Frontline survey on blockchain in the banking industry

Frontline survey on blockchain in the banking industry:   Financial peers establish alliance chain   Supply Chain Financing Certificate Confirmation

The Financial Blockchain Cooperation Alliance will use the alliance chain as a cloud service, which is expected to be deployed on Tencent Cloud and released to the public at the end of June this year . Some joint-stock commercial banks are considering studying blockchain standards that can be used for supply chain finance.

As blockchain is in full swing, banks have begun to study the application of blockchain in finance and have proposed their own technical routes.

Recently, a reporter from 21st Century Business Herald found that many banking and financial institutions are considering alliance chain as the development path of blockchain.

Ping An Bank, WeBank and other institutions have initiated or participated in blockchain alliances. A reporter from 21st Century Business Herald learned that some joint-stock commercial banks are also planning to conduct research on blockchain applications.

Compared with the frequent remarks about " subverting " the financial and monetary system, banks are more cautious in their layout of blockchain and closer to the practical end.

Banking financial institutions have unanimously chosen financial institutions or large enterprises as the core nodes of the blockchain alliance, and limited the application of blockchain to institutional users, not open to individual consumers.

A reporter from 21st Century Business Herald found that a common point in their investigation is that banking financial institutions only use blockchain as a tool for transmitting information, but do not transmit the value of financial assets, and financial assets still need to be settled offline.

Establishing a consortium chain becomes a common option

Banks have unanimously chosen to use consortium chain as the development path of blockchain.

At present, two blockchain alliance chain cooperation organizations have been established in China, one in the south and one in the north, located in Shenzhen and Beijing respectively.

The Financial Blockchain Cooperation Alliance (Shenzhen) was established in Shenzhen on May 31. Its members include 31 companies or organizations , including WeBank, Ping An Bank, CMB Network, Hang Seng Electronics, JD Finance, Tencent, Huawei, Silver Chain Technology, and Shenzhen Financial Information Service Association .

Earlier in April , the China Distributed Ledger Infrastructure Alliance ( China Ledger Alliance) was established in Beijing. The alliance includes 11 members, including the China Securities Inter-institutional Quotation System, Beijing Smart Card Technology Research Institute, Zhejiang Equity Exchange Center, Shenzhen CMB Qianhai Financial Assets Trading Center, Xiamen International Financial Assets Trading Center, LeTV Finance, Wanxiang Blockchain Laboratory, etc.

In contrast, the Financial Blockchain Cooperation Alliance (Shenzhen) is mostly composed of banks and other financial institutions or financial service providers; the China Ledger Alliance is mostly composed of Internet institutions and securities institutions.

Internationally, the financial blockchain alliance R3 was established in September 2015 , with more than 40 financial institutions around the world joining . Currently, only Ping An of China has joined in China.

The application of blockchain is generally divided into three levels: private blockchain , consortium blockchain and public blockchain .

Among them, the private chain is used within a company or organization, and there are currently no typical cases; the public chain is represented by Bitcoin and is open to all individual or institutional users; the consortium chain is between the private chain and the public chain. Most financial institutions use the consortium chain as a development path to jointly develop blockchain application technology.

" Blockchain decentralization is technical decentralization, but there must still be a center in business. Blockchain, as a technology, has not changed the nature of the business. " A person in charge of industrial Internet finance projects at a joint-stock bank said that institutions can use blockchain to transform existing system architectures. Although traditional technologies can also do this, blockchain is more efficient in some areas.

Interbank transactions and clearing

Extending from the logic of the alliance chain, the current application of blockchain, transactions and clearing between financial peers will be one direction.

" The Financial Blockchain Cooperation Alliance (Shenzhen) (hereinafter referred to as " Golden Chain Alliance " ) aims to become a non-profit research platform. Participants are all licensed financial institutions or financial information system service providers. By carrying out research collaborations, such as defining technical standards for alliance chains and studying application scenarios, it promotes the implementation of blockchain technology in the financial industry. " Ma Zhitao, Chief Information Officer of WeBank, told the 21st Century Business Herald reporter.

In contrast, the R3 Alliance adopts a membership fee system, and each member institution is required to pay hundreds of thousands of dollars in membership fees each year.

Ma Zhitao explained that the Golden Chain Alliance hopes to trade financial assets such as financial products and bills based on blockchain technology. The current idea is that financial asset transactions based on blockchain will only connect financial institutions to the chain and operate in the form of alliance chains, and will not temporarily connect consumer users to the chain.

" Business cooperation between financial institutions requires daily clearing and reconciliation, and blockchain technology can achieve real-time and efficient clearing and reconciliation, " said Ma Zhitao. In the past, financial peers had to connect with each other one by one. Blockchain is like a highway. Each peer institution only needs to open a small road to connect to the highway, and the road will be open. Some financial transactions that used to be T+1 can be done in real time in the future, improving transaction efficiency.

Ma Zhitao cited the example that WeBank's Weilidai currently has more than 20 partner banks. If it expands to hundreds in the future, data exchange and clearing and reconciliation will be extremely complicated. If blockchain technology is used, partner banks will be able to receive confirmed loan information in real time, eliminating the arduous work of relying on end-of-day reconciliation documents for clearing and reconciliation; although current technology can also do this, blockchain technology is expected to further improve efficiency.

Ma Zhitao revealed that the Financial Blockchain Cooperation Alliance will use the alliance chain as a cloud service, which is expected to be deployed on Tencent Cloud and released to the public at the end of June this year.

" Our initial plan is to manage the alliance chain based on the model of open source software communities such as Linux and Apache , with core members organizing and promoting the maintenance of the codes of various projects within the alliance chain, " said Ma Zhitao.

Transaction vouchers for supply chain finance

Another application scenario of blockchain is in supply chain finance.

A reporter from 21st Century Business Herald learned that some joint-stock commercial banks are considering studying blockchain standards that can be used for supply chain finance.

The idea is to add commercial banks, core enterprises and factoring companies to the blockchain-based supply chain finance as the central nodes of the blockchain network structure; smaller suppliers around core supply chain enterprises will serve as blockchain users.

" Blockchain can be used in supply chain finance to confirm accounts payable and orders. This is because the characteristics of blockchain are fairness, but without losing confidentiality and non-repudiation. " said the person from the joint-stock bank.

He said that the role of commercial banks in this regard, in addition to providing funds to blockchain users, is to leverage the bank's own expertise and risk control advantages to provide risk control and standards, such as providing risk control and access standards for core enterprises, and defining fields and deadlines.

Among them, what is issued by the blockchain is not electronic currency, but a payment commitment. The authenticity of the payment commitment is confirmed by the blockchain. The users of the blockchain - factoring companies and small and medium-sized banks, etc. will transfer the payment commitment to the factoring company at the agreed time.

“ After establishing a blockchain network, banks can introduce high-quality enterprises to form a blockchain alliance. Banks can formulate risk control standards and generate transaction vouchers on the blockchain, which can be traded and transferred. This has strong financial attributes. ”

" Commercial banks have already made large-amount payment commitments, but it is different for small and medium-sized enterprises with smaller and discrete payment commitments. " The person said that if large enterprises such as Huawei serve as the central enterprises of the alliance chain, the financing costs of other small and medium-sized enterprises can be reduced. Because the blockchain is an open market, there are quantitative standards for risks, and the transaction scale and product categories of core enterprises are public. The data of enterprises is quantified and standardized, and the financing costs will be reduced.

A reporter from 21st Century Business Herald found that a common point in their investigation is that banking financial institutions only use blockchain as a tool for transmitting information, but do not transmit the value of financial assets, and financial assets still need to be settled offline.

" The funds do not go through the blockchain, all go outside the blockchain. However, the confirmation of ownership - which company has the right to enjoy the forward payment - is done on the blockchain. " The person said.

The logical paradox of public chains

Although Bitcoin and other technologies are booming, a 21st Century Business Herald reporter found during a survey that people in the banking industry are not optimistic about the application of public chains.

" The problem with the public chain is that there are too many participants and users do not know who their counterparties are. Therefore, the public chain needs to establish a complex authentication mechanism. " said the head of the technology department of a technology-based bank.

Since each transaction on the blockchain requires verification by more than half of the nodes, as the number of node users increases, each verification takes longer, which leads to a longer time for the public chain, which in turn inhibits the high-frequency and rapid application of the public chain in real scenarios. This has become a logical paradox of the public chain.

The person cited an example that the only thing that has truly developed at present is Bitcoin. Bitcoin now has more than 3,000 nodes around the world, and each transaction requires authentication from more than half of the nodes. Currently, the number of Bitcoin transactions completed per second is only in the single digit.

It believes that it is difficult to promote the public chain in the current domestic high-frequency trading scenario. The implementation of blockchain requires a decentralized alliance.

A person from a joint-stock bank also believes that for large transactions, blockchain cannot achieve transactions anytime and anywhere. " If there are too few blockchain nodes and one node is broken, the blockchain will not be able to run; if there are too many nodes, the broken nodes can be bypassed, but it will be very time-consuming overall . "

The public chain is promising for electronic currency.

The People's Bank of China stated at the " People's Bank of China Digital Currency Seminar " in January this year that it will study the multi-scenario application of digital currency and strive to launch the digital currency issued by the central bank as soon as possible.

" Blockchain has changed the nature of currency, but the change is not thorough. " The aforementioned joint-stock bank personnel believe that using the " mining " method will return currency to the original commodity currency stage. The current world currency system is credit currency, and the credit of the country and the government is behind it.