Decoding New Finance: Blockchain - More Than Just a Concept

▼ The following is a transcript of a speech by Xu Mingxing, founder and CEO of OK Inc.:

On the one hand, we see that many traditional financial giants at home and abroad are touting blockchain. On the other hand, we also see that the commercial progress of blockchain is actually very slow. Today, the world's market economy is so developed that the emergence of any business model will attract a large number of entrepreneurs and a large amount of capital. From the thousand-group war back then to today's live broadcast, the history of blockchain is actually much longer than live broadcast. Why hasn't there been such a commercial explosion in blockchain? I think this is something that many people are not very clear about.

I personally think that blockchain is essentially a technology, not a business. Just like traditional fiber optics and switches, it is a technology, not a business. What kind of applications can blockchain produce in business?

But I believe that I can also see that there are many blockchain applications around the world that are still very distinctive, so my introduction today may be divided into three parts:

I won't talk too much about the basic concept of blockchain. There are many misunderstandings about Bitcoin's blockchain. First of all, the performance of blockchain is very slow. For example, the processing capacity of Alipay on "Double 11" last year, how about the processing capacity of Bitcoin. Bitcoin's blockchain is designed to produce a block every 10 minutes, and the size of each block is 1 megabyte. The smallest and simplest one in the Bitcoin network is 250 bats, divided by its 1 megabyte, 166 transactions per second. If you want to improve its transaction performance, as I just mentioned, it is 1 block per minute. If you produce a block every 1 minute or a block every 1 second, the performance can be improved, or if the size is increased from 1 megabyte, the performance can also be improved.

This depends on several aspects. First, how big the account book is. Second, how often the accounts are recorded. Third, how many people are there to keep accounts.

A very important point about blockchain is the decentralized ledger. The designers of Bitcoin believe that if the Bitcoin blockchain is made very large, the network will become centralized and lose its so-called credibility.

There is a second type of people in the Bitcoin Center. They hope to make blockchain the lowest level of the world's public chain. This is a lightning network, just like the Internet. Our Internet has an OSI seven-layer model. I think the change it brings is quite typical. For example, when we move from a fiber optic network to a 4G network, we don't need to make any changes to the application layer, and our website doesn't need to make any improvements. Users can switch seamlessly. The core of this is the clever design. From fiber optic to wireless, the physical layer and link layer have changed, but the application layer has not changed.

In the open source community that currently controls Bitcoin in the blockchain, they hope to use Bitcoin as the bottom blockchain to ensure that the network is sufficiently decentralized. Different side chains are designed on the Bitcoin blockchain to solve different applications, such as the Lightning Network, which is a side chain on the Bitcoin blockchain that is used for micropayments. The Bitcoin blockchain is the most decentralized, it can ensure distributed accounting and is the most secure accounting network. When transactions are needed between different side chains, they will go to the main chain. If the requirements are not so high, different side chains will be used.

Perhaps in the future, the bottom layer of the public chain in the world will be blockchain, and on the top there may be an interbank clearing network formed by, for example, 50 banks in the world. Their clearing and large-scale interbank clearing will use blockchain, because blockchain is needed to ensure decentralization, the security of accounting and clearing. Banks may still use their own systems.

The general concept is that the Bitcoin blockchain is in the middle. Many blockchains provide some protocols, so you don’t need to design mining or complex problem-solving mechanisms. You can just use the Bitcoin chain. However, you can design your own chain with your own characteristics. When you trade between chains, you need to return to the main chain. Therefore, the current Bitcoin developers hope to maintain Bitcoin’s low transaction processing capacity, but make it decentralized enough. It should be said that in many special fields, the performance of blockchain is not actually a problem.

▼ Next, I would like to introduce several blockchain applications. This is a product developed by Nasdaq, equity trading of non-listed companies. In equity trading or financing of our startups, large companies will look for investment banks, and small companies will look for FAs. In fact, small FAs are almost like cabbage sellers. In the middle, they say that my cabbage is good and come to buy it. Cabbage sellers need to have a kind of ability, which is bragging. They tell rich people that my company is great and now I want to raise 50 million yuan, and there is still 3 million yuan of quota. Do you want it? Tell this company that your company may not be good and you can't raise money. Should you lower your valuation? So this is what financial transaction intermediaries do.

In making such a system, he made a UI for each company starting from the C round. In each round, when someone invested in your company, it was not Nasdaq that wrote the data, but the investor said how much US dollars I invested in this company with a valuation of 50 million and how many shares I held. Such transactions would be written on the investor's computer, but his interface could be made very well and embedded in this webpage. In this way, all the equity transactions and valuations of the entire company from the first day of its establishment to the end would be formed. Because it is done on the Bitcoin blockchain, it is actually an irreversible system. Nasdaq can make a private and public equity trading market, without FA or investment banks, because the information here is real and cannot be tampered with, and funds and assets can be directly matched without looking for intermediaries. This is an equity trading system made by Nasdaq.

A trading system made by a Japanese bank is used in a scenario where a Japanese customer overseas wants to purchase assets in Japan. In such a scenario, because there was an original process in the past, when a customer needs to find an asset management company through an agreement, this asset management company will place an order to a foreign securities company, and the foreign securities company will find a securities company in Japan, and this securities company will find an exchange to trade. After the transaction is completed, it will be stored here, and each layer will notify back to tell that the transaction is successful. Because he entrusts him, each one needs to sign a contract, this transaction is relatively inefficient, and each user needs to verify whether your customer has placed an order and whether your agreement has deceived me, so the information in the past was serially flowing, and the efficiency was relatively low. This bank has made a version, which is a distributed ledger that forms a blockchain network. Everyone can see all the transaction information. When each transaction comes in, the domestic people can see it, and it cannot be tampered with. The asset management company cannot forge its behavior. The domestic people can see that the overseas data is real, which can improve the process of his asset transaction. It may take a month before, but now it may take two days to complete the process.

This is a company that does identification and authentication, Onename. This company has also developed many models. One of the designs, as you all know, is that South Korea has a real-name system for the Internet. Everyone who goes online must identify themselves using their real name. In the past, if the country was strong enough, it could create a centralized real-name database. If the country was not strong enough, or the government could not step in, the real-name information of each company was actually fragmented and could not be shared.

There are several companies in South Korea that are doing one thing. They will first build a blockchain. The blockchain is a distributed ledger that is not owned by any one person. This company only operates or designs the network. All the units with the right to do real-name authentication, such as banks, public security or police stations, will do real-name authentication for people. At this time, they will sign your mission information and write this signature on the blockchain. That is to say, your mission information is written on the public blockchain by those who have the right to do real-name authentication. In other Internet companies, for example, when a user registers on our website, if the law requires me to do real-name authentication, I have to ask him to provide me with information. How to verify that it is true? The information must be compared. If it is consistent, it means it is true, and if it is inconsistent, it means that the information may have been modified. Moreover, each user uses a public key and a private key, and the public key is your public key. Therefore, a public real-name authentication blockchain is formed, and this blockchain is not controlled by a single company, so everyone is willing to share information on this blockchain.

This case is about a US company called 21 Inc. My shareholders invested in the US. They use blockchain to do the Internet of Things. This company has designed many chips that can be used for Bitcoin mining. Its shareholders come from companies like Qualcomm and CASCO. They want to install their Bitcoin mining chips in our mobile phones and computers. This will bring about a change. Your device will have the ability to earn Bitcoin from the first day. Once this happens, all devices will have wallets by default. Many of our Internet can be redesigned. They want to redesign the HTTP protocol so that all devices have Bitcoin. So if you want to visit a website, you may have to pay very little Bitcoin, and you won’t even feel that your device can help you earn this money. But when an attacker wants to attack, he has to pay a lot of money to attack, because DDOS attacks consume the resources of a website through a large number of requests, such as verification codes, spam, etc. They want to embed this protocol into many underlying Internet protocols.

Stampery is a notarization company, and is very suitable for notarization. Due to the irreversibility of blockchain, for example, when we sign a contract, after three months, we feel that there is a dispute over the contract. In China, we can only find a judicial appraisal agency to verify that the handwriting is his and the ink is like this and that. Our company has also done this. The contract is real and will not be tampered with. In fact, using blockchain is a very good way to do justice. When two of us sign a contract, I use my private key to sign the contract and save this signature on the blockchain. After the other person signs, he also signs again and puts it on the blockchain. So when we have a dispute, we two find the contract and compare the signature with the signature on the blockchain. If they are consistent, it means that the contract is original. If they are inconsistent, it means that it has been tampered with. I think notarization should be a field where blockchain develops relatively quickly. There should be several companies in China doing such business.

These are many blockchain companies around the world, including Chain, R3, Ripple, etc.

To sum up, I think blockchain can have a great impact in many fields, such as personal finance, remittances, etc. Blockchain is very suitable for elections. Votes need to be counted in elections to determine whether the votes are real or fake. Everyone has a private key on the blockchain. Financial infrastructure, Governor Zhou Xiaochuan also talked about national digital currency. My understanding is that Bitcoin actually has two cores. One is its blockchain clearing network, which is decentralized, allowing everyone to trust it.

The second is that it refers to the issuance mechanism of gold and gold-like currencies. After the end of the Bretton Woods system in 1972, the era of central bank-issued currencies has arrived. In the past, they were all tied to gold. After entering the era of central bank credit currencies, I don’t think we can return to the era of Bitcoin unless there are major changes in the world.

So what we see now is that the country will not print digital currency like Bitcoin, and the central bank will print as much as it wants. The second module, the clearing and settlement network, can be built on the blockchain. Only the country has the private key to issue the private key of this currency, and the circulation is blockchain.

I think it will bring several changes. The most direct change is that Alipay and WeChat Pay can transfer money to each other, because as long as the national digital currency is supported, the digital currency can be circulated at the bottom. There may be more imagination and design, such as what you can do on the blockchain. For example, the money I print is not allowed to speculate in stocks, and this money cannot go into the digital currency wallet of the brokerage. This money can only be given to farmers and can only go into the wallet of farmers. I think the national digital currency may not be as far away as we think, because we can see that many banks abroad are already doing it, such as England has one, Citi also has one, and I will introduce some of our work later. I think the national digital currency is a very beautiful thing, and it doesn't seem so far away. The last one, the Internet of Things, blockchain can actually bring about major changes in many fields.

We think that Bitcoin is an application of blockchain and a blockchain asset. In fact, there will be more blockchain assets in the future because we are now working with some cultural exchanges to put copyrights on the blockchain. What is the biggest change of putting copyrights on the blockchain? In the past, for example, in the sale of copyrights, A sold a copyright to B and the two of them generated a contract. If B then sold it to C, the three parties of ABC might need to sign a contract. If the copyright is circulated again, the circulation efficiency might be very low.

After the copyright is turned into blockchain, there will be a blockchain issuing company, which may be us. If an author is willing to give me a large copyright, I will correspond it to one of our blockchains, just like Bitcoin. My issuing company must rely on the law to confirm that the currency on the blockchain is physically corresponding to my copyright. At this time, there is no need to worry about the second and third circulation of copyright. Today it can be traded on OKCoin, tomorrow it can be traded on the New York Stock Exchange, and the day after tomorrow it can be traded in London, because the blockchain technology ensures that it cannot be forged, and the issuing environment needs to be resolved by law.

There is a company in the United States, which is a Nasdaq listed company. In addition to the tradable shares, it said that it would issue non-tradable shares on the blockchain, and some of them might be 3% of the equity. Is this equity legally corresponding to this company? It applied to the SEC, and the SEC approved it, saying that your stock corresponds to the stock of that company, so a Nasdaq listed company actually issued its equity. OKCoin initially traded Bitcoin, and in the future we will trade and issue more blockchain assets.

For example, many of our customers have B and C. Our B comes from remittance companies, B2B companies, and many small banks. In the past, because the settlement of US dollars was very slow, the World Bank was actually like a company, and it did not have a strong credit like Alipay. If there was a global Alipay, our international remittance would not be so difficult.

If there is an Alipay, a global Alipay, the cost can actually be very low. What are we doing? We think that no company, not even a country, not even the United Nations can be a global Alipay, but we think blockchain can, because blockchain does not rely on the credit of a certain company, but on the credit of this technology. So in this network, we correspond the US dollar to this, and correspond to the entity. When remittances are made, they can be circulated freely and securely on the network instantly, with low-cost circulation. Why is Alipay low-cost? It can be hedged.

To sum up, I think blockchain, as The Economist just said, is a machine for building trust. In what fields can blockchain be applied?

I personally think that at this stage it will be applied in some hot credit fields, such as strong credit, such as the Shanghai Stock Exchange. If you doubt the fairness of the Shanghai Stock Exchange today, at least most people do not doubt it at present, but some credit centers are unreliable, such as P2P. Many people suspect that P2P will run away. It has a capital pool, but it does not really do such business.

At this time, blockchain can actually help P2P build such things. In the field of international financial settlement, there is no strong credit. If we want to do equity exchange in the field of strong credit, I think it is difficult, but we can do equity transactions of non-listed companies.