In recent years, domestic Internet payment has developed rapidly, and mobile payment is gradually becoming one of the commonly used payment methods, but its potential risks cannot be ignored. OKCoin Vice President & Chief Researcher Duan Xinxing was invited to participate in an online event themed "Payment Security and Innovation" hosted by Titanium Media. Duan Xinxing shared how blockchain will promote financial payment innovation.
The following is the specific sharing content of OKCoin Vice President & Chief Researcher Duan Xinxing:
I’m Duan Xinxing, and I’m very happy to share with you the topic of payment. I just posted a picture about payment. From online Bank of America payments in the electronic payment era to offline ATM payments, and then to mobile phone payments in the mobile Internet era, to later encrypted payments, such as scanning QR codes, including the subsequent Alipay and WeChat’s various innovations, we seem to have the illusion that all innovations in the payment field have been completed, and there seems to be no possibility or room for improvement. Is that really the case?
This is just like in the 1990s, Bill Gates once made a famous prediction. He said, "In my opinion, 64K of memory is more than enough for any computer." Everyone knows that this was a joke in the IT industry in Silicon Valley at the time. Later, memories larger than 64K were created, and new innovations and revolutions emerged in the payment field. In the past decade, an underlying technology, blockchain, has been sought after by industry and capital because it can reshape and subvert applications in various aspects of finance, economy and society. What I want to introduce today is this topic, how blockchain can subvert our innovations such as financial payments and financial remittances.
Since it is a trusted underlying protocol, we can also develop and program on it, just like our mail system and our web system HTTP, which can be developed based on TCPIP. Our Bitcoin and many secure, reliable, simple and clear payment systems can also be developed based on the blockchain, so it has very strong value attributes. This is based on the various applications on the blockchain, including Bitcoin, including the development of this payment system, it will receive a lot of attention from venture capital and the industry. For example, in the three months of April, May and June that just ended, the blockchain received an investment of 308 million US dollars from the US industry.
Photo courtesy of www.okcoin.cn
Let's analyze what kind of impact blockchain has on payment and remittance? Let's first look at this picture. This is when there is no blockchain. If we want to make a payment, exchange money, or transfer financial value, we can talk to everyone on the other side or send an email, but when I want to send money, I can't send it directly to you. I have to go through commercial bank A, then A to the central bank, then the central bank to (bank A) and then send the money to my other friend. This is because if it is online, if it is not a face-to-face barter transaction, we must find an appropriate trusted intermediary to complete our entire payment and remittance process through this intermediary. In this way, on the one hand, there is a certain improvement in efficiency, but it also brings very big problems. After the blockchain is generated, it forms a value transmission network, because it puts all the information of such accounts and transactions based on the underlying algorithm and protocol. The transfer and payment operations between one person and another can actually be carried out through this underlying value transmission network.
Combined with the characteristics of blockchain, it can play a role in solving cross-border payment, clearing and settlement in this scenario. For example, let's take this example, which is mentioned in the McKinsey report. At present, the settlement of cross-border payments takes a long time and is expensive. It must go through many intermediate links. Having a trusted intermediary role is very important in the current cross-border transactions. However, the methods of cross-border remittances and settlements are becoming more and more complicated. The intermediary role of the third party that we rely on between the remitter and the payee is particularly important. The intermediate links required for each remittance are not only time-consuming but also require a lot of handling fees. Its cost and efficiency have also become a bottleneck for our current cross-border remittances. If the clearing procedures of each country are different, it may take two or three days for us to send a sum of money to arrive, and there is a failure rate, and the efficiency is extremely low. The amount of funds in transit is also very large, which is one of the reasons why it is so expensive.
Photo courtesy of www.okcoin.cn
We can roughly see from this diagram that it goes through the payee, the bank, the payment system, and then to the transit bank A. In fact, if it is cross-border, it also goes through the central bank and multiple banks, not just the transit bank B, and then to the other party's payment system and the payee's bank. Time and cost consumption are generated in this chain. Then a very big advantage of blockchain is that it can abandon the role of transit banks and realize point-to-point fast and low-cost cross-border payments. Through the blockchain platform, not only can the transit bank be bypassed and the transit fee be reduced, but also because of its underlying security, transparency, and low-risk characteristics, it improves the security of cross-border remittances, speeds up our settlement and clearing, and greatly improves our capital utilization.
In the future, banks can communicate with each other through a peer-to-peer payment method built on the underlying blockchain technology instead of a third-party intermediary, eliminating the intermediary of third-party financial institutions. Not only can it provide 24/7 payment, but it can also arrive in real time, make withdrawals easy, and have no hidden costs. It will also help reduce the financial risks of our cross-border e-commerce and meet their current needs for timeliness and convenience in payment and clearing services.
We can also look at the right side of this figure. For example, according to McKinsey's calculations, from a global perspective, the application of blockchain technology in cross-border payment and settlement such as B2B can reduce the transaction cost from US$26 to US$15 per transaction, of which 75%
Photo courtesy of www.okcoin.cn
These are the fees and maintenance costs of the payment network of the transit bank, and 25% is the cost of investigating compliance errors and foreign exchange transactions. For example, based on blockchain technology or blockchain-like technology, we have a lot of cross-border solutions, such as the Ripple cross-ledger protocol, which helps banks to quickly settle accounts. It allows all parties involved in the agreement to see the same ledger, reducing inconsistencies. In addition, there is a feature in it, that is, there is a protocol similar to trust transfer. For example, if A wants to transfer money to D, but there is no trust between A and D, A trusts B, B trusts C, and C trusts D, it can achieve this nature. In addition, for example, there is "Shekou" based on the Bitcoin blockchain, and OKLink, which our company has made, is also a product of this type.
Through the blockchain hub, we can increase global accessibility. As long as there are points around the world that can access this service, our speed is much faster than the previous T+1 and T+T+3. We can make countdown payments. In addition, as we have just analyzed, its cost is relatively low and it will be more secure. This is an application of blockchain in the existing payment, cross-border payment and small exchange system that we can see at present. So is its power limited to this? If that is the case, it may be a bit exaggerated to call it the most revolutionary achievement in the "anti-blockchain" in the past 20 years. What it has done is not only to subvert the future payment in this area. There are also many companies abroad that are actively doing research and innovation in programmability and micropayments. For example, this is a list of the top 20 blockchain startups with the most monetary funds in the United States in 2015, which has been counted last year. The first one is a company called 21 Inc., which has raised more than 130 million US dollars. It is a company that does micropayments.
He has created a relatively complete payment industry chain and a full set of payment scenarios. That is, 21 Inc. is not just a traditional mining company as reported by the outside world. He makes both hardware and software. The chips he makes can be implanted in everyone's current iPad, iPhone, and various laptop devices. He can generate his digital currency and electronic currency through calculation. What does this mean? He also has some intelligent environments developed on his entire operating system. You can imagine that one day in the future, when your mobile phone reaches a very empty and remote place with poor signal, your mobile phone can automatically calculate to generate a small amount of currency, because Bitcoin can be divided into one hundred millionth, and can be used for very small micropayments. He sends this currency according to this protocol to a smart device that provides wifi and hotspot wifi nodes here. He automatically completes this scene, allowing you to seamlessly feel that your mobile phone can access the Internet during this period. He has completed this whole thing.
By constructing the whole, that is, combining it with smart contracts, the Internet of Things, and the entire scenario of smart payment, it makes some operations that were originally impossible to achieve possible, which means that its valuation is also very high. For example, since today we are mainly talking about payment, most of the examples I give are related to payment. We can review the history of the development of the entire blockchain. In fact, if we look at the origin of blockchain, I wrote a book called "Blockchain Reshaping the Economy and the World" and did some research at the time. That is to say, it actually targeted some problems in the computer science community when it first appeared. One is the "double-spending" problem, such as the payment of two parties in electronic currency, which can be solved with multiple signatures. Another is the Byzantine Generals Problem.
This is to say that in one sentence, when there is no trusted central node, such as a large bank, a government property certification agency, or an insurance agency, etc., and when there is no centralized node leading the way, how can a group of Byzantine generals reach a consensus and determine a consistent time to attack a castle and plunder a property? Later, there were many different solutions to this problem. In 2008 and 2009, in 2008, Satoshi Nakamoto used his proof-of-work chain to solve the Byzantine general problem, and it became a matter of how to reach a consensus when there is no central node. After that, first of all, under his conception and his entire structure, the entire Bitcoin and Bitcoin blockchain were created. This picture is here. For us, there is a set of consensus protocols based on the underlying programmable consensus mechanism, and such a point-to-point value and asset transmission network was also created for the first time. Although it is still somewhat immature, we are fully aware that this technology has the potential to bring about great changes to our finance and our world. We are fortunate to be able to witness the changes that blockchain has brought to our payment, finance, economy, and society in this era. We hope to witness these changes together.
Well, due to time constraints, I will stop here today. If you are interested in understanding the financial scenarios in the book we wrote, Blockchain Reshapes the Economy and the World, there is a chapter in it called "Blockchain First Knocks on the Door to Finance" that specifically talks about its application in finance. You can read it. The one on the right is our work on popularizing blockchain knowledge, OKlink.
