Bubi CTO: The voting system of the US presidential election also uses blockchain

The Internet has reduced the cost of point-to-point information transmission to almost zero, and anyone, anywhere, and at any time can easily exchange information point-to-point. In the future, blockchain will enable value exchanges in the real world, such as transferring a car or buying a house, to be realized as quickly and at low cost as sending a WeChat message.

1. Why is blockchain used in the voting system of the US presidential election?

2. What is blockchain? Why are people so interested in this technology?

3. How does blockchain achieve value transfer?

4. What are the application cases of Bubi Blockchain?

Bubuy co-founder and CTO Wang Jing gave us the answer to the above question in his speech at the 2016 MIIC conference:

Wang Jing, co-founder and CTO of Bubi

Although blockchain is a cutting-edge technology, it has become very popular in the past two years. Why is blockchain so popular? We should thank Wall Street and some mainstream financial companies in Europe and the United States for bringing blockchain technology or concepts into everyone's vision, because they have been continuously exploring, investing in and incubating related companies since mid-to-late 2014.

As you know, financial institutions are a relatively conservative industry. They usually don’t dare to try new financial technologies easily. They usually wait until new technologies are relatively mature or stable before trying to use them. Blockchain has become one of the few technologies that has been widely valued by financial giants in its infancy. There are two possibilities: 1. Blockchain technology is naturally suitable for the pan-financial industry; 2. Blockchain technology may have a greater impact on the pan-financial industry.

Why is blockchain also used in the voting system of the US presidential election?

Figure 1 shows some of the things that European and American financial giants have done in the five fields of financial products, technology research, venture capital, system construction and entrepreneurial incubation since 2014 and 2015. Some are testing some financial products, such as German banks using Ripple for international remittances; Citibank issuing its own "Citicoin"; some are doing a lot of research and analysis, one of which points out that using blockchain to gradually replace the existing banking system can save about 20 billion US dollars in costs each year; some have begun to incubate startups, taking out some marginal businesses, plus a certain amount of incubation funds, to help startups grow; and old investment banks such as Morgan and Goldman Sachs have directly invested in a group of potential blockchain startup teams and have close cooperation in business.

Figure 1 Banking industry’s exploration of blockchain

From 2015 to now, blockchain is not only in the theoretical stage, but also has been tried in various industries abroad, as shown in Figure 2. In summary, it is concentrated in the following four directions: At first, it was concentrated in digital currency, including transactions, foreign exchange, payment, microfinance and other fields; later it gradually spread to the securities industry, such as equity, debt, private market, crowdfunding, and some financial derivatives, the most famous of which should be Nasdaq's Linq; in addition to the traditional financial industry, blockchain has also begun to make some attempts in record preservation, such as registration and transaction of intellectual property and copyright, ownership registration, medical information records, and voting and elections; finally, the field of smart contracts is still in the early stages of exploration, mainly some gambling applications.

Figure 2 Application and exploration areas of foreign blockchain

Some people may have heard that Nasdaq has built a trading platform called Linq using blockchain. Linq is the first product launched by a financial services company that shows how asset transactions can be digitally managed through a blockchain platform. It is a management tool and part of the services provided by Nasdaq's private equity market for entrepreneurs and venture capitalists. At the beginning, they put their incubated startups on Linq, and everyone may feel that this is no different from a private market. Recently, Nasdaq directly put this system on its official website to tell the OTC market that this is a cloud platform. Its strategic significance is that Linq is no longer limited to a regional OTC market, which means that in the future, users in Nasdaq's private equity market, in Australia, North and South States, or in Europe and even China can freely register and buy and sell. In fact, the formation of such a global OTC market is also the greatest value brought by blockchain.

In addition to the well-known financial field, applications have also appeared in the pan-financial field. For example, this year is the US presidential election, and a state in the United States directly transformed the voting system with blockchain. Citizens in this state need to take their ID cards or valid documents to the investment station to swipe the card, which invisibly builds such an account at the bottom of the blockchain. What is the purpose of this? Ensure that every piece of data that goes out of the blockchain is traceable, so that every vote in the presidential election can be fully recorded. For example, if a citizen votes for Obama or other candidates, if all the votes for these candidates get 10,000 or 50,000, then it can be tracked who voted for him, when he voted, etc. These data can be fully tracked and can be put on the official website or public platform for everyone to query.

What is blockchain and why is everyone paying attention to this technology?

Before introducing blockchain, let’s talk about the Internet. After 20 years of development, the Internet has focused on solving one problem: the cost of point-to-point information transmission. The cost has been reduced to almost zero, and the cost of point-to-point information exchange by anyone, anywhere, and at any time is very low.

But why is the exchange of value in the real world, such as transferring a car or even buying a house, so troublesome? Is it possible to achieve this kind of fast and low-cost point-to-point value conversion like sending a WeChat message now? The current answer is no. Because value and information are essentially different, information can be copied. I sent a WeChat message to another person, I saved a copy here, and the WeChat server can keep a copy. However, the ownership of value must be unique, so the transfer of value requires a trust mechanism to confirm the ownership and record the account; the existing methods all rely on a centralized institution to record the account, such as banks, Alibaba, etc., which are well-known to everyone. Through this centralized confirmation and accounting, the asset exchange between two people or two institutions is completed. This accounting model is usually costly; then to achieve low-cost point-to-point value transfer, the essence is to reduce the cost of establishing trust.

There is an article in The Economist that introduces blockchain, calling it a machine for creating trust; because blockchain uses some clever system designs, plus a combination of cryptography and algorithms; in the transfer of value, accounting can be achieved by the network instead of relying on a centralized institution; blockchain uses this method to reduce the cost of establishing trust in the process of value transfer, it may become the cornerstone of building a value Internet.

Wall Street has a more vivid definition of blockchain: distributed shared accounting technology; the key here is sharing, which is manifested in the following ways: multiple business participants jointly build and maintain a public ledger system, in which the input data is guaranteed by a unified consensus mechanism to ensure the timeliness and authenticity of the data, and it cannot be tampered with or denied by a single party; blockchain is often said to be a disruptive technology because it is the first time that decentralized trust can be established from a technical level; this model of trust establishment has the potential to significantly reduce existing costs in many industries.

The left side of Figure 3 is the deployment of a traditional multi-party cooperative system, where one party is responsible for accounting and maintaining the ledger; the other parties are essentially clients of the accounting party, because all data is in the hands of the accounting institution; the blockchain on the right side of Figure 3 uses technical trust to establish a decentralized accounting system; all parties participate in the construction and maintenance of the system and have the same data and accounting rights; from the perspective of ownership, the system is jointly owned by multiple parties; data storage is also decentralized; and last but not least, transaction verification or data entry is also completed by multiple parties. The direct benefit of this is that once the transaction is verified, the traditional accounting, reconciliation, and even liquidation work is completed.

Figure 3 Traditional accounting method and blockchain’s distributed shared ledger model

Figure 4 is a logical diagram of blockchain application deployment, where each node has its own private key. At the business level, each node corresponds to an entity, which can be an upstream or downstream participant in the industry or a regulatory audit agency.

Figure 4 Logical structure of blockchain

Figure 5 is a typical accounting process. The left side is the traditional single-center accounting process. User A initiates a transfer application. After the institution verifies it, the account book data is modified, and then A and B are notified that the transfer is successful. The right side is a typical accounting process of the blockchain. A transaction occurs between A and B, a Tx is generated, and enters the blockchain network. It is spread throughout the network through the P2P network, and each node receives a copy of the Tx data. Then each node verifies the transaction based on its own copy of the data and gives its own verification results. The verification results will also be spread throughout the network through P2P. The essence of blockchain operation is that the minority obeys the majority. When the majority of nodes give consistent verification, all nodes record their own ledgers.

Figure 5 Comparison between traditional accounting process and blockchain accounting process

Value transfer on blockchain: transfer money, transfer anything

Let's look at two examples below. The upper left side of Figure 6 is a traditional value transfer model, in which a transfer is completed between AB through the confirmation of ownership by an institution. The lower left side of Figure 6 is a value transfer using blockchain. In the point-to-point value transfer between AB, it no longer relies on a centralized institution for confirmation of ownership and accounting. These are all completed automatically by the underlying blockchain.

The upper right corner of Figure 6 shows the current process of buying and selling a used car. Currently, it usually takes 2-3 weeks, during which multiple departments continuously review and verify the materials. After several years, if all this information is recorded on the blockchain, for example, a car's carbon emission standards have been inspected when it enters Beijing, and the insurance information and claims information are also fully recorded, then the buying and selling of used cars in the future may be as simple as sending a picture on WeChat. When the other party receives the picture of the car, the transaction is completed. Because in fact, the final confirmation of the completion of the used car transaction is just to change the owner from A to B in the database of the Traffic Management Bureau.

Figure 6 Traditional value transfer model and blockchain value transfer model

Bubi’s blockchain application case: supply chain finance

In the past year of exploration of commercial use of blockchain, Bubu has continuously discussed and cooperated with nearly 200 institutions. It has discovered some characteristics and pain points in the field of supply chain finance, which have many integration scenarios with blockchain.

First of all, supply chain finance inherently involves multiple parties. Currently, valuable information is scattered across various links, and it is difficult for any party to complete the risk control system using existing data. Therefore, every time the information flows to the next link, it must be reviewed repeatedly.

Take accounts receivable factoring as an example. When small and medium-sized enterprises take the accounts receivable contracts of core enterprises to banks to apply for loans, the banks do not distrust the repayment ability of the core enterprises, but they also doubt the integrity of small and medium-sized enterprises. First of all, this is a paper contract and there is a risk of forgery. Therefore, the bank must send people or make phone calls to investigate the actual trade situation of the core enterprises. This usually requires material and time costs, and this part of the cost will also be passed on to the loan interest rate. If the financial institution feels that the verification is too complicated, it may even refuse to lend.

Figure 7 Blockchain supply chain finance solution

The supply chain finance platform built using blockchain can connect the information systems of upstream and downstream enterprises, financial institutions, warehousing and logistics, insurance, credit investigation, etc., as shown in Figure 7. The first thing that can be done is to use blockchain to output a unified voucher, which can be the digitization of existing paper warehouse receipts, bills, and accounts receivable; it can also be a direct electronic contract.

The generation of a certificate involves multiple parties. For example, the issuance of a warehouse receipt requires the signatures of the manufacturer, warehouse, and inspection unit to take effect. The focus of subsequent circulation and pledge verification is also to see whether these three parties have stamped on it. If the three parties’ private key joint signatures are used to enter the warehouse receipt into the blockchain when it is generated, then the subsequent circulation links do not need to be verified again because other institutions have already verified it when it was entered.

Contracts are also a pain point in supply chain finance. Currently, all contracts are paper-based and signing a contract usually takes a long time. If blockchain is used to directly generate and sign electronic contracts, time costs can be greatly saved.

In addition to the function of certificate, blockchain can also fully record the circulation process of certificates, including the entire process of contract execution, transaction, pledge, and payment; at the same time, some business rules can also be handled by blockchain, such as pledged certificates are not allowed to be pledged repeatedly.

Finally, with the accumulation of time, credentials and process records will slowly become valuable credit source data; the data generated by the blockchain is fundamentally different from the existing credit data. The current data is maintained by a single center and has a limited scope of recognition and use; while all data input in the blockchain is jointly confirmed and maintained by all participants, and the credit model made with it will be greatly expanded in scope of acceptance and use.

Finally, let me introduce a case that we have already launched, which is a typical P2P financial platform. Behind this platform is a small loan business around the upstream and downstream of gold jewelry processing. The source of funds for the platform is to raise funds from C-end users or institutions through the issuance of financial products.

They want to use blockchain to solve several problems: First, they currently have no systematic risk control measures. When a small jeweler comes to the platform with a contract for financing, they can only send people to conduct research, which is inefficient and costly. They hope to use blockchain to build a supply chain system to fully computerize the business processes of gold and jewelry. Secondly, as more and more P2P platforms run away, users have a strong demand for information and risk control judgment on the underlying assets behind financial products. They authorize buyers to view the supply chain information recorded on the blockchain. Users can transparently query the underlying assets behind each financial product and the process status of the underlying assets to increase user confidence.

The essence and greatest value of blockchain is to share the data of institution A with institutions BCD in a trustworthy way. The ability of any small or medium-sized P2P platform to develop C-end users by itself is always limited. Therefore, they have a strong need to cooperate with other financial platforms and financial institutions in products or funds. Then they need to prove their subject matter to the other party or partner, and prove the authenticity and validity. The best way to prove it is to bring in these partners, who also become nodes of the blockchain, or participants into it. To ensure authenticity and validity, there is also a copy.