem of real-time connection between digital bill exchange and fund settlement. For financial power scenarios with high transaction volume platforms, the decentralized structure of blockchain technology is obviously not adaptable.
From the perspective of the feasibility of blockchain technology applications, I personally believe that the concept of distributed is more appropriate and accurate. my country's financial infrastructure is relatively developed, and large financial institutions have built ultra-high-speed, high-volume, centralized information technology systems. In the application of blockchain technology, various financial institutions jointly establish distributed alliance chains, making full use of existing technologies, ensuring transaction speed, and achieving compliance control. Moreover, the essence of finance is to let other people's money do your own business, so it must be put into the cage of laws and regulations.
Program trust can enhance commercial credit. For example, the Credit Information Center of the People's Bank of China or the payment platform verifies information and accumulates trust. Blockchain solves the trust problem through blood transfusion. All rules are expressed in programs. As long as both parties trust each other's programs, mutual trust can be established and credit can be created. Blockchain can realize point-to-point value transfer. The introduction of programmability allows both parties to compile scripts accordingly when transferring value, forming intelligent contracts, which is convenient for handling some specific transaction modes to avoid unpredictable transaction risks. This is essentially a list of more instructions to achieve the targeting and screening of value exchange, as well as the restriction of counterparties.
Second, realize the restrictions or conditionality in value exchange, that is, the constraints in the transaction.
Therefore, all blockchain-based value exchange activities can be controlled through programming and various restrictions. The spirit of contract is the pillar of a market economy society. It embodies the spirit of contract and the principle of contract, and rises to public power, which is of fundamental significance for establishing a good order and ensuring the healthy operation of the market economy. In a market economy society, the principle of contract is generally realized through the implementation of laws and the fulfillment of contracts. Laws are rules written on paper, and contracts have both written agreements and verbal promises.
Bills are convenient payment and settlement tools, and are also important monetary tools of the central bank. The defects of the current bill business are mainly that it is difficult to control, including trade background fraud, bill authenticity, illegal use of bills, financing, arbitrage, etc. Bill business supervision can only be carried out through auditing, lacking the means of full process and review, and the efficiency of supervision is low and the cost is high. If blockchain technology is applied to build digital bills, it is possible to achieve specific restrictions through programmable contracts, introduce regulatory control nodes, and confirm transactions by all parties to the transaction to ensure mechanism exchange.
Third, blockchain technology can be applied to the query, verification and protection of information. The information generated in society today is massive and growing exponentially. It can be divided into shared information, proprietary information and private information. The value of shared information lies in its authenticity, and the value of proprietary information lies in its ownership and protection of its intellectual property rights. The development of the Internet has greatly promoted the production and dissemination of information, but it is often difficult to prove the authenticity of shared information, confirm the ownership of proprietary information, and protect the security of private information.
The distributed function of blockchain can protect the integrity of data by building a distributed database system and participant consensus protocol. The blockchain timestamp function forms unforgeable data by generating information blocks of a certain time period and data chains connected end to end between blocks. Each participant adds a timestamp when performing a block, which can prove originality and ownership, and is conducive to protecting the privacy of information.
Fourthly, effective risk control can ensure the reliability of new technology applications. The application of blockchain technology is still in the laboratory stage, and people are more concerned about how to make complex economic life simple and easy. For example, blockchain technology can be applied to cross-border remittances to save time and facilitate payments. Blockchain technology is applied in healthcare, the Internet and other fields to improve efficiency and save costs. At the same time, the potential risks of blockchain technology applications have also begun to be exposed, and the application risk control of blockchain technology has received more and more attention. In May of this year, The DAO just created the world's largest crowdfunding record, raising $150 million. On June 17, The DAO was attacked by hackers, and $60 million worth of Bitcoin was hijacked. Multiple withdrawals of hijacked funds were achieved in a single transaction process. On July 20, Ethereum adopted a hard fork plan through collective decision-making to return the hijacked funds to the initial investors.
In the initial stage of the development of blockchain technology applications, the occurrence of such risky events may not necessarily be just a bad thing. We can gain some important insights from them.
First, new technologies open up new applications and also bring new risks. Because high-tech must guard against technology monopoly risks and technical operational risks, and must build a technical firewall to prevent moral risks. In the application of blockchain technology in different scenarios, the security, stability, and reliability of smart contracts and timestamps must be deeply analyzed and authoritatively demonstrated.
Second, new technologies have new features, and risk management must adapt to the new structure. It is impossible to follow the security control measures under the centralized database structure to deal with hacker attacks and other incidents. New risk management measures and emergency measures must be developed for the new technical structure.
Fifth, a cautious and optimistic investment prospect. Blockchain technology has formed a pattern of advancing in parallel. In May this year, the Financial Blockchain Cooperation Alliance was established, and in June this year, the China Internet Finance Association established a blockchain research working group. The technology of blockchain has expanded from Bitcoin applications to the financial field. The trend that has been formed is irreversible, but it is still in the starting stage overall. Participants are advancing in parallel, and those who are on the sidelines still have the opportunity to follow up and may catch up. In terms of the underlying technology of blockchain, except for Bitcoin, there has been no new breakthrough. In terms of the application layer development of blockchain, such as smart contracts on blockchain, some progress has been made, but I personally estimate that it may take one to three years to reach the level of mature application.
The pattern of the starting stage means venture capital opportunities, which currently focus on start-ups, but the investment amount is not large. In 2015, Circle, a US blockchain cross-border payment company, received investment from Goldman Sachs and IDG Capital. my country's Wanxiang Holdings has established a $50 million venture capital fund. The investment prospects of blockchain are cautiously optimistic and there should be huge space in the future.
Finally, I will report on the work of our research group. We must do our best to serve everyone. The starting point of the blockchain research group under the leadership of the China Internet Finance Association is to gather everyone's strength and serve everyone. The focus of the work is to carry out research on the technical difficulties of blockchain applications in the financial field, business scenarios, risk management, industry standards, etc. Four key research topics have been launched, including research on the construction planning of blockchain basic platforms, research on blockchain technology and digital identity recognition, research on blockchain technology and digital bills, and research on blockchain technology and regulatory policies. Some of these topics design basic platforms, and some design applications in financial scenarios. Our working group will further promote this work. We hope to get your help and hope that everyone will work together to promote this project, which has just started in China, but may change the world in the future. Thank you!
