OKCoin founder Xu Mingxing: Blockchain technology can help institutions improve settlement efficiency

The 3rd Global Internet Finance Summit Peking University Forum was held in Beijing from April 19 to 21, 2016. OKCoin founder Xu Mingxing attended and delivered a speech. Xu Mingxing said that OKCoin builds a clearing network for private institutions. We use blockchain technology to enable them to settle accounts every day and improve efficiency.

The following is the meeting transcript:

Xu Mingxing: Thank you for the host’s invitation, and thank you all for participating in the 3rd Global Internet Finance Summit.

When it comes to blockchain, everyone may have some feelings. On the one hand, many foreign financial institutions are testing blockchain, and we are applying blockchain. On the other hand, practitioners are boasting about blockchain. On the other hand, we found that in fact, in the past two years, there are very few actual application cases of blockchain. What problems can it solve? In what occasions can it work? I hope to answer these questions through this 15-minute speech.

This page contains many foreign comments on blockchain, so I won’t say much.

These are the many policies of governments around the world on blockchain. It is worth mentioning that the British government regards blockchain technology as one of the tools of the UK National Financial Center. The British government has strong support for blockchain technology and even invited companies like us to register companies in the UK.

This is the impact that blockchain may have in these business areas. As you can see, it has an impact on micropayments in the financial sector, notarization and voting in the government, and some underlying financial structures. This year, there is also a concept of so-called national digital currency. Under the leadership of the People's Bank of China, many banks in Europe are exploring the issuance of national digital currency. Blockchain technology can have a far-reaching impact in these areas.

How does it affect? ​​Why can it reconstruct these areas? As you can see, the first picture is a centralized network, and the second picture is today's Internet. Today's Internet is distributed, but there are many switches and routers in the middle to build a large network around the world. The third long picture is the network affected by blockchain today, which can participate in communication through all nodes.

This is actually what blockchain is. Blockchain is very simple, it is a ledger, which corresponds to a page of a traditional bank. This is what transactions have occurred in the ledger. Blockchain also spreads this ledger across the entire Internet, making it so-called distributed, which will become more secure. This is the process of each transaction in the blockchain. After any transaction occurs, it first goes through the P2P network and the network to the Internet. The Internet needs to design a mechanism. In the distributed network, who can keep accounts? Those with authority can keep accounts, and there must be some mechanisms to ensure that the accountant cannot falsify. After the accountant has finished keeping accounts, he will network his account book to the entire network. After all users have access to this account book, they can confirm that the transaction is real. If it is a transfer, the transfer is completed. This is the basic process of blockchain.

In fact, the world's largest and longest-running blockchain system is the Bitcoin system. Many people have many questions about the Bitcoin system, including the blockchain. The performance of the blockchain is very slow. It is rumored that the Bitcoin system can only process 7 transactions per second. How can such a system be industrialized? Alipay has 140,000 transactions per second, and VISA has a peak of 20,000 transactions per second. How can the blockchain system be applied on a large scale? This is actually a misunderstanding caused by the lack of in-depth understanding of blockchain technology. The reason why Bitcoin can process 7 transactions per second is that in the current Bitcoin system, each block, a ledger, is 1M in size, and such a block is generated every 10 minutes. The size of each basic Bitcoin transaction is about 250. It is found that 6.6 transactions can be processed per second. This is why the Bitcoin system can process 7 transactions per second. Under such a basic design, if I want the system to process more transactions, I will change my blockchain to 5M, 100M, or 1G. This is the same as bank accounting. Now there is one person recording, and I let 100 people record at the same time, and the efficiency will be higher. In addition, I currently make a page of account books every 10 minutes. What if I make a page every minute, or every second? The expansion of the blockchain system is not a problem. The private blockchain made by our own company can process tens of thousands of transactions per second without any problem.

Why did the Bitcoin system choose such a seemingly idiotic design? There are currently two academic schools of thought in the Bitcoin community around the world. The first school of thought believes that Bitcoin is a decentralized underlying network for clearing and settlement. We can build other application layers on this underlying network, a bit like TPIP. As we all know, TPIP has a physical layer, a transport layer, and so on. Because of this very clever design, the entire Internet can develop rapidly. When switching from PC Internet to mobile Internet, the application layer software does not need to be modified. It only needs to replace the lowest physical layer from optical fiber to 3G. Because of the very clever design of OSI, the scalability of the entire Internet is very large and the expansion speed is very fast. In the Bitcoin community, there are some academics who hold this view and hope to build this network into a decentralized clearing and settlement network, and then build other application layers on top of it, such as payment layer, authentication layer, etc. This is the first view.

People who hold this view hope to ensure that the Bitcoin block is small enough, because such a network is actually used to help large institutions around the world to do clearing and settlement, because it is currently the most decentralized and trusted network in the world. Many large institutions can do clearing and settlement on it, and as for the clearing within the institution, we use other designs to solve it. Therefore, they designed a system that can only process 7 transactions per second, which is enough if it is used in hundreds of banks around the world.

Why are they unwilling to speed up this? Make the block bigger, because people in this academic school believe that the blockchain network should be decentralized as much as possible, because decentralization is the most trustworthy clearing network.

The second group of people are mainly represented by several companies in the United States. They hope to make Bitcoin more and more powerful and even replace the US dollar in the future. They need to process more and more transactions, and the processing capacity per second is very large. They have been pushing for continuous upgrades of Bitcoin's blockchain to process more and more transactions.

We can look at the results of these two academic schools. The first type, if it is processed per second, there are 7 billion people in the world, and each person generates 2 transactions per day. In this regard, they use the so-called router technology on the Internet to enable 7 billion people in the world to make 2 transactions per day. The size of each block is 133M. The second type will generate 3.5T of data every day. In the future, only large data centers in the world may be able to handle such a huge amount of data.

People with the first view designed how the blockchain will develop in the future. The so-called Lightning Network is a second layer built on the blockchain that allows all small transactions, similar to the concept of layer 2 switches and layer 3 switches. If they are in the same subnet, these transactions will not be included in the total amount of Bitcoin. They can be in a lightning network. He named it Lightning Network. This design is very genius.

Another side chain design, on the main chain of Bitcoin, if it is used as a decentralized clearing and settlement network, a settlement network for micropayments can be built on it, and other side chains can also be built. These side chains themselves use the underlying main chain of Bitcoin for credit, clearing and settlement. These side chains have many very clever designs, and different side chains can be formulated. Some may be used for auditing, some may be used for equity transactions, and so on.

This is the blockchain technology design in the world today. I think there are still many misunderstandings outside, saying that blockchain is very stupid. This is due to these two technical schools, and we don’t know which one will succeed.

Next, I would like to introduce several typical blockchain application cases. For example, NASDAQ Linq is engaged in private equity transactions. Its core is to have investors write equity transaction information into the blockchain instead of the company itself. This enables its equity transaction market to become transparent and free of fraud. They believe that in the future, investors can skip many intermediaries and trade directly with these companies.

This is a bank in Japan, called MIZUHO. They have now built a blockchain system, which is used by investors outside Japan to purchase assets in Japan. As you can see, there are many links in the whole system, including asset management experience, securities firms, and domestic links. In the past, due to the mutual opacity, lawyers may be needed for each transaction, and each transaction takes many days to complete. They have built a blockchain. If investors want to initiate such a transaction, they will go through securities firms and synchronize all information to their internal blockchain shared by all members, making the whole process transparent and efficient.

This is actually blockchain used more for identity recognition. This is a company invested by my shareholder in the United States. They actually hope to use blockchain technology to change the underlying layer of the entire Internet of Things. They hope that all Internet of Things will have micropayment functions in the future. The HTDP protocol allows them to pay very little money each time they request the network. Of course, this money is now generated by chips in society. This company has made a lot of chips, integrated into mobile phones and computers, so that your computer is naturally capable of paying. For a website, a normal user's device can give him money. For other deeper levels, if you want to attack this website, the cost is very high. This is the system designed by this company.

What are these domestic companies doing? I just mentioned so many foreign companies. We actually have two products. One is OKCoin, which used to trade Bitcoin, but now we are also trading more blockchain assets. This has brought about great changes. Its equity can be traded on the stock exchange today and on Nasdaq the day after tomorrow. Some countries in the UK say they want to put their land and forests on the blockchain, which can enable the most efficient pricing of assets worldwide. This is what we are doing in this regard.

OKLink is a clearing and settlement network for private financial institutions. Currently, we have more than 30 private financial institutions around the world, and two small banks have access to this network. The largest amount of transactions was several million US dollars a day during our public beta stage. The core of this blockchain network is that if these private financial institutions do not know each other, we use blockchain to help them build trust. In the past, they needed to do business one-on-one and sign contracts one-on-one, but now they do not need to sign contracts and can do it one-on-fifty. In the past, it took many days for their assets to be cleared on the blockchain, but now we allow them to clear and settle many times a day. In the past, when there was no blockchain, it was very difficult to build such a network because our company did not have such credibility to make these companies believe in us. Today, we have blockchain technology, and they are very willing to believe in us and join us, and the efficiency has been greatly improved.

OKLink is a truly commercial blockchain network that runs in the world. At its peak one day, the test ran a transaction volume of several million US dollars. And there is no token like Bitcoin in it. It is completely issued in US dollars. There is no need for complex mining like Bitcoin. It only needs to design a consensus mechanism that everyone can accept.

In today's blockchain era, the gap between China and the West is actually very close. In the past, many startups, after the emergence of Uber in the United States, China did not have copycats until two or three years later. Today, the East and the West are at the same starting point. Blockchain technology can reshuffle many past financial and monopoly situations, giving Chinese companies more opportunities to compete with Westerners. Moreover, Chinese companies actually have a lot of first-mover advantages in blockchain. Of course, this is our blockchain public account, which contains many professional articles. If you are interested, you can take a look.

That’s all I want to share with you. Thank you!

Copyright Statement: The author reserves all rights. The article is the author's independent opinion and does not represent the position of Babbitt.