Gaoronghui Capital's "Blockchain and Credit Decentralization White Paper"

Part 1: Blockchain technology is launching a new enlightenment movement

To establish a business relationship, we choose to sign a contract, either a paper contract or an electronic contract. These contracts are basically based on the relationship between people and things. Is there a new contract that can truly trace trust? And the subject of trust is based on things? Where else can money be kept besides in the bank? If legal currency does not exist, will the world be over?

The author is a supporter of methodology, a pseudo-civilization evolutionist, a defender of skeptical theory, and a challenger of authoritarianism. He is always passionately willing to participate in the subversive movement of dogmatism. He always believes that the truth is only in the hands of the minority. He also firmly defends freedom and personal will. The real world is not beautiful, just as the financial system is not fair. The unfairness is due to the existence of relationships between people and between people and things, or birth, education, luck, etc. Is there fairness, democracy and freedom in the world of finance? I often fall into deep thinking.

The theory of economics has existed for too many years. Is this discipline the truth of the world?

The world of philosophy is the real imagination of the virtual world, and it is the theory of creating a new civilization. What is the relationship between philosophy and the financial system?

The Internet is reshaping the social structure, knowledge structure, and the relationship between people. The mission of the Internet should be to be the maker of the rules of governance structure for people, things, people and people, and things and things. Like God, it is a new belief system and a rebuilder of trust relationships at the most basic level. The real thinking of the Internet is how to bring algorithms into the reshaping of rules and civilization. From desktop Internet to mobile Internet, to the Internet of Things, the Internet of Everything. Algorithms are the masters of the new world, and connection is the motivation, the process, and the result.

Algorithms and computing power have no boundaries! Algorithms should not be just algorithms. Programs should not be just programs. Numbers should not be just numbers. Assets should not be just assets.

All disciplines are interdisciplinary, including sociology, political science, law, mathematics, philosophy, cryptography, Yixue, physics, etc. What kind of social magic will the intersection produce?

The world is originally 0 and 1, and trust is 0 and 1.

Are computer algorithms just a human technological invention? There must be other origins...

Can we put trust in computer systems? Institutional trust is still not safe, which is the fundamental reason why finance always puts risk control first. Because institutional trust is flawed!

So the following thought was born:

Socially shared trust is algorithmic trust

It is blockchain technology that leads the reshaping of the new trust structure. I personally call it the end model of finance! It is also a fast channel for financial Internetization, and of course it is definitely the only way for Internet finance to move from adolescence to maturity!

Therefore, today I have to talk about blockchain technology. I have mentioned in previous articles about the significance of blockchain in reshaping the Internet governance structure, so I will not repeat it here. The real temptation and potential of blockchain technology is to completely rethink reality - what is decentralization of everything we do, and rethink life through a rich and inherent framework, paying close attention to what is possible and needed, rather than just responding to a reality that seems to be controlled by scarcity.

This new thinking will be a civilizational change led by the elite group led by a minority. The new enlightenment movement is not from ignorance to knowledge, but from knowledge to knowledge. Its inspiration comes from the thinking of the Internet's social revolution on the financial system. It is driven by the principles of mathematics and philosophy. Its most direct source of inspiration is the civilizational evolution of Bitcoin's blockchain technology. It is a self-subversion and sublimation of mankind!

Blockchain technology is a change in thinking patterns, a reversal of production relations and productivity, the final nirvana of the balance of social ecology, the seamless connection between the financial system and the social system, and the call and movement of the free world and the democratic world.

The end of the social credit system is not to improve it again and again, but to place the credit system in the algorithms and programs of computers; the construction of the credit reporting industry in China, which is in full swing, can never be perfect. It is just improvement and institutional constraints. It is still the traditional idea of ​​institutional trust.

Only trust in the algorithm can bring the mode to a perfect end.

After that, humans will enter a coexistence of human and machine civilization. The new civilization dominated by algorithms and programs has brought humans into a sad time. Humans have entered a world of strong artificial intelligence, where everything is connected, and all valuable assets are codes, existing in everything as algorithms.

Don't stop the evolution of civilization. Don't stop the trend.

Technology is accelerating. Tradition will eventually become history. The smart world is spreading. We will eventually no longer be ourselves.

Humans fall in love with programs, and humans fall in love with robots. It is just around the corner! Social ethics, morality, law, secularity, the second dimension, etc. are all facing reshaping.

Wait patiently. Embrace change.

Participate in and witness this new enlightenment movement!

Part 2: Blockchain technology redefines trust

The Asian Digital Asset Certification Association has been established, dedicated to ISO certification in the field of blockchain technology and virtual currency. Associations and academic institutions for blockchain technology in different countries are being established. Blockchain technology lectures in computer departments of famous universities around the world are full of people. Doctoral students in computer science from Peking University, Tsinghua University, Nanjing University, etc., are studying blockchain technology day and night.

The most successful application of blockchain technology - Bitcoin has set off a revolution in digital assets worldwide. More than 200 encrypted virtual currencies and organizations are actively promoting blockchain technology. The author recently saw that Deloitte has become a blockchain technology department to participate in daily audit work, which improves efficiency! The author suggests that equity crowdfunding platforms can apply blockchain technology to crowdfunding equity registration and replace electronic contracts with smart contracts. The author suggests that various financial platforms apply blockchain authentication and registration technology into the risk control technology system. The author suggests that credit reporting companies should establish a blockchain technology laboratory and carry out a distributed credit asset "chain plan" while learning the US FICO model. The commercial prospects of blockchain technology are infinitely bright, and the author will do more case study analysis in the following articles.

Wanxiang Finance took the lead in establishing a blockchain laboratory in China. Inspired by Comrade Xiao Feng, Gaoronghui Capital, as a local innovative consulting investment bank in China, also established the GRH Blockchain and Digital Asset Laboratory in Shanghai, China, and invited several leading computer doctoral students from universities in China and the founders of several cryptocurrencies to participate in the research of blockchain technology. The author will focus on the design and commercial exploration of blockchain technology and IoT financial application scenarios. The author believes that the golden glory of desktop Internet and mobile Internet for more than 20 years has ushered in the last sunshine of sunset. The advancement of science and technology has brought us into a new world of interconnected things. This new intelligent world is completely driven by data and algorithms.

The reason why we pay attention to and study blockchain technology is that financial technology is the fundamental force for the transformation of the commercial society. The decentralized thinking of blockchain technology has gradually matured from the theoretical system, and the next step is the application of commercial scenarios. The author predicts that several blockchain technology-based startups will be born in the next five years. The commercial revolution led by blockchain technology is subversive.

As a participant in China's financial industry, Gaoronghui Capital maintains respect for finance while remaining skeptical. As in previous articles, we have repeatedly questioned the fairness of the enslavement of freedom by the powerful financial sector. Blockchain technology has already given us the answer.

Financial transactions are based on trust.

However, trust between people is built on the high cost of time and high frequency of mental adjustment. Such trust is fragile. The biggest feature of the connection between people is instability.

There is a Chinese saying that goes, "To do things is equal to being a human being." Almost no Chinese person doubts this saying, as it seems to represent the truth. However, if a person spends his or her short life struggling to be a human being, isn't it a very sad thing?

The most harmful saying in China is “the ancients said”. The ancients are gone, the world is changing, and the saying is gone.

Life has invented words of comfort such as "I'm sorry, thank you, please forgive me, my fault, you are very good" and so on. Have you ever asked yourself, are you sincere every time you apologize? Are you thanking me from the heart? The reason for mental fatigue is role-playing. The reason for mental fatigue is the unstable trust crisis.

The development of science and technology is not a human need, but has already existed. Humans do not invent or create, but only discover when they should, just like anything that happens, or you meet someone at a certain time, it is never accidental. Because it already exists. Time and space are just the agreement of latitude, everything is an agreement.

Trust is an agreement.

The principle of trust is the connection between points. It exists in physical and digital space, in the real and virtual worlds. It may be in a certain block, or in two different blocks. The connection is the "chain". The layout of this block is distributed, without centralization. Centralization is called endorsement, and the endorsed thing is called a third party. There is no endorsement and no third party in the world of blocks. What moves in the chain of trust relationships is the digital credit assets, that is, digital assets. In the virtual world, they are converted into codes through algorithms, and the codes form programs. The programs drive the links, and the links of trust are in a system. After registration, registration, and transactions, everything is carried out in the program, and everything is converted between 0 and 1. There is no authority here, no opinion leaders. This is a natural community, a decentralized community, which is collaborative, and its infrastructure is blockchain technology.

This is how algorithmic trust works.

Algorithmic trust is the natural enemy of institutional trust. Just as the Internet finance revolution launched by grassroots finance is a challenge to the powerful finance, it will cause the latter to feel uneasy. But the deeper meaning is to trigger the latter to think and then change themselves. Internet finance plays the role of "medicine lead".

Being a bystander is not true participation. Participation requires joining the "chain". The protocol of the chain is trust. The appeal is to give trust to the computer algorithm.

The Internet is based on protocols to establish connections, which is the 1.0 of the free world. The connection protocol of the Internet of Things is the 2.0 of the free world. There is an important "gate" or "switch" here, which is the protocol.

The word "finance" in finance is "chain". As the ultimate model of financial technology, blockchain technology must first achieve breakthroughs in the financial field. The first is the game between technology-driven tokens and legal tender. I predict that legal tender will inevitably disappear. Because this is evolution, this is a trend, and this is the reconstruction of civilization.

Trends are not subject to anyone's will. Just like I predicted that artificial intelligence "discovered" by humans will eventually defeat humans. Please note that the word I use here is "discovery" rather than "invention". Discovery is seeing things that already exist, and invention is discovering civilization. This is the evolution of civilization. When we talk about trends, the trend has already happened. The future you are talking about has actually arrived. The great psychology tells you that to live in the present, it actually means to believe in the future. Because the present is the future. The so-called keeping a normal heart is to keep a future heart. This is the code of the universe, and those who master the code must be a minority. What everyone talks about is doctrine, not truth. Don't be a disseminator of doctrine, be a discoverer of truth. Discovering the truth starts with doubt.

Blockchain technology is not a discovery, but an invention. It is the discovery of a new civilization. The essence of this civilization is freedom and will. This new civilization is synchronized with the discovery of strong artificial intelligence. The maturity of blockchain technology matches super artificial intelligence.

Blockchain technology will announce the end of the significance of platforms. We no longer need the services of platforms, and platforms are still the product of institutional trust. The last wave of the Internet may be the C2B model, which is cloud computing, and will eventually become the basis of data-driven Internet of Things. This is a great "handover". A certain account claims to hold Double Eleven for another 93 years, which sounds tragic and ridiculous. The demise of e-commerce platforms is not a trend, but is happening. Industry 4.0 has just started, and its transformation is mass customization, that is, countless Cs communicate directly with Bs and access blockchain technology. These Bs will exist in the block as digital assets, and connect with each C in a point-to-point, end-to-end, p2p manner. The platform has died at this moment. Logistics still exists, but the rules have changed. By then, you will definitely see such words in the media as "blockchain technology intelligent logistics solutions". It is indeed a bit too much of a test of everyone's imagination.

The concept of producers and sellers will replace users. Sensors will take over traffic. So, please do not be obsessed and confused about the acquisition of traffic, and do not be complacent about the temporary lead in traffic. Recently, some students on Internet financial platforms have been entangled in the acquisition of traffic and are in great pain. I said why not study "Internet of Things Finance"? In the impetuous business environment, founders are always unwilling to think deeply. Imitators and plagiarists not only have no self-esteem, but in the long run, they are unlikely to get rich commercial returns. Not to mention the creation of value. Today's capital winter is capital thinking and reviewing. Capital chases fashion, and fashion plays the game of burning money. Capital is just a game. Users are king, traffic is king, and the so-called Internet thinking is a poison. The creator of this poison is not entrepreneurs, but capitalists. I won't say much, otherwise it will hurt innocent people and be hated.

Obviously, the incident of borrowing arrows from a straw boat will not happen again, and the romantic legend of the chicken feather letter will not exist again. The Middle Ages should not have discovered the birth of the great platform "Baidu" today. It shows that the rules cannot jump, unless imagined. 0 and 1 are the keys, and the algorithm is the beginning and the end of human civilization.

Human thinking is opening up. This is evolution! Einstein and Hawking have already discovered it. The proof lies in our generation and the next. If the singularity moment can come in 2045, we will be the luckiest in this civilization.

It is still the basic logic of thinking about the problem: the truth is in the hands of a few people. What most people agree on is definitely not the truth. Maybe you will criticize the author for being ridiculous, but it doesn’t matter. All truths will not be accepted and believed on the eve of their birth. Because believing in the future is a kind of ability, and this ability is the master of the universe.

First, let's look at the concept of blockchain as a technology. The logic of my thinking is that technology itself is a concept, and then a theoretical basis is formed. According to the theoretical basis, a framework is formed, and the construction of the system is implemented in the framework. We define this construction process as an "algorithm", and each step of an "algorithm" is actually to reach one "agreement" after another. The birth of the Internet is based on protocols, which are protocols between people and things, and between people and algorithms. The Internet is a medium, which is neutral.

We used to write a letter, which was delivered by a postman or pigeon. If we liked a girl on the street, we would go to her house to propose marriage through a matchmaker. We wanted to sell our chickens to exchange for some quilts, so we went to the market. We wanted to learn knowledge, so our parents sent us to school. We could buy and sell freely with the legal currency issued by the central bank. We found that we didn't have enough cash, so we went to the ATM to withdraw money. It is not difficult to see the importance of the medium in the development of social civilization. We define this medium as "centralization." It seems that without "centralization", it is difficult for us to integrate with society.

The birth of Bitcoin has opened the eyes of idealists and liberals around the world, because they have seen a different world. Every Bitcoin lover wants to go to Japan to talk to Satoshi Nakamoto, but to this day, no one knows whether Satoshi Nakamoto is a person or a symbol, or a new civilization that landed on Earth from outer space? The birth of Bitcoin has triggered a global discussion, with some worried, some panicked, some excited, and some indifferent. A large number of investors are quietly hoarding Bitcoin, and some geeks, inspired by Satoshi Nakamoto, have secretly opened factories to mine Bitcoin, using electricity and algorithms every day to excitedly look forward to the new world of the future.

The Chinese central bank looks at Bitcoin indifferently, which should be the most normal political attitude. How can a centralized country easily tolerate a guy full of liberal will to coexist with legal currency? However, we were also pleasantly surprised to hear the clear statement of Zhou Xiaochuan, the governor of the central bank: Bitcoin is a digital asset with commodity attributes, and the government does not have the intention to ban it. China belongs to the continental legal system, and it can be done as long as there is no explicit provision in the law. The basic routine of China's financial supervision is to observe quietly and see what tricks you can play. If it conforms to public opinion and does not violate the principles, it will be passed. Otherwise, it will be seriously investigated. This is great wisdom.

To sum up, I want to express a basic point, that is, the road to pursuing dreams is bumpy but bright, and any new technology or new thing is driven by laws and does not depend on anyone's will. Therefore, instead of paying too much attention to the government's attitude, it is better to focus on the technology itself, explore the value of technology, apply it to the needs of the times, and conform to the active exploration of mankind.

Don’t get too obsessed with the competition between Bitcoin and legal tender, and don’t use an algorithm-based application to fight against the social order. This is unfair to Bitcoin’s existentialism and goes against its basic mission.

Let's go back to the basics of our most primitive infrastructure.

Religion, philosophy, mathematics, physics, law, computer science, Yijing, materials science, and almost all other disciplines are studying the same question, but the scenarios in which they are answered are different. The same question is about the origin of the world and the origin of the universe.

The Book of Changes is an ancient and mysterious subject, which is in the same vein as Western metaphysics. It studies the laws of development of all things in the universe. Its methodology is: Yin and Yang. Its logic is: balance.

Physics studies positive and negative poles, and the entire physical world revolves around positive and negative poles.

Computer theory is 0 and 1.

Philosophy is always dialectical. The origin of philosophy: who am I, where do I come from, where am I going.

The origin of law is fairness and justice, crime and punishment, rights and obligations, freedom and restraint.

The Origin of Spirituality: The Self and the Ego

Most religious teachings talk about the same issue: existence and non-existence.

These are the laws of the universe. The origin of the universe belongs to the second dimension.

The origin of the universe has given birth to new discoveries in another scientific world. Through Bitcoin, humans have discovered the secrets of blockchain.

In previous articles, I have explained the difference between "discovery" and "invention". Discovery is seeing something that already exists, while invention is "discovering civilization". The evolution of any civilization is the light of consciousness of truth. It is hidden in trends and laws. It only speaks for a minority.

Whether you like it or not, it's there.

If Einstein could live a few more years, I believe that after discovering the theory of evolution and the principle of "compound interest", the eighth wonder of the world, he would definitely be able to figure out the secrets of blockchain technology. However, the assumption does not hold true. So, it became us who took on this mission.

After so much explanation, you should be anxious. Because the title of the article talks about the end of financial risk control by blockchain. But all the above words seem to have not yet talked about the central idea. The above foreshadowing is very important, because for the exploration of truth, you must have ideas, then concepts, then theories, and then practice. From theory to practice, there must be a process of imagination. This imagination is of infinite value!

Blockchain technology has unlimited space, and this white paper only focuses on one topic, which is "trust".

How is trust born?

Faith, as the name suggests, means belief. It has two elements: people and communication.

Ren, as the name suggests, means to connect or reach. The two elements are 1. people and 2. connection.

Communication is connection. Trust is about human connection.

Trust is an agreement that exists in the subconscious mind.

In the business world, agreements may take the form of contracts.

The protocol is the connection between people and people, and people and things.

With the advancement of technology, the connection between people and things, and the addition of algorithms, software was born, and the Internet was born. From desktop Internet to mobile Internet. The connection between people is based on the agreement between people and things.

The basic architecture of the protocol here is the algorithm, and its logical idea is: centralization.

The existence of the central bank is the centralized driving force behind the status of legal tender, which enables agreements to be established between people and between people and things, and legal tender becomes a trust.

The civil affairs department enforces the will of the law, making marriage legal, and establishing an agreement and trust between husband and wife.

Due to the weaknesses and bad qualities of human nature, the ruling class cannot allow the liberalism of the ruled class to run rampant, and must keep them in check in order to maintain the rules, and thus the law was born.

Religion rules through doctrine. What is doctrine? It is also an agreement, and the agreement becomes trust. Christianity, Buddhism, paganism, etc. have the same origin. The leader and the believers reach an agreement through doctrine. The essence is the connection between the awakened and the quasi-awakened. It can also be understood as an agreement between divinity and humanity.

Suddenly it feels like protocols are everywhere? !

Previously, the author defined the trust agreed upon in various historical and current agreements as “institutional trust.”

The central idea of ​​institutional trust is “centralized human rules”, and the rule makers are people.

It is precisely because of the instability of the agreements between people that wars, killings, judgments, pain, sorrow, love and hate have occurred every day since ancient times. The root cause is the loopholes in the agreements dominated by people.

The Internet's attack by hackers is a challenge to "institutional trust" posed by the liberal protocol, or what I called "algorithmic trust" in my previous article.

So the question is, you must be asking, is there an impeccable trust mechanism in the world?

Yes! This trust is also a kind of agreement. The connecting subjects of this agreement are no longer people and things, but things and things.

The rules of the protocol: replace objects with codes, and store the codes in algorithms. At this point, should computer science students start to get excited?

Part 3: Blockchain technology: the terminator of financial risk control

Let’s review why risk control exists.

There is an old Chinese saying: If you don't think about the future, you will have immediate worries. There is also a saying that you should "prevent trouble before it happens". Chinese culture advocates the way of balance and checks and balances. The same applies to the financial industry!

What is the essence of finance? It is the flow of funds. In the process of funds flow, every link has uncertainty, and uncertainty is the basic factor of risk. According to cultural teachings, balance is sustainable and harmony is healthy. Starting from culture and extending to political economics, the relationship between the superstructure and the economic base of the ruling class is subtle. Who decides who is an extreme left-wing idea, which depends on the Chinese thinking of "the butt determines the head". This is the spread of Chinese power culture in the financial market.

The relationship between parents and children, the relationship between lovers, and the relationship between investors and entrepreneurs are all human relationships, existing in the integration of people and things. Borrowing and lending are also human behaviors, and are also based on the integration of people and things. The three basic elements of finance, security, returns and liquidity, have one thing in common, that is, the conflict between the space and time of the present and the future. Conflict is the funnel of integration and an unstable factor. It must be constrained through the design of power. The constraint of this power design is control. This control process is the birth of things. The design of invisible things and invisible power corresponds to the principle of equivalent exchange, or conflicting defensive design. The "positive defensive" design of integration is 0, and the "reverse defensive" design of integration is 1. 0 means inaction and 1 means action.

Let's look at this defensive design principle, the first step is to do an assessment.

The definition of risk assessment is to quantify the impact and loss possibility of a risk event on people's lives, lives, property, etc. before or after the risk event occurs (but not yet ended). In other words, risk assessment is to quantitatively evaluate the possible impact or loss caused by an event or thing.

From the perspective of information security, risk assessment is an assessment of the threats, weaknesses, impacts, and the possibility of risks brought about by the combined effects of information assets (i.e., the information set of an event or thing). As the basis of risk management, risk assessment is an important way for organizations to determine information security needs and is part of the process of planning the organization's information security management system.

Evaluation is motivation, remember, people have motivation, machines and programs only have instructions. This is important to realize.

Then, let’s look at the process management of defensive design for risk control:

First, determine what the object (or asset) is to be protected and what its direct and indirect value is.

Second, what are the potential threats to the asset? What is the problem that causes the threat? How likely is it that the threat will occur?

Third, what weaknesses exist in the asset that could be exploited by the threat, and how easily could they be exploited?

Fourth, once a threat event occurs, what kind of losses will the organization suffer or what kind of negative impact will it face?

Finally, what security measures should organizations take to minimize the losses caused by risks?

The process of solving the above problems is the process of risk assessment.

When conducting a risk assessment, there are several relationships that must be considered:

1. Each asset may face multiple threats

2. There may be more than one threat source (threat agent)

3. Each threat may exploit one or more weaknesses.

The above content is the important thinking principle of the modern financial risk control system. The risk control system is a system about motivation and process management. And motivation and process management are the basic logic of the risk control system. Have you noticed that these are all designed by people? Human design is based on knowledge structure and experience judgment. Due diligence is generated based on case and statistical principles. The root of the investigation is the uncertainty of space and time. The motivation of the investigation is to reach a consensus between the future and the present. Please note that this is still designed by people. Just as all investigation reports are written by people. The information and data that people refer to are still written by people.

So, here comes the point: can the programs set by humans be replaced by technology? The answer may have been unsolvable in the past, but now it is.

The answer is blockchain.

The discovery of blockchain technology was made through the idealistic supranational currency, Bitcoin. Some people say that without currency, there would be no modern human civilization. A scholar said: Money will decide the fate of mankind. Keynes said in "The Theory of Money": If we rewrite economic history with currency as the main line, it will be quite exciting. Obviously, the emergence of Bitcoin has no doubt about its significance for the evolution of human civilization. However, it is still a controversial species worldwide. Therefore, we will not discuss this controversial species of Genesis in our article today. We will focus on its underlying technical architecture: blockchain technology.

See how it ends the legend of risk control through the implementation of technology.

Blockchain reshapes transaction structure and rebuilds trust.

The popular meaning of decentralization is that transactions between multiple parties can be successfully processed without centralization. Obviously, the risk control system of the financial industry is a manifestation of centralization. If all financial activities lose risk control, they will be illegal, non-compliant, and unsupported. Financial institutions have given risk control departments independent and huge power. This power is centralized, with control as the starting point and destination of the trust mechanism, managing the operation of all financial activities.

The primary task of risk control is to prevent transaction fraud.

The basic principle of blockchain technology is that it can be automatically processed through a distributed computer network, and security is guaranteed through encryption, making transaction fraud difficult to achieve.

Blockchain (the technology underlying Bitcoin) is a magical box - it is revolutionary by repurposing existing solutions and bringing many innovations to the table. It is rare to see so many innovative ideas put into one framework in a technology.

Now let’s take a look at the disruptive features of blockchain technology for risk control systems.

Self-regulation

It is rare to see a platform that can regulate itself with almost no human intervention. In all areas similar to the financial industry, central banks and regulators formulate unified rules and manage them. Blockchain technology makes the system no longer need these regulations from the platform itself. This revolution has made many people unemployed and also transferred the power of regulators. Can a technology really have such great magic? I know you will definitely question it.

How it works

Blockchain provides a mechanism called "proof of work" that allows every computer node in the system to participate in approving every transaction. The system has built-in checks and balances to ensure that no computer in the system can deceive the system. All of this review and supervision is done automatically by computers. There are already many other consensus models that can replace the "proof of work" mechanism, but they still retain the core concept that each client or node can manage the system peer-to-peer. More importantly, blockchain makes every element in the system completely transparent, so for a community of such a large scale across the world, blockchain technology can easily review and manage it, effectively reducing fraud. Imagine how much it can save costs and improve efficiency. However, this work is currently being done by the risk control department of financial institutions. Wherever there are people, there will be errors. Risk control is too strict and too loose. Neither too strict nor too loose is appropriate. Leave risk control to computer algorithms. Record customer information, motivations, behaviors, and data in blocks, manage them with public and private keys, and manage them autonomously through the activities of the "chain".

This process is what I defined in my previous article as the transfer of "institutional trust" to "algorithmic trust". Depersonalization means that accounts are no longer trading accounts of individuals or institutional clients, but the subject and object of all digital transactions. The management of this process is handed over to computing power, which we call "hash". The computing power of blockchain technology is very powerful.

In terms of transaction motivation and transaction process, people have been replaced. The relationship between customers and financial institutions has become a relationship between transaction accounts, point-to-point, and the transaction structure has become completely P2P. All operations are driven by computer algorithms and computing power (hash).

The process still exists, but the accounts are transformed into codes in the integration, and the codes are carried out within the blocks and between blocks.

The security of transactions still exists. The password still exists. The public key and private key are the passes of the blockchain "chain". The issuance and review of this pass are also carried out in the algorithm.

At this point, you should be able to see that whether it is a natural person or an institutional legal person (or an unincorporated team), the personality has been transformed into code, and the code has been programmed in the blockchain technology. The relationship between people and things has been formatted as things and things, and everything is a digital asset exchange. The essence of finance has not changed, it is still the exchange of funds. The financial risk control process, human operations and machine-assisted human operations have been formatted into codes, and all processes are recorded and can never be tampered with.

Behind the behavior is the protocol, and protocols and protocols make up the program.

The three elements of security, income, and liquidity management are all managed through blockchain technology, which weakens human operations. This is the basic concept of IoT finance.

Legal significance and ease of tracking

The actors and their actions are recorded on the blockchain. Any transaction between two parties can be tracked and queried, and can be proven in court. This is because all transactions require a set of public/private keys for encryption and decryption processing and transactions. Once added to the blockchain, they are permanent and unchangeable. Any record, once written to the blockchain, cannot be tampered with. Anyone who holds assets or digital currencies on the blockchain will have their own public key on the blockchain. When a transaction occurs, it needs to be signed by the previous holder who controls these assets using the private key. The blockchain also allows for a variety of mechanisms for transactions to occur, such as requiring two people to sign jointly to conduct a transaction. In a system without corporate or government endorsement, a legally binding mechanism can greatly increase the trust factor in the system.

Avoidance of systemic technological risks

A globalized platform system or a national platform system cannot bear the risk of downtime when conducting major transactions. Blockchain, a complete point-to-point network, is supported by many distributed nodes and computer servers, and has extremely high reliability. A copy of the complete blockchain data is stored on the nodes participating in each system. This makes the entire network extremely fault tolerance. If there are problems in any part of the nodes, it will not affect the continued operation of other parts of the network. This allows 24/7 of all-weather operation characteristics without using complex technologies. Therefore, blockchain technology provides the infrastructure for financial big data and cloud storage. This technology allows the transaction process itself to avoid disasters caused by the unpredictability of the network.

Of course, theory, practice belongs to practice. At present, the world of finance is still the world of humans, and people are the most precious asset in the world of finance. Risk control is the most important element of finance. People are still the main force of risk control. Change does not happen overnight.

The birth of blockchain technology is not accidental, it is the messenger of civilization evolution. Technology can be widely used depending on the popularization of truth by explorers of truth. The path taken on the eve of the Internet’s birth, blockchain technology must also be taken.

The "algorithmic trust" I proposed is based on in-depth research on the trust system. There is no perfect solution for the trust between people, and the trust between people and things is just the innovation and progress after the technology is added. However, it is not the end. Then, the terminator may be between things, and it exists in the "algorithm".

Chapter 4 Application scenarios of blockchain technology: credit decentralization

If a technology is just in the laboratory and cannot go out, it is definitely a tragedy of technology.

When it comes to commercial applications, we must talk about scenarios. The Internet of Things is almost born for scenarios. I will temporarily restrict blockchain technology to the scope of Internet of Things finance and study how it serves scenarios.

Most Internet financial platforms are thinking about how to access the data of authoritative credit reporting companies to increase their credit. Most platforms are still thinking about how to obtain traffic, how users can obtain it, and how to grab customers from competitors. They are even using the traditional way of Xiaoen Xiaohui to please customers, holding QR codes in the streets and alleys to let customers scan. In the crisis of redemption, the platform system is always worried about being hacked.

Have you ever thought that you could have cross-platform customers, or even without spending a lot of money to promote your brand, or you don’t have to deliberately find a large institution to endorse yourself? Have you ever thought that you might not need any fund custody, third-party payment platform, third-party credit reporting platform access, risk reserve fund, etc.

Blockchain is a series of data blocks generated using cryptographic methods. Each data block contains information about all Bitcoin network transactions in the past ten minutes to verify the validity of its information (anti-counterfeiting) and generate the next block.

Satoshi Nakamoto holds the first block, the "Creation Block".

Satoshi Nakamoto is the founder of blockchain, but not CEO. Blockchain has no board of directors, it is just a religion. This "sect" has so far included many disciplines such as ideology, mathematics, cryptography, electricity, finance, and computers.

To explore credit decentralization, we must first understand what decentralization means.

Simply put, it is the infrastructure of the infrastructure.

This structure is composed of two numbers, 0 and 1, and according to binary conversion, it becomes the underlying transaction structure that can drive a point-to-point transaction structure.

The lowest architecture is blockchain technology.

How to form a block? From the first block, there is a second block. According to Satoshi Nakamoto's algorithm, the total number of fixed bitcoins is 21 million, and the more mined it becomes more difficult. The reward for mining miners is halved every four years. From 2009 to 2012, there were 50 bitcoins rewards, and from 2013 to 2016, there were 25 bitcoins rewards. After 21 million are developed, they can be invested in the circulation field, which is enough to replace all fiat currency circulation on the earth.

According to the hashing algorithm, we set that each block can have 2016 clients, that is, 2016 trading accounts, and each transaction behavior can take 10 minutes, that is, the formation of a block will take 2 weeks, that is, 2*7*24*60 minutes.

Suppose an Internet financial platform has 100,000 investment user accounts, and 100,000 investment user accounts can be registered on different blocks according to the time of the account formation and transaction registration records.

The registration rules are as follows: First, locate 100,000 users. If an account belongs to an investor, open its account in the account directory starting with D. The platform company uses the root directory instead, and uses English letters plus registration time as the root directory code. Similarly, register the borrowed account in the account directory starting with J.

The author invented a "three-dimensional" accounting method. The three-dimensional ones are: identity code, identity qualitative, and entrustment requirements. For example, a user named Zhang Bing on the Qianquduo platform needs to borrow 100,000 yuan, for 6 months, pay interest every month, and repay the principal when it expires. Qianquduo CRM records its account as: ZB****-J-10-06 (**** is the last four digits of Zhang Bing's ID card); when Qianquduo logs into the blockchain, Zhang Bing's account will be automatically identified as: QQD-ZB****-J-QQB10,000, 0-6*30*24*60

Explanation: The first QQD is blockchain recognition, QQD is Qianquduo's code as the root directory unit; J is account qualitative (borrow); QQB is the digital wallet "Quanqucoin" allocated by Qianquduo's automatic system, which is calculated in minutes in 6 months.

The account is the private key obtained by Zhang Bing. It is stored in the header part of the block. Because the system recognizes that this is the account information from Qianquduo, Qianquduo can use the private key to view Zhang Bing's account status.

The transaction records of Zhang Bing's account are stored in the Body part of the block and cannot be tampered with. Qianquduo's private key permissions can be accessed.

It should be noted here that before block registration, the platform is a platform and an individual is an individual, that is, Qianquduo is a platform and Zhang Bing is an individual. This is a centralized connection mechanism.

However, once Qianquduo is registered in the block, Qianquduo and Zhang Bing both become accounts and codes, and the pass is their own private keys. Because Zhang Bing is a user of Qianquduo, Qianquduo's private key can open Zhang Bing's account information. This is Qianquduo's Power on the private chain. Zhang Bing is irreversible.

Accounts do not belong to people, they belong to objects. Whether individuals or platforms, once registered on the block and entered the algorithm of blockchain technology, there is only objects. Things are presented in the form of digital codes.

Let’s talk about Zhang Bing’s delegation matters. Zhang Bing’s account motivation is to match the motivation account of its needs at each transaction point in the block. It forms a point-to-point "chain" connection in a block or across blocks. If it is matched in a block, the "chain" is not alarmed. If it cannot be matched in a block, it must be matched through the Power of the "chain". Each matching activity is in one unit of 10 minutes. That is to say, match once in 10 minutes. Less than 10 minutes is counted as 10 minutes, exceeding 10 minutes, not exceeding 20 minutes, and calculated in 20 minutes. And so on. Until the match is completed.

This phenomenon will occur here: Zhang Bing, who is registered in Qianquduo, matched an account called Liu Jun on another platform called Tianmi. For example, Liu Jun’s account defaults to: TM-LJ****-D-TMB15,000, 0-6*30*24*60.

Explanation: Liu Jun’s account is Zhang Bing’s target value. The target value (digital assets and time values) must be greater than or equal to the account value. Description of Liu Jun’s account: Registered on the Tianmi platform, the amount of loan can not exceed 150,000, and the maximum loan time is 6 months.

The block matches two accounts in the shortest time according to computing power. The transaction record is established and recorded permanently. The transaction information will be established in the block in the form of a smart contract, and a digital signature will be signed according to the account private key authorization. The system sends the transaction information to the account's default priority smart device. It is not confirmation, but notification is delivered. Of course, both parties to the transaction account can view the transaction record with the private key.

This is the process principle of blockchain P2P.

Such a match will be carried out forever in 7*24 hours.

There is no platform here, no people, only accounts and accounts are trading.

Can the transaction information be modified? Obviously, it is not possible.

Can the transaction record be deleted? Obviously, not.

During the transaction process, assets are circulated in the digital currency wallet. The transaction process is irreversible.

Can the platform view the asset status of the account? Obviously, it is not possible.

The privacy of the account is absolute.

The latest technology application of blockchain: Bitcoin technology emerged in 2008. It provides a decentralized credit establishment paradigm without trust accumulation. Blockchain technology is essentially a decentralized and distributed structure of data storage, transmission and proof. It replaces the current dependence of the Internet on the central server with data blocks, so that all data changes or transaction projects are recorded on a cloud system, theoretically realizing self-proof of data in data transmission. In far-reaching, this goes beyond the traditional and conventional information verification paradigm that requires relying on the center and reduces the global "credit" establishment cost. This peer-to-peer verification will generate a "basic protocol", which is a new form of distributed artificial intelligence, which will establish a new interface and shared interface for human brain intelligence and machine intelligence.

Credit decentralized empire

The result of blockchain technology thinking is to establish credit through accounting for the entire network node. The credit basis of the agreement is to cover "time stamps". Who will cover it? The role of "miner" is to cover it (the author believes that each Internet financial platform is a miner), and the reward for miners is to receive mining.

Every transaction conducted on the blockchain every ten minutes is stamped and recorded in the block (Block). Then solve the SHA256 cryptography problems to prove the computing power of each node. Everyone competes for accounting across the entire network, and in the end, who has the most computing power? The above simulation case: Zhang Bing meets Liu Jun is the result of computing power.

The one with the greatest computing power can compete for the right to register a legal block every ten minutes and broadcast it to the entire network, and receive a reward of twenty-five Bitcoins. The first four years of Bitcoin generation are 50 (this process is commonly known as "mining", and its essence is to compete for accounting across the entire network and establish P2P credit). In this way, a legal block of accounting across the entire network is released every ten minutes and linked together to form a general ledger, which is the so-called "blockchain".

Therefore, the innovation of blockchain has ushered in the era of human Internet of Things and established the decentralization of credit. The cost of credit is the lowest and eternal.

*The above clinical case simulation: Qianquduo and Tianmi Wealth

Chapter 5 Blockchain Technology Reshapes the Future of Credit

Although the cost of using gold and silver as credit carriers physically decreased, it must require centralized credit endorsement from the central bank. The credit of central banks in different countries is different. Some countries have poor credit, while others have excellent credit, such as the People's Bank of China. This actually increases the credit flow cost of international trade.

There is no doubt that the decentralization of blockchain technology is the most perfect solution to establish P2P credit.

The Internet has completed the establishment of a protocol, but cannot execute the problem of deneutralization. Therefore, the TCP/IP protocol is equal, protocol, program, and executable, and completes the high efficiency and low cost of information transmission.

However, although the information transmission protocol is efficient, it cannot be elevated to the value level. For example, Facebook and China’s Weibo cannot have value dialogue. Because, an important discovery is that the cost of information transmission is close to zero, but why do you believe that the information you convey is true? So, it is still a credit issue. Credit issues are the eternal pain point of the Internet!

The highest level of an agreement is a value agreement. A value agreement, that is, a credit agreement, cannot be completed in the world of the Internet, and any neutral medium that can be used for endorsement is not the end of value.

2015 is the year when innovation in blockchain technology breaks out of the field of Bitcoin and spreads to other fields. In 2016, there will be business scenarios and technology matching. With the establishment of more and more blockchain technology laboratories, everyone’s common goal is commercial applications. In a few years, blockchain technology will produce unicorn startups.

In the future, all smart devices will be connected together, and based on blockchain technology, smart contracts will be established to form an intelligent financial network. Everyone is a financier, everything is a financial target, and the ultimate system will be formed by finance.

Author: Jerry Chen, uncle of finance, founder and managing director of Gao Ronghui Capital. Observer of GRH Blockchain and Digital Assets Laboratory. Producer of "Valuation Investment Era". Consultant of multiple startup companies.