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On July 18, Yao Yudong, director of the Financial Research Institute of the Central Bank, was invited to attend the first Londi Fintech Summit held in Shanghai and delivered a speech entitled "Supporting China's New Economic Normal with Fintech". At the meeting, Yao Yudong spoke on the application of global blockchain and the outlook for blockchain in my country, and on behalf of the Financial Research Institute of the Central Bank, he made some suggestions on the current research and development of blockchain in my country.
Yao Yudong introduced that the US government agencies, the Indian central bank and the Dutch central bank all pay close attention to and conduct technical research on blockchain. The People's Bank of China is also paying close attention to the development of blockchain technology. The China Internet Finance Association has also set up a special working group for blockchain research. The relevant departments of the People's Bank of China are stepping up research in the field of blockchain and electronic currency, and paying close attention to the development of blockchain technology and its application prospects.
In terms of financial institutions, China Ping An and Toyota Financial have joined the R3 blockchain alliance this year. Domestically, on April 19, the blockchain alliance jointly initiated by 11 institutions including China Securities Inter-institutional Quotation System Co., Ltd., the China Distributed General Ledger Basic Protocol Alliance (China Ledger Alliance) was established; on May 31, Shenzhen established a financial blockchain cooperation alliance. In terms of theory, on January 5 this year, the China Shared Finance 100 Forum established the China Blockchain Research Alliance, which is also working hard on research. Zhongguancun seems to be working on blockchain as well, and there may be different alliances.
In view of the fact that smart contract (SC)/blockchain (BC) technology may have a wide range of application scenarios, Yao Yudong also put forward suggestions on China's blockchain research and application on behalf of the Financial Research Institute of the People's Bank of China: seize the opportunity of blockchain technology development, adopt a "follow-up strategy", and actively prepare to establish an SC/BC alliance that meets the needs of my country's financial technology market and is widely participated by commercial banks and various non-bank financial institutions, namely China's R3 Alliance, accelerate the formation of my country's SC/BC standards, and at the same time actively strengthen blockchain application pilots to ensure that my country obtains its due position in the application of blockchain technology.
The following is the full text of Yao Yudong’s speech:
Good morning, I am honored to attend the Rondi Summit today. I would like to share with you some of our research and suggestions on blockchain.
First, we would like to review the current status of global blockchain research and application. This is a brief review. Let's take a look. Now it should be said that blockchain has been highly valued by governments and regulatory authorities in many countries. For example, in July, regulators, legislators and entrepreneurs in the United States jointly participated in a roadshow in Bretton Woods with the aim of formulating formal guidelines.
The Federal Trade Commission of the United States, including U.S. congressmen and some educational institutions, have also begun to actively participate in this matter. The National Credit Union Association of the United States also serves more than 7,000 credit unions. It has recently launched an action to explore the release of a ledger such as the CU Dedger Initiative. It is also currently making internal adjustments to respond to the global blockchain trend. The People's Bank of China is also paying close attention to the development of blockchain technology, including the China Internet Finance Association, which has also set up a special working group for blockchain research. The relevant departments of the People's Bank of China are stepping up research in the field of blockchain and electronic currency, and paying close attention to the development of blockchain technology and its application prospects.
Take India for example. After discussing blockchain technology in December 2015, the Reserve Bank of India (RBI) is currently studying the technology. HRKhan, the deputy governor of the bank, said at an event organized by the Banking Technology Development and Research Institute that blockchain technology can reduce the use of paper money, which can not only effectively reduce the cost of copying, transportation and maintenance of circulating banknotes, but also effectively combat the illegal behavior of counterfeiting banknotes in India. The Dutch central bank is actively exploring the full application of blockchain. The Dutch central bank is preparing a large-scale pilot project to explore whether the financial market can be completely built on the basis of blockchain. The person in charge of the bank's experiment said that the distributed nature of blockchain can bring a new financial market infrastructure - an infrastructure that can better prevent hackers from providing it.
Financial institutions are also comprehensively strengthening their research in this area. More and more institutions are applying for or applying for patents related to blockchain. For example, Bank of America has submitted more than 20 patent applications related to blockchain. JPMorgan Chase, MasterCard, Western Union International's remittance company, as well as the US stock exchange, Visa and Wells Fargo Bank have all filed corresponding patent applications. IBM and French bank Credit Mutuel Arkea have cooperated to use blockchain technology to build an identity authentication system that can collect all user information in a distributed network. The purpose of this is to further test whether the concept is feasible and also strive to use it for non-financial applications.
We have seen that universities and business schools in Europe have cooperated with large international banking institutions and have gradually opened such courses. Two days ago, I was in the Zhongguancun Book Building and found that the most popular books on the first two shelves were all about Internet finance. Now the most popular books are about blockchain. Now the situation has changed. You can see that the trend has changed.
I want to say that everyone may be thinking about what exactly is the blockchain in the future? I am worried that it may easily lead to overheating. It seems that Internet finance has not been fully implemented, including the Internet rectification work we are currently carrying out. Suddenly, blockchain is so hot again. Is there a suspicion of bubble here? I think this is worth discussing.
But is it feasible? Or is it a future application? I think everyone has different judgments, and often whether it is another technology bubble. I want to share with you a philosophy that is widely used in monetary policy. We can't judge whether blockchain is a new technology bubble? If it is not a bubble, we think it is a bubble, so what action do we take? The action is to leave it alone and let it develop. But it is not a bubble, we missed a mistake, and this mistake is a mistake with a missed revolution.
The second type of error is that we think it is a good revolution, but in fact it is a bubble. We try to follow up with our actions, but we find that it is just a waste of effort. It is just an immature technology. Think about it, we may have made a lot of efforts, but in the end we found that it is a bubble. We have made some efforts and spent some money. Many government departments, the industry, etc. are investing, and the limelight is also doing it. Which one has a greater cost? This philosophy is consistent with the Fed's interest rate hike today. That is, if we cannot judge the Fed and whether the US economy is recovering, if it actually recovers, we think it has not recovered. The cost may be that the Fed's asset bubble is caused by the slow rate hike. The second type is that we think the interest rate has been raised, but in fact it has not, and we fall into it. Which risk is greater? The second type is that we think the interest rate has been raised when there is no recovery. In this case, we would rather take the second risk, slow rate hike, at most we will take the risk of bubble, the risk of asset bubble. But this risk is far less than if the economy is not very good, I raise interest rates, fall, and cannot carry out QE4 operations. It is difficult to do so, and this risk is greater. When it is unclear, it is better to take the first risk, slow down and be cautious, rather than rush to raise interest rates.
The same question, I have the same doubt as everyone else, Internet finance, we have just gone through a baptism of domestic development, some parts of the industry have gone astray, accumulated some risks, including many online loan industries running away, now it is also rectified, I hope there will be better development. The blockchain is the same, there is another one, right? I don’t want to create such enthusiasm for everyone, saying that you look at the blockchain is a pig on the vent, as long as it is on the vent it can fly? It’s not like that, what I want to share with you is a philosophy, a philosophy from a monetary policy decision. If we can’t make a clear judgment, we must dare to admit that we may not make a clear judgment, if it is not a bubble, you think it is a bubble, you don’t act, and miss the opportunity of a technological revolution, if you act, it is a bubble, and you spend money and technology.
If it is really a new revolution, we don't think it is a revolution, we stay here and don't move. Think about our 1840. We don't attribute it to the serious industrial revolution at that time, but we must pay great attention to the possible impact of the technological revolution. So the best strategy to adopt is to follow the strategy. It doesn't have to be the forefront, but it doesn't have to stand still. Just follow, this may be the best strategy. So if it is a bubble, it doesn't cost much anyway, just follow behind and track closely. If it is not a bubble, you may catch up soon, and the difference is not very big.
The most frightening thing is that when you can’t see clearly, you think it may be a bubble, and the cost may be very high.
There is such a problem now. Now, due to the introduction of various funds, including some recent venture capital investments from IDG, it has begun to blossom in the fields of payment, financial transactions, data security, and the Internet of Things. Recently, it may not be safe enough in terms of functions and contracts, and everyone is working hard to remedy it. Blockchain has made certain progress at home and abroad, but it has also learned certain lessons. Among them, it is worth noting that the R3CEV blockchain technology alliance plays a benchmarking role. This alliance is that R3CEV technology has been widely valued by international organizations. So far, more than 40 companies have participated in R3. For example, on September 15, 2015, Barclays, Spain, Credit Suisse, Goldman Sachs, Morgan Chase, Bank of Scotland and other R3 participants cooperated and began to promote the application of distributed ledger technology.
On September 30, 2015, a series of banks including Bank of America, Citigroup, Commerzbank, and Deutsche Bank began to join the technology alliance. Everyone discussed, isn’t this a consortium chain? It is not a public chain either. It is difficult to judge whether the consortium chain or the public chain will win. I want to report one thing to you. The important point of all blockchain technologies is anti-money laundering and anti-terrorist financing. If you can’t do this, it’s not acceptable. Just like Internet finance, including shared finance, cannot have a capital pool, this is a red line, which is anti-money laundering and anti-terrorist financing.
Last December, more banks joined. Including China Ping An, Toyota Financial, and Paris banks have joined this year, with more than 40 banks. You may think that this is an alliance, and they are experimenting. Is it necessary to pay attention to it? What I want to report to you is that it is the evolution of a network, and the evolution of a network often exceeds our expectations. In a sense, humans are the result of evolution, and human civilization is also the result of evolutionary iteration. This world is hard for us to imagine, so the question arises, what should China do? We are still in the stage of our Internet finance development, which has good and bad sides, Internet rectification, and now blockchain is here again. How do we deal with it? This is a question that is in front of everyone, whether it is the industry, investors, or regulators.
I think it may be like this. We put forward such a suggestion today. Let's look at the domestic development. On May 31, Shenzhen established a cooperation alliance for the Shenzhen China region. On April 19 this year, the China Distributed Ledger Basic Protocol was established, which was jointly initiated by 11 companies such as the inter-institutional quotation system. Bai Shuo, a former engineer of the Shanghai Stock Exchange, served as the director of the alliance. The secretariat of the alliance was set up in Wanxiang Group. As you know, Wanxiang is something that Xiao Feng has been working hard to help do, mainly focusing on the application of blockchain in the trading market. In terms of theory, on January 5 this year, the China Shared Finance 100 Forum established the China Blockchain Research Alliance, which is also working hard on research. Zhongguancun seems to be doing blockchain, and there may be different alliances. In fact, it has already started in China. It has started to do it. Is it enough, or what? This is our suggestion.
Based on the underlying protocols of smart contracts SC and BC, can they replace the TCPIT protocol? Will the future world be SC/BC protocols, or will it evolve to replace the current TCPIT protocol and communication protocol to a large extent? Will it? At least there is no doubt that it is the underlying protocol of BC, and there is no doubt that its payment scenarios are almost the same now. As for crowdfunding, will it work? Or the issuance of bonds in the future, or other, or non-financial, we don’t know now. However, if there is an underlying protocol, let’s look back at the DCPIT protocol of that year. Is it the DCPIT protocol around 1990? Ebay appeared in 1997. When you have a website, I think it is a certain ethical result. I must buy things online. So payment came out in 1999, because you have Internet information and e-commerce must promote the emergence of third-party payment. This is an evolution. Will it repeat the evolutionary results of 1995? It seems that we are back to the situation in 1996.
I would like to raise this question for everyone to think about. I would like to say this: Don't be born on the Internet and die on the blockchain. Why? We are developing relatively fast on the Internet in the world due to the network effect, so we have overlooked the birth of such a technology. So today's suggestion, which is a suggestion from the Internet Research Center of the Financial Research Institute of the People's Bank of China, is to seize the opportunity of blockchain research and development, adopt a follow-up strategy, and actively prepare to build an SC/BC alliance that meets the needs of my country's financial market and is widely participated by commercial banks and various non-bank institutions, namely China's R3, to accelerate the formation of my country's SC/BC standards, and at the same time actively strengthen blockchain application pilots to ensure that my country has achieved the leading position it deserves in the application of blockchain technology.
We believe that it is necessary, important and timely for China's financial sector to establish its own R3. China needs its own blockchain alliance, just as China needs its own high-speed rail king. All of our goals are the same, that is, to strive to build a financial powerhouse and serve the real economy. Thank you!
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