China's financial industry should not turn a blind eye to blockchain technology

ANBOUND : The importance of blockchain technology cannot be ignored in China

In the past year, blockchain technology has become a field of great concern in the global innovation field and various industries. Developed countries such as the United States, Europe, and Japan have invested heavily in the construction and application research of blockchain technology-related projects. As a representative of financial technology, the application of this technology in the financial field is favored by the global financial community. Major international financial institutions have taken action and established blockchain technology application alliances such as R3CEV and Hyperledger . A wave of competition in technical standards and disruptive innovation is quietly coming.

Blockchain can be understood as a decentralized distributed database or ledger . Each block can be regarded as ledger data. When a person makes a transaction, all participants in the chain will receive the transaction information in their own ledgers. These transaction records are completely public, encrypted, and cannot be tampered with. This ensures that everyone's ledger data is the latest and records all previous transaction data. In such a transaction structure, all transactions are point-to-point, without the need for any credit intermediary or centralized clearing agency. Each node has the power to trade alone because the ledger data on hand is the most authoritative.

By applying blockchain technology, any information or data you want can be obtained from anyone around you, and they are all consistent and absolutely correct; every time the data of a certain node changes, the data of other nodes will also change immediately. The advantages of this technology are public verification, permanent immutability, timeliness, and cross-regionality. It can solve the problems of how to prove that the information is true, who the information belongs to, and who the derived asset belongs to. The programmable blockchain can also make the transaction process fully automated. Therefore, with this technology, identity recognition and credit investigation problems (digital endorsement) and convenient payment problems can be solved at a very low cost. In the future, it can be widely used in cross-border payment and settlement, securities issuance and trading, customer credit investigation and anti-fraud, asset registration and transfer, inventory storage, logistics data sharing, risk control and other fields. More importantly, whoever masters the blockchain technology will control the issuance and circulation of digital currency in the future.

Most of the pain points such as efficiency bottlenecks, transaction delays, fraud and operational risks in various processes of financial services are expected to be solved after the application of blockchain technology. For example, the current cross-border transfer transaction service in the banking industry takes several days to complete, while blockchain technology only takes a few seconds, which is efficient, secure and can automate logistics functions. The technology can also connect the scattered systems of banks in a decentralized form, eliminating the need to use old large-scale systems. According to estimates, the application of this technology can save the global banking industry $ 20 billion per year. For financial industry supervision, the decentralization and immutability of blockchain technology also provide great convenience for the market supervision behavior of industry regulators. The data is witnessed and recorded by the system itself, without the need for data collection and enterprise reporting. While eliminating the cost of supervision, it also ensures the accuracy of the data source, which helps market regulators and market participants to form a benign cooperative relationship, while enhancing mutual trust between the two parties and making the market run more efficiently.

Seeing the many advantages of this technology, many international financial institutions have begun to actively plan to seize the first-mover advantage and invest a lot of money in the research and development of related technologies and applications. Some international venture capital companies have invested more than 100 million US dollars, and start-up investments are close to 900 million US dollars. The strategies currently adopted by major financial institutions can be roughly divided into three categories : (i) Forming a blockchain alliance and formulating industry standards, such as R3CEV , which has brought together more than 40 leading international banks to establish industry supervision and corresponding technical standards. (ii) Working with financial technology companies to develop core business blockchain applications, such as CapitalOne and Visa , through strategic investment in financial technology companies, to seize the breakthrough of blockchain technology. (iii) Banks promote local applications within the bank, set up blockchain laboratories, and conduct independent research and development or cooperation with financial technology companies to test different application scenarios. Take Goldman Sachs as an example. It has developed a virtual currency " SETLCOIN " based on blockchain technology and applied for a patent for it. It can provide nearly instantaneous transaction execution and settlement, and is used in asset transactions including stocks and bonds. Goldman Sachs hopes to become the central bank of the virtual world and exert influence on the world with a new form of currency.

In China, the central bank attaches the most importance to blockchain technology and digital currency. In January this year , Governor Zhou Xiaochuan held a seminar on digital currency, clearly stating that the central bank is very concerned about the development of digital currency, pointing out that the establishment of a digital currency system can reduce the high cost of issuing and circulating traditional paper currency, improve the convenience and transparency of economic transaction activities, reduce illegal and criminal activities such as money laundering and tax evasion, and enhance the central bank's control over money supply and circulation; it will help China build a new financial infrastructure, further improve China's payment system, improve payment and clearing efficiency, and promote economic quality and efficiency upgrades. The central bank clearly requires that key technologies be tackled, multi-scenario applications of digital currency be studied, and the digital currency issued by the central bank be launched as soon as possible. In fact, since 2014 , the central bank has established a special research team to conduct in-depth research on digital currency issuance and business operation framework, key technologies of digital currency, and many other aspects.

But what is worrying is that, unlike the positive attitude of the central bank, domestic financial institutions generally do not pay enough attention to blockchain technology and digital currency. Some analysts believe that the reason why commercial banks lack motivation is mainly because they lack fear and urgency due to the state-owned system and believe that they will not be eliminated by new market technologies. This is in stark contrast to Wall Street institutions that believe that if they do not participate, they may be overthrown.

It is worth noting that with the changes in the economic environment and the development of financial technology, the trading rules of the international financial industry and even the overall outlook of the industry are undergoing profound changes. Chinese financial institutions should seize this strategic opportunity and actively participate in the formulation of relevant technologies and rules in order to gain the right to speak. If nothing is done now, in the future, we may only be able to buy foreign patents at high prices. What is more fatal is that we will encounter barriers and lose market opportunities when developing international financial markets. We believe that domestic banks, securities companies , commodity exchanges, insurance companies and other financial institutions need to take action in blockchain technology. They should clarify the strategy of participating in the application of blockchain technology as soon as possible and promote the pilot implementation of business application scenarios.

Blockchain technology will profoundly change the face of the global financial industry in the future. The domestic financial industry needs to actively participate in the formulation of relevant technologies and rules and gain the right to speak. Otherwise, it will pay a high price in the future and be passive in the international financial market.