Source of this article: "China Finance" No. 4 2020
Author: block chain research group, "members of the group: Gang Lu Mu Changchun Di Qing Mehsud was far Friends of money," People's Bank of China Digital Monetary Institute
General Secretary Xi Jinping emphasized "taking blockchain as an important breakthrough in independent innovation of core technology", and put forward new requirements for the development of China's digital economy and industrial innovation practice. In recent years, with its unique trust transfer mechanism, the blockchain has gradually become a popular technology in the financial technology field, which helps to trust the sharing of business data, accelerate the collaboration between participating parties, and achieve regulatory penetration management. Digital transformation and the potential to stimulate the development of the digital economy. In order to fulfill the instructional spirit of General Secretary Jinping, the Digital Currency Research Institute of the People ’s Bank of China (hereinafter referred to as “Digital Research Institute”) strengthened the basic research and standard development of blockchain technology, and successively promoted the digital bill trading platform and the People ’s Bank ’s trade and financial block. The chain platform was built and landed to seize the first-mover advantage and made positive progress. At the same time, in order to resolutely win the three major battles, the in-depth investigation and research on the prevention of chaotic phenomena such as asset bubbles, malicious speculation, and token financing and their derived financial risks caused by the blockchain, and the promotion of the blockchain Thoughts and suggestions on the healthy and orderly development of the industry.
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Technical characteristics of blockchain
Blockchain is a new type of distributed database, also known as a distributed ledger. Blockchain technology uses a block chain structure to verify and store data, uses consensus algorithms to generate and update data, ensures data and ownership security with the help of cryptography, and implements collaborative calculation of data through programmable script code.
- The main advantages of blockchain technology
The first is the credibility of business data. Different from traditional distributed databases, the blockchain introduces the concept of "everyone keeps accounts". Each participant has the right to keep accounts, and everyone keeps the latest books and all historical records. This highly redundant storage method of data can enhance the transparency of information between non-trusting subjects, realize tamper-proof data and leave traces throughout the process, and then promote multi-party information sharing and collaborative operations. In actual business, through the chaining of business data, the electronicization of paper documents and the credibility of electronic information can be achieved, reducing the cost of distrust between multi-agents, and solving the traditional business method, which consumes a lot of manpower and material resources for documents and bills. The issue of authenticity audit also facilitates financial institutions to implement risk management and control.
The second is the equalization of participating subjects. When building information systems across departments, the biggest problem is which organization or department manages the centrally stored data. The blockchain's unified distributed ledger technology naturally solves the "business sovereignty" problem, effectively achieving identity parity, power parity, responsibility parity, and benefit parity among each participating entity, and among all participating entities. The real-time synchronization of data is updated, which makes cooperation more convenient and faster, and the enthusiasm of partners is enhanced.
The third is multi-dimensional supervision. Regulatory departments can add regulatory nodes on the blockchain platform to obtain regulatory data in a timely manner, and flexibly customize the statistical caliber of financial supervision, the granularity of regulatory data, etc. to achieve rapid analysis. At the same time, the use of programmable scripts such as smart contracts to increase the corresponding regulatory rules. The focus of supervision has gradually increased from the compliance review and risk management and control of financial institutions to the identification and monitoring of systemic risks to achieve the entire process before, during and after the event. Supervision system to effectively prevent financial risks and maintain financial stability.
- The main shortcomings of blockchain technology
In terms of performance, the performance and scalability of the blockchain is still limited. In the blockchain, transactions can only be queued and processed in order, and all transaction results and payment records must be synchronized to nodes on the entire network, which seriously affects the system's processing performance (in a production environment, the blockchain system can process more than one thousand per second Transactions; in an ideal laboratory environment, transactions may exceed 10,000 transactions per second). As the number of participating nodes increases, the overhead of data synchronization and verification increases, and the performance of the system will be further reduced, thereby affecting the scalability of the blockchain.
In terms of security, the blockchain lacks systematic security protection. First, the blockchain generally uses core components such as cryptographic algorithms, virtual machines, and smart contracts. These components are not completely autonomous and controllable, increasing the risk of attack. The second is that the blockchain has endogenous security defects, that is, the 51% attack problem (that is, rewriting the blockchain data by mastering 51% of the computing power. When the 51% attack is mentioned below, it is based on computing power and equity Proof-of-Consensus Blockchain). Third, the blockchain is still in its early stages, and there may be unknown vulnerabilities in security. When security problems occur in traditional systems, cancellation, withdrawal, emergency intervention or even out of service can be used. However, the blockchain does not support related operations such as cancellation and withdrawal.
In terms of storage, the full backup storage mechanism is prone to encounter storage bottlenecks. Each node of the blockchain needs to store complete historical transaction information. When the blockchain is used in a retail payment system, the amount of node storage will expand instantly and massively. For example, during the "Double Eleven" in 2019, the peak value of the network-connected processing business was 71,500 transactions per second, and some simple devices could not meet the node's storage requirements.
In terms of interaction, the interactivity of different blockchain systems is difficult to solve. At present, relying on customized communication protocols between the same types of blockchains, data can be read, verified, and manipulated. However, due to the inconsistencies in programming languages, data dictionaries, system interfaces, and smart contracts between different types of blockchains, cross-chain data is difficult to communicate with each other, which easily leads to business fragmentation.
In terms of operation and maintenance, business continuity cannot be underestimated. Blockchain systems that are collectively maintained by multiple parties will also pose huge challenges. For example, members joining / withdrawing, system upgrades, business rule updates, etc., currently lack mature standards, systems and operating specifications, and multi-party offline communication is required to deal with collaborative governance issues on the chain.
In terms of compliance, blockchain cannot guarantee the finality of settlement. Due to problems such as 51% attacks, blockchain-based payment systems cannot guarantee settlement finality. When building a payment system based on the blockchain, you need to consider whether to meet the requirements of the Principles of Financial Market Infrastructure (PFMI) to avoid legal risks.
In terms of functions, the decentralized nature of the blockchain conflicts with the centralized management requirements of the central bank. The payment service provided by the central bank cannot leave the centralized account arrangement and needs to be built on a centralized system, which conflicts with the decentralized nature of the blockchain. Therefore, it is currently not recommended to transform traditional payment systems based on blockchain.
Application areas of blockchain
The blockchain at the cost of synchronous storage and co-calculation of a large amount of redundant data, sacrifices system processing efficiency and some of the customer's privacy, and is not yet suitable for high-concurrency scenarios such as traditional retail payments; however, it requires higher levels of trusted information sharing For areas with low concurrency requirements, such as transaction settlement, trade finance, and property rights transfer, blockchain has been widely used. As a major breakthrough in independent technological innovation, Blockchain has been researching fiat digital currencies since 2014, actively promoting the standardization of blockchain, and exploring blockchain financial innovation in areas such as transaction settlement and trade finance.
The first is to lead the development of industry standards for financial ledger. The Institute has taken the lead in compiling a number of financial industry standards such as financial distributed ledger security specifications, and has actively participated in the development of relevant rules of international financial standard-setting organizations such as the International Bank for Settlement (BIS) and the Financial Stability Board (FSB). The development of blockchain standards such as the International Organization for Standardization (ISO) and the International Telecommunication Union (ITU). Currently, the People's Bank of China has applied for a number of blockchain patents, ranking first among global central banks.
The second is to build the PBC's trade finance blockchain platform. The platform was successfully launched in Shenzhen on September 4, 2018, and has successively launched four businesses: supply chain account receivables multi-level financing, external payment tax filing form, rediscount fast track and international trade account supervision. By signing a memorandum of cooperation with the Hong Kong Monetary Authority's trade linkage platform, the People's Bank of China's trade finance blockchain platform has opened up an international connection. In the future, it will unite similar overseas trade gold platforms to jointly build an ecological system. As of December 17, 2019, there were 38 banks participating in the promotion and application of the platform, and the business volume exceeded 87 billion yuan.
The third is to build a digital bill trading platform. In 2017, the Shanghai Stock Exchange and the Digital Research Institute jointly led the work related to the construction of a digital bill trading platform based on blockchain technology. The platform was successfully put into trial operation on the experimental production system on January 25, 2018, and successfully completed the digital bill issuance, acceptance, discount and rediscount services based on blockchain technology. It is the application of blockchain technology to bill business in China. First practice in a real production environment.
Hidden risks associated with blockchain
Asset bubbles and financial risks from crypto assets. Blockchain-based crypto assets cannot guarantee the stability of their anchored assets, or even lack the endorsement of real assets. They are mainly speculative transactions. Some market makers and speculators manipulate the prices of crypto assets by means of counterattacks and other methods, resulting in sharp market fluctuation And form an asset bubble. As of the end of September 2019, the number of crypto assets including Bitcoin has reached 2,417, with a total market value exceeding US $ 219.2 billion. At the same time, some dark web trading websites use crypto assets to carry out money laundering, bribery, tax evasion and tax evasion, terrorist financing and other illegal crimes. The hidden risks are greater.
Financial chaos, such as speculation, token financing, and deception, have made a comeback. For a period of the second half of 2019, many listed companies have disclosed the actions or intentions of "on-chain" in order to attract hot spots. Blockchain concept stocks have been hot for a while, and there has even been a frenzy of more than 100 stocks in daily turnover. Tends to be calm and rational, these stocks have fallen sharply, and they have stopped falling, and many blindly chasing investors have been trapped at high levels. At the same time, the wind of token financing (ICO) has revived, and some institutions have run away after raising funds, and investors have suffered heavy losses.
Blockchain's difficult to tamper with constitutes a major test of public opinion control. Blockchain technology stores information on multiple servers in a decentralized manner, and its "difficult to tamper" technical characteristics will cause information to persist on the chain, conflicting with the "right to delete" and "right to correct" in the protection of personal information. You may even encounter the problem of uploading harmful information on the chain.
Guide the healthy and orderly development of the blockchain industry
The first is to disguise the truth, and "coin" and "chain" cannot be confused. Although blockchain originated in Bitcoin, blockchain is not the same as Bitcoin. Blockchain is an integrated innovation of a variety of traditional technologies such as cryptography, peer-to-peer networks, and consensus mechanisms, which must be treated objectively and rationally. In order to resolutely win the three major battles, we must maintain a high pressure on illegal fundraising, fraud and other illegal activities under the guise of blockchain, and accelerate the survival of the fittest and turmoil in the market.
The second is to push forward pragmatically, not to carry out image projects for the blockchain. Believe in the role of any advanced technology, but don't superstitize it. Correctly understanding the applicable scenarios of blockchain technology, not all projects need blockchain, and not all data need to be chained. At this stage, blockchain technology is still immature and faces multiple challenges, such as performance, security, standards, and compliance. All parties should calmly think and explore with all their heart to make effective use of blockchain to resolve industry pain points and serve the real economy in depth.
The third is to take a long-term view and recognize the systemic, long-term, and complex characteristics of the application of blockchain technology. At present, whether the blockchain can achieve on-chain and off-chain account compliance and security compliance is the focus of industry attention. Participants should comprehensively consider the requirements of multiple dimensions such as market development, risk management and control, legal compliance, etc., to achieve on-chain and off-chain linkage, technology and business integration, and innovation and management, so as to give full play to the "blockchain +" digital empowerment. Energy potential.
The fourth is to advance the standards and guide the orderly development of the blockchain industry. Take full advantage of the experience and lessons learned from the special rectification of Internet financial risks, avoid "polluting first, then treating", and especially pay attention to the possible impact of external risks on financial security. The formulation of technical standards and business specifications can enhance China's right to speak internationally and formulate rules in the field of financial blockchains. It is conducive to clarifying the "right and wrong" and "authentic applications" of the blockchain, and is conducive to maintaining market order and Financial stability promotes the healthy and orderly development of the industry.