International financial giants are making plans one after another. Blockchain may be the ultimate form of Internet finance.

The tide of Internet finance is changing the existing financial industry worldwide, but this change may not stop at the launch of direct banks, Internet insurance, Internet brokerages and other platforms. The cutting-edge blockchain technology in the industry provides an optional direction for the next upgrade of the financial industry. Its entrepreneurs are trying to use this financial technology to reconstruct infrastructure such as the credit formation mechanism, thereby more profoundly influencing and changing the financial transaction process.

     Since blockchain technology is still in the incubation stage, a consensus on its definition has not yet been formed. As for what exactly is blockchain technology? Many industry insiders gave obscure explanations to the reporter of China Business News, and there are some discrepancies. The one that most industry insiders believe is that blockchain is a public ledger that uses computer programs to record all transaction information on the entire network. Its characteristics are decentralized storage, highly transparent information, and not easy to tamper with. At present, this technology has begun to be experimented in the financial field, and the directions of application include payment settlement, smart bonds, financial auditing, etc.

For the general public, what is more familiar is the application of blockchain technology - virtual currencies such as Bitcoin. A person engaged in Bitcoin research told the reporter of China Business News: "To describe it in popular language, Bitcoin is stored on the blockchain. If Bitcoin is money, then this money is actually produced, stored and traded on the blockchain."

     On October 15 and 16, the first global blockchain summit "Blockchain - New Economic Blueprint" was held in Shanghai. Relevant industry insiders attending the summit tended to believe that the development of blockchain has gone beyond the scope of virtual currency, and its wider application in the economic and financial fields has been launched. In the future, it will also play a role in broader areas such as social management.

Reconstructing the credit formation mechanism

     The significance of traditional finance internetization lies in reducing intermediaries, lowering transaction costs, expanding the scope of financial services, and improving the quality of financial services. The embedding of blockchain technology may deepen the significance of Internet finance. One important aspect is that credit can be formed through programmatic recording, storage, transmission, verification, and analysis of information data. Compared with the traditional way of credit formation, blockchain can save a lot of labor costs and intermediary costs, and the credit information recorded is more complete and difficult to forge.

     For example, when we apply for a loan, we need to provide the corresponding credit information, which requires the corresponding information data recorded by banks, insurance or credit reporting agencies. However, there are problems such as incomplete information, inaccurate data, and high cost of use. The usefulness of blockchain lies in relying on program algorithms to automatically record massive amounts of information and store it on every computer in the blockchain network. The information is transparent, difficult to tamper with, and low cost of use. Therefore, when applying for a loan, you no longer need to rely on intermediaries such as banks and credit reporting companies to provide credit certificates. Lending institutions can simply retrieve the corresponding information data from the blockchain.

     In China's blockchain startup circle, a fully automated authentication service project called CertChain is dedicated to providing free proof of the real existence of information data through mathematical algorithms without relying on third-party intervention. Its official website states: "For any file and any information, it can provide anonymous and secure proof of existence in a decentralized manner using pure mathematical algorithms. And it can prove a person's ownership of any type of file conveniently and at a very low cost based on user needs without any third-party intervention."

     "Blockchain is essentially a perfect mathematical solution for building a trust mechanism among all parties involved in a transaction," said Xiao Feng, Vice Chairman and Executive Director of China Wanxiang Holdings Co., Ltd. and founder of Wanxiang Blockchain Lab. "First, it uses pure mathematical methods to establish a trust relationship among all parties involved in a transaction. Second, the establishment of a trust relationship among all parties involved in a transaction does not require the help of a third party. Third, the cost of establishing a trust relationship is almost reduced to zero. This is exactly the core of my prediction that blockchain will help achieve the ultimate model of Internet finance."

     Xiao Feng also introduced that based on blockchain and with the help of auxiliary methods, a smart contract mechanism can be established on the Internet, replacing contracts with programs. Once the agreed date and conditions are met, the network automatically executes the contract, and financial activities change from exchanging data to exchanging codes.

     Han Feng, a scholar at Tsinghua University's Institute for Advanced Studies, said that the core of finance is the establishment of credit. Traditionally, credit is established by "centers" such as the central bank, commercial banks, and courts. The biggest problem is that the cost is too high. "Alipay and others have taken a step forward by relying on big data to establish credit. Big data finance is basically the first step in establishing Internet finance. It makes the cost of establishing credit much lower than the cost of traditional bank deposit-taking and lending methods. However, facing the global market, it is not enough to rely solely on domestic big data to establish credit."

     "At the peak of Bitcoin's credit, the global credit limit reached 10 billion US dollars. This was unprecedented, without relying on any central endorsement, and only relying on network-wide accounting to establish credit. Such a blockchain mechanism provides great inspiration for credit establishment. At present, domestic Internet finance mainly relies on transaction big data to reduce credit costs. In the future, in the global market, network-wide accounting will be needed, and new basic protocols will be established to reduce credit costs." Han Feng said.

     Judging from the latest regulatory trends, China is also working hard to improve and upgrade its credit system. Eight private credit reporting agencies, including Sesame Credit, Qianhai Credit, and Tencent Credit, are about to obtain personal credit reporting licenses. However, the topic of big data credit reporting is still new. If more cutting-edge blockchain technology is applied to the credit market, it may take a long time.

Several financial giants have laid out

     Our reporter combed through public data and found that many financial institutions have already laid out their plans in this field by establishing blockchain laboratories and investing in related technology companies. Including Nasdaq, JPMorgan Chase, Citibank, UBS Group, Goldman Sachs Group, Santander Bank, Barclays Bank, Deloitte, etc., the application experiments of blockchain technology have been launched in the securities, banking, auditing and other industries.

     Peter Stephens from the UBS Blockchain Technology Lab introduced at the summit that UBS has tested more than 20 financial applications on the blockchain, including financial transactions, payment settlements and the issuance of smart bonds. According to him, based on the smart contracts generated by blockchain technology (which can automatically execute contract terms), UBS's first experiment is smart bonds. "The experiment is not yet mature, but through the experiment, it is found that all information is very transparent and convenient for both the issuer and the buyer of the bond." Next, UBS will promote blockchain experiments in the points card project.

     Since blockchain technology has greater advantages than manpower in information recording, transmission, and approval, its application in financial auditing is more direct. "In 2014, we had a global discussion to discuss what would have a disruptive impact on our business? At that time, blockchain had already entered the vision of Deloitte's global CEO. From the current perspective, we have realized that blockchain will have a disruptive change on the entire industry." Qin Yi, partner of Deloitte Asia Pacific Investment Management Industry, said, "Blockchain technology solves the difficulties that the audit industry has always faced in meeting the requirements of the public and regulatory authorities. It can ensure the integrity, permanence and immutability of all financial data, help auditors achieve real-time audits, and improve audit efficiency."

In addition, according to foreign media reports, Nasdaq will now launch a test of the application of blockchain technology in the stock market in the Nasdaq private market. Nasdaq will try to use blockchain technology to handle a large number of informal systems for private company stock transactions, such as requiring lawyers to manually verify spreadsheets.

Market acceptance still needs to be improved

Regarding the application prospects of blockchain, which the industry is keen to discuss, the above-mentioned Bitcoin researcher expressed his doubts to our reporter: "From a long-term perspective, it may be possible to realize a beautiful vision, but it seems immature now. Both popular science and the construction of blockchain systems are too advanced. First of all, we need to let others know what it is. It is far from being accepted by the society."

     At the above blockchain summit, participants also discussed the challenges currently faced by blockchain technology. In summary, the biggest problem at present is people's understanding of blockchain and their willingness to accept it. Secondly, the security issues of blockchain itself have yet to be verified. In addition, if this technology is applied in the financial field, it will have to face the problem of regulatory attitude.

     Han Feng said: "When I discussed with some government officials, their reaction to blockchain was that it could help improve the level of social services, reduce the cost of managing society, and enhance social credibility. I personally think that if blockchain can upgrade the flow of first-generation Internet information to the free notarization of information and solve this problem, the Chinese government is likely to be the largest blockchain user in the future."