Opinion | Zhang Yifeng, Dean of China Banking Technology Institute: Do not think Libra will land soon

Source: China Banknotes Blockchain Technology Research Institute

On January 15th, at the tenth financial innovation and development forum hosted by eBay Finance, a blockchain, and "Financial Finance" magazine agency-"Break the World · Blockchain and Digital Finance Summit", China Zhang Yifeng, president of the Banknote Blockchain Technology Research Institute, personally believes that under the existing international financial regulatory conditions, Libra will not land soon.

In response to open finance, Zhang Yifeng believes that open finance covers user systems, data transfer, financial transactions, and other aspects. In combination with blockchain technology, distributed user identities can be used to open up the user system, and private data can be used to control the flow of data. Open markets for financial asset transactions. Blockchain can become the infrastructure of open finance.

1 With the help of alliance chain technology, blockchain technology has developed rapidly in the financial field

2019 is an unusual year for blockchain development. From the celebration of the tenth anniversary of the birth of the blockchain at the beginning of the year, to the release of the Libra white paper by Facebook in mid-June, the global discussion of blockchain has set off. On October 24, the Political Bureau of the Central Committee collectively learned about blockchain, and promoted a comprehensive study of the application of blockchain in various fields. Through this forum today, Zhang Yifeng talked about some understanding of the future of blockchain and finance.

The 11-year development of blockchain has always maintained a close relationship with finance. Blockchain originated from the exploration of the digital currency field at the earliest time, and its early applications were mainly concentrated in the fields of digital currency (such as Bitcoin) and asset transactions (such as BitShares). A few years ago, when the ICO was the hottest, many blockchains began to be used for illegal financing, and various chaos appeared.

In recent years, the development of blockchain applications has benefited from the rise of alliance chain technology. Makes blockchain technology widely explored and implemented in the field of financial business. For example, the digital billing platform based on blockchain technology that the People's Bank of China started to promote in 2016; the "Forfaiting trading platform" jointly developed by Bank of China, China CITIC Bank, and Minsheng Bank; released by the Digital Currency Research Institute of the People's Bank of China in 2018 Trade financial blockchain platform; a cross-border financial blockchain service platform piloted by the State Administration of Foreign Exchange in 2019. As of the end of last year, the cross-border financial blockchain service platform has launched operations in 17 provinces, cities, and 19 regions across the country, accessing more than 170 commercial bank headquarters, and lending and financing in excess of US $ 12 billion. It can be seen that the application of blockchain in the financial field in recent years has shown signs of increasing business scope, increasing application scale, and gradually advancing rapidly.

But at the same time, the financial industry has been questioning the true value of blockchain technology. Except for those virtual currency speculations and illegal ICO financing, what changes does blockchain really bring to finance? Zhang Yifeng put forward a point: Blockchain provides an important infrastructure for the next stage of financial development-open finance.

2 Blockchain provides an important infrastructure for open finance

What can the blockchain bring? The British "The Economist" magazine published a cover article that year, suggesting that blockchain is a trust machine. Does finance need trust? There is no doubt that almost all financial businesses today rely on trust. Just kidding, if you don't have trust, today users are still willing to deposit money in the bank, which is a question. But is it possible that only blockchain can provide financial trust? Obviously not. Hundreds of years before the birth of the blockchain, the financial industry has long established a traditional trust mechanism. The digital trust of the blockchain provides a new mechanism for future open finance.

Traditional financial trust is built in a relatively closed, closed-loop environment. Financial institutions perform KYC on their users, and manage and manage their own financial services. This depends on the trust mechanism in the traditional closed environment. Today, the development of the Internet, digital technology, and digital industry has reached a new stage. If finance is moving towards a more open environment, what kind of new trust mechanism is needed? New digital technologies that combine cryptography and machine algorithms may be needed like blockchain.

Two key words of today's forum: "Break the World" and "Fusion". Traditional finance is moving towards digital finance and open finance. The future financial business is no longer confined to a fixed place and closed-loop scene. The original boundaries are opened. Data is becoming an important factor. In this process of breaking boundaries and integrating In China, infrastructure needs to be rebuilt. In recent years, distributed commerce and distributed finance, distributed finance, and open finance have often been mentioned. I think their connotations are common.

So what are the characteristics of open finance, and in what ways? Open finance is really a big topic. Today I will only try to make a simple explanation from three aspects.

3 Three characteristics of open finance

The first is the openness of the user system.

The user systems of all financial institutions today are independent closed systems, and even different user systems existed between different internal systems before. Originally, users were mainly users of KYC through their own outlets of financial institutions. With the development of the Internet, they have also begun to use digital signatures, face recognition and other biometric technologies to transform from face-to-face to remote. But in general, it still stays with new technology to maintain the original closed user system. Different user systems within the same financial institution have gradually been integrated and unified, but most of the different financial institutions do not communicate with each other, and those who have formed cooperation are often limited to local areas. Even in the past few years, some people have called on the Internet for a unified application, even if it is only used to manage their different bank cards.

In 2016, when Zhang Yifeng was working on the central bank's digital bill prototype project, he technically designed the use of a blockchain sharing mechanism to enable an enterprise to open an account with a commercial bank. In the alliance, KYC will no longer be repeated, that is, it will obtain the global user identity. Obviously, this method is too crude and ideal. In practice, every financial institution still tends to establish its own closed user system and is unwilling to share user information with other parties. Not only is this problem in the financial field, the entire Internet application ecosystem is facing this problem.

In recent years, a new idea of ​​distributed digital identity based on blockchain has emerged. Instead of forcibly sharing and interconnecting user systems of different applications, instead of giving the user identity to the user, the user autonomously generates a public key based on a cryptographic algorithm. The digital identity of the password is used to request KYC authentication from the financial institution to obtain the corresponding user identity. Through the way that users control their identities, the user system can be opened between different financial institutions and different business systems. This approach has greater openness and scalability, and reduces disruption to existing businesses. In fact, with the development of the Internet of Things, not only natural persons and legal entities, but even devices in the future will also need to have independent digital identities to participate in financial services, and the number will even far exceed the number of users based on natural persons today. The original closed user system must be broken. Distributed digital identity is a possible path to establish an open identity system for people and devices in the digital world.

The second issue is data openness.

The development of digital finance is very important because data has begun to participate in financial business as an important factor of production. But today, there are clearly some problems with the opening and circulation of financial-related data: financial institutions have difficulty obtaining high-quality external data, and it is even more difficult for financial institutions' own data to be authorized and controlled to open under the premise of fully protecting user privacy And circulation. The openness of data is the most critical part of digital finance.

Recently, China Banknotes Blockchain Technology Research Institute and Hangzhou Bank have also discussed the issue of data openness. Commercial banks' data opening faces very direct obstacles: how can the data be truly user-controllable from a technical perspective, and information will not be over-disclosed during use? For example, the proof of assets scenario. Some financial businesses now need to be reviewed by qualified investors to prove that users' assets in financial institutions exceed a certain amount. Commercial banks sometimes have to return to the traditional method of offline paper proof in order to prevent user privacy information from being abused in the process.

The emergence of new blockchain-based privacy credentials has allowed Zhang Yifeng to see a new implementation path. Based on privacy voucher technology, deposit banks can issue digital asset vouchers to users, and this asset voucher can only be applied online by the user and kept in custody. When a third-party financial institution needs to verify the user's asset amount, the user can operate the asset voucher to generate a digital asset certificate and provide it to the third-party financial institution according to the offer conditions of the third party (such as> 500,000). Third-party financial institutions access the blockchain and credibly verify the authenticity and validity of the asset certificate based on cryptography. The entire process does not require a request from the original deposit bank, nor does it reveal the actual assets of the user at the deposit bank. Amount.

With the global emphasis on personal privacy protection in recent years, such as the introduction of the EU GDPR, there has been more and more related research in the academic world. The disadvantages of traditional data openness through data copying have become increasingly apparent. A new technology combining cryptography like this kind of privacy credential can truly realize the data flow between different data parties and different financial institutions that meets reasonable privacy requirements, truly realize large-scale and reliable data exchange, and truly achieve controllable and reasonable Data is open.

Then there is the issue of financial transactions.

In June, Facebook released the Libra digital currency white paper. Zhang Yifeng is not optimistic that Libra can land quickly under the conditions of existing international financial supervision. But one inspiration that Libra brought to Zhang Yifeng was that it proposed a new direction for open finance. A vending machine accepts banknotes, only needs to install a banknote detection module, and does not need to be directly connected to a specific financial institution. After the emergence of electronic payment, vending machines must be connected to a closed payment system in order to accept payment services. In the future of the development of digital currency, whether it is possible to allow payment and return finance to a more open environment and realize point-to-point payment is the inspiration Libra gave us. Of course, this opening must meet the necessary regulatory needs.

Two months ago, former Director Yao also published an article discussing future new types of financial market infrastructure based on blockchain. Based on the blockchain and smart contracts supporting DVP transactions, traditional central securities depository systems, securities settlement systems, payment systems, and central counterparties, these roles may even move towards convergence. Whether blockchain can generate a more open financial asset trading market is an interesting direction.

Finally make a summary:

If the future of finance really reaches that day, blockchain-based distributed digital identities will break the boundaries of the financial institution's user system, and the flow of data to meet personal privacy will become the main way of data openness. A more open financial transaction market will also gradually Formation, at that time, financial institutions became licensed technology companies, blockchain could become an important infrastructure for the financial industry, and the financial system was also built on a more open platform. Perhaps digital finance really arrived at that time.