Author: Li Lihui 'Chinese Finance Association of Internet block chain working group, Bank of China, the former president'
Article source: China Finance, No. 22, 2019
Editor's Note: The original title is "Interpretation of Blockchain"
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Blockchain technology architecture
The blockchain is a distributed shared ledger with digital trust established by each participant based on the consensus mechanism. It is an integrated innovation of multiple technologies: a time-based chained block structure, which is difficult to tamper with on-chain data; a real-time operating system based on consensus algorithm The specified data can be shared; based on the self-rule of the smart contract, the technical trust can be authenticated; the end-to-end network based on the encryption algorithm can be selected by the counterparty. According to different technical architectures, blockchains can be divided into public blockchains, private blockchains, and federated blockchains.
- Public blockchain
The basic characteristics of the public blockchain architecture are: the decentralized distributed ledger with open reading and writing and transaction authority, the de-intermediary digital trust mechanism using consensus algorithm and encryption algorithm, and the virtual currency incentive mechanism with proof of work contribution and proof of equity. Bitcoin's technology platform is the first generation of public blockchain. The technical drawback of the public blockchain architecture is the high hardware requirements and low transaction speed. First, massive data storage requires huge space. Second, data synchronization requires high-speed networks. Third, the operational capabilities of each node need to meet the standard and balance. Fourth, frequent calculations require huge amounts of electrical energy, so they cannot adapt to large-scale and high-speed. Application scenario. Under this "decentralized" structure, all kinds of coin circle communities, whether bitcoin or Ethereum, have not been able to solve the transaction efficiency problem so far.
- Private blockchain
The characteristic of the private blockchain architecture is that the distributed ledger is central, the read/write and transaction rights must be licensed by the “central” and subject to the constraints and restrictions of the “central”. The digital trust mechanism of the private chain does not emphasize “going intermediary". The private blockchain has the "centralization" feature of the traditional information technology architecture, but adopts blockchain technology such as distributed ledger, smart contract, and encryption algorithm. The blockchain platform is easy to integrate with the existing information technology platform, and the bureau can be established. A multi-dimensional interactive architecture that increases the speed and quality of data processing. Some experts believe that the private blockchain is not a true blockchain.
- Union blockchain
The alliance blockchain can be regarded as a collection of private blockchains in a general sense. It adopts a distributed, multi-centered, and intermediary structure. Its basic features are open source, multi-center distributed ledger, limited license, and limited authorization. Read and write and trading permissions do not emphasize the digital trust mechanism that goes to the intermediary. Different from the traditional large-center data architecture, the “central” status of the alliance chain may not be administratively designated, but depends to a large extent on the technological advancement and service-friendliness of competition results; “trust” can come from the intermediary and rely on tradition. The credit model can also be the technical trust of de-intermediation. The technical architecture of the alliance blockchain provides the possibility of large-scale application and is more suitable for the specific needs of financial transaction scenarios.
China's research and development on blockchain finance, including digital bills, financial transactions, supply chain finance, asset custody, payment and settlement, property rights deposit, audit supervision, data sharing, etc., mostly use distributed shared ledgers of multi-center alliances. Architecture. The practice of blockchain technology development and application proves that in large-scale commercial applications, the alliance blockchain is most likely to become the mainstream architecture.
We are entering an era of Internet of Everything, and extensive, high-speed digital links require reliable, efficient digital trust.
The new generation of IoT will fully link production tools and transportation logistics tools, comprehensively link living facilities and medical care facilities, and fully link people and things. The rate of IoT links will increase in geometry. The 5G communication network has the characteristics of high speed, wide connection and low delay. The peak downlink rate can reach 20Gbps, and the number of connected devices per square kilometer can reach 1 million, and the delay can be less than 1 millisecond. The future 6G is bound to be faster and wider. Many links in the Internet of Everything have control or trading functions. This requires the management of powers of management, command, and regulation, and the certification of property rights and trust relationships. Such certifications required for wide-area, high-speed Internet of Things cannot be achieved by traditional certification systems and commercial credit systems.
The traditional power certification and property rights certification system is centralized, with many links, low efficiency and small coverage. In the traditional commercial credit model, trust needs to be accumulated, and it takes a long period of time to establish credit; trust requires a central node, and daily economic behavior is difficult to become a social credit record; commercial credit has a small reach and high credit cost. As a result, traditional authentication tools and credit models are difficult to penetrate the digital Internet of Things.
The application of digital technologies such as big data, artificial intelligence, and blockchain can create a new digital trust mechanism.
First, blockchain technology solves the problem of trust through mathematical methods. The blockchain can establish a trust mechanism of "technical endorsement", solve the trust problem through mathematical methods, express the rules by algorithm program, and establish mutual trust by trusting the common algorithm program. Further analysis, the blockchain can be embedded in the corresponding programming script through the "consensus agreement" and the programmed "smart contract". Second, big data technology discovers credit through data mining. Alibaba first applied big data technology to tap the credit of small and micro enterprises and develop microfinance business. In 2016, Ant Financial and Online Merchant Bank issued more than 800 billion yuan of loans to more than 5 million small and micro enterprises, which flow to the bottom of the real economy. Since then, more and more technology platforms and financial institutions have launched credit services based on big data technology. The key here is to use big data technology to discover credit, create credit, explore the credit value of the general public, promote credit popularization, and solve the problem of financing difficulties for small and micro enterprises. Third, the application of digital technology for identity authentication and property rights certification. Integrated application of big data, artificial intelligence, blockchain and other digital technologies can perform feature recognition and space-time positioning on people or objects. It can certify identity, confirm peer-to-peer, end-to-end control, command, and adjustment rights; it can also certify assets and confirm the value and ownership of property rights. The value of digital trust is that it can form a trusted bond in an environment with weak trust or weak trust, save the time and cost required for credit formation, and uphold commercial credit within a certain scope and degree; it can be in a wide-area, high-speed network. Establish zero-time, zero-distance certification tools to improve the actual efficiency and operational reliability of the Internet of Things. Further analysis, the main advantage of digital trust is high efficiency, low cost and inclusiveness.
At present, the application of blockchain technology has been extended to digital finance, Internet of Things, intelligent manufacturing, supply chain management, digital asset trading and other fields.
Blockchain technology has certain advantages in financial scenarios where multi-party transactions and weak trust bases are weak.
First, chained block data structures, consensus mechanisms, timestamps, and keys help prevent tampering with raw data, control data leakage risks, and protect privacy and data security. Second, the distributed architecture and end-to-end network facilitate the parallel transmission of information, control parallel cross-connection, and improve business processing efficiency. Third, smart contracts help to achieve differentiation and credibility of trading rules, automate business process execution, ensure transaction timeliness, avoid false transactions, and repeat transactions, and reduce moral and operational risks to a certain extent.
In the supply chain finance scenario, the information asymmetry problem in the multi-party collaborative business structure can be solved, and the core enterprise credit can be transmitted to more levels; the commercial contract can be incorporated into the smart contract to realize transaction automation and prevent capital misappropriation, malicious default, etc. problem.
In the inventory financing scenario, combined with the Internet of Things technology, real-time monitoring of pledges can be carried out to achieve secure storage and trusted sharing of warehousing records and pledge records, avoiding the moral hazard and operational risks of the warehouse management personnel, and preventing financing parties, The risk of fraud and fraud that may occur on the warehousing side.
In the cross-border payment settlement scenario, multi-party mutual trust of the participating parties such as the payer, the transfer service provider, the bank, and the payee can be established, and information sharing and monitoring synchronization can be realized in the process of performing anti-money laundering and compliance checking, thereby optimizing Process, improve efficiency, and reduce capital cost.
In the digital asset deposit certificate scenario, data assets can be solidified, stored and traced to digital assets, and the ownership of the assets can be protected, which helps to protect property rights and intellectual property rights, and facilitates the trading of digital assets.
In the insurance underwriting claim scenario, the insurance asset information can be managed continuously and authentically, and the information sharing between the insured party, the insurer and the supervisory party can be realized under the premise of protecting privacy, improving business efficiency and safeguarding the rights and interests of all parties.
In the asset securitization scenario, complete information on the underlying assets can be provided, the asset transfer process can be recorded, and information can be synchronized, so that each participant can monitor and confirm the underlying asset value and status, track asset ownership, and avoid “sell more”. .
In the regulatory technology scenario, it can provide direct regulatory information channels for regulators, provide real-time and reliable transaction data records, provide risk warning signals, improve financial data reporting processes, improve regulatory efficiency, and reduce regulatory costs and regulated costs.
Blockchain technology financial applications have begun to bear fruit. Currently, IBM and Ripple launch cross-border payment services based on blockchain technology; Hong Kong Monetary Authority, HSBC, Bank of China, Bank of East Asia, Hang Seng Bank, Standard Chartered Bank and Deloitte jointly establish blockchain trade financing platform; NASDA The block exchange-based securities trading system Linq has provided private equity issuance trading services; the World Bank issued bond bond-i based on blockchain technology, and implemented bond creation, transfer, management processes, and records on the blockchain. Secondary market trading behavior; JPMorgan Chase launched JPM Coin based on blockchain, used as a payment clearing tool for Interbank Information Net (IIN), which links 400 banks with the intent to replace the SWIFT system.
The “Golden Chain Alliance” open source community built by Weizhong Bank can be applied to financial services, supply chain management, social management, sharing economy, property rights protection, charity and other fields. Ant Financial Services builds a “Double Chain Link” blockchain platform, establishes data standards, certification standards and compliance standards, and establishes a smart contract common review mechanism to form an alliance network that can accommodate many participants and protect data security. Wanxiang application blockchain technology to build automotive logistics and petrochemical logistics management and financing platform, to achieve cargo trucks, storage facilities, cargo specifications, quantity identification and real-time positioning, can provide T + 0 supply chain financial services.
National Strategy for the Digital Economy
How to evaluate the current status of blockchain technology and industrial development? My view is: the underlying technology of blockchain is not yet mature, and the technical bottleneck of large-scale and reliable application needs to be broken. We are in a period of significant opportunities for blockchain technology and industrial innovation development. As a technology integration innovation, the blockchain database, P2P peer-to-peer network, cryptography algorithm and other basic component technologies are relatively mature, but must further meet the new requirements of integrated applications; new technologies such as consensus mechanism and smart contracts need to be improved. Gartner, a technology consulting firm, believes that blockchain technology will take another 5 to 10 years to mature.
At present, large-scale application of blockchain technology has not been implemented in various countries. China's blockchain technology research and development is committed to breaking through the bottleneck of large-scale and reliable application. One is privacy computing technology. Under the blockchain consensus mechanism, how to effectively shield sensitive information, improve signature technology, secure computing technology, encryption technology, and trusted execution technology to ensure data security and digital link reliability. The second is the authenticity monitoring mechanism. How to ensure the authenticity and integrity of the data before the uplink, when the blockchain technology is used for traceability of various assets, a closed loop is formed to avoid information distortion and prevent speculation. The third is smart contract technology. How to avoid technical loopholes in smart contracts while implementing controllable business logic corrections and contract upgrades. The fourth is the key technology. Key security is the cornerstone of the blockchain's credibility. In the technical structure of the uniqueness of the private key, how to effectively prevent the private key from being stolen or maliciously deleted, and can remedy the loss and theft of the private key. The fifth is the integration of diversified technology platforms. How to optimize multi-dimensional parallel interaction architecture to achieve more efficient links between participants; how to improve the quality and speed of data processing to achieve ultra-large scale, high reliability and high security requirements.
General Secretary Xi Jinping recently pointed out clearly that the blockchain should be regarded as an important breakthrough for independent innovation of core technologies, clarify the main direction, increase investment, focus on a number of key core technologies, and accelerate the development of blockchain technology and industrial innovation. General Secretary Xi’s speech pointed out the main direction, key path and basic principles of blockchain technology and industrial innovation development from the height of the national strategy of the digital economy.
The implementation of the national strategy for the digital economy should pay special attention to technological autonomy, digital security and institutional innovation.
Second, maintain digital social security. We urgently need to update security definitions, security technologies, security systems, and build a new digital security system. In the economic society of digital links, the spatial distance and time distance between people, between people and between things and things will approach zero. This will provide a wider range of conveniences, and will also bring more immediate dangers, posing a major security challenge. Any application system or any defect or omission in any node of the Internet of Things may directly lead to an accident or a gap of malicious attacks by hackers; due to the high rate and wide coverage of the Internet of Things, a single emergency may occur. There may also be systematic cyber warfare. Security technologies and security systems that have been successfully used in traditional architectures, including those applied to 4G network management technologies and systems, may not be able to adapt to the ultra-scale, ultra-high-speed digital world.
Third, accelerate the innovation of the digital system. China's blockchain financial standardization construction and system construction has just started. The technical standards, safety regulations and certification review systems for blockchain finance are not perfect enough; the laws and regulations on blockchain finance are not clear enough. The International Organization for Standardization (ISO) has established a blockchain and distributed ledger technical committee with 11 research standards covering terminology, reference architecture, privacy and personal information protection, security risks and vulnerabilities. The International Telecommunication Union (ITU) ITU has established a distributed account book technology security related problem group, and 10 research standards are in place, involving security, security threats, and security frameworks. The Institute of Electrical and Electronics Engineers' IEEE standard development focuses on blockchains in the areas of IoT data management, digital asset management, government sector applications, and cryptocurrency. Specifically, we should start with the following three aspects. First, we should speed up the construction of the digital financial system, speed up the establishment of a digital trust mechanism, and promptly formulate digital financial systems such as blockchain financial supervision, digital asset market supervision, digital currency supervision, and legal digital currency issuance. Second, we should pay close attention to improving the technical standards, safety regulations and certification review systems for blockchain finance. Clarify the legal definition of digital assets, clarify the contractual nature and effectiveness of smart contracts, and clarify the responsible entities under the distributed structure and their behavioral norms and regulatory standards. Third, digital finance is bound to further strengthen the globalization of finance. In the construction of the global system of digital finance, China should actively participate in and strive for the right to speak. It is necessary to strengthen international regulatory coordination, promote consensus on supervision, and establish a unified standard for international supervision of digital finance.