In recent years, with its unique trust transfer mechanism, blockchain has gradually become a hot technology in the field of financial technology, which helps to share business data reliably, accelerate the multi-party cooperation of participants, and realize supervision penetration management. It contains the potential to accelerate China’s digital transformation and stimulate the development of digital economy. The digital currency Research Institute of the people’s Bank of China (hereinafter referred to as “the Institute”) has strengthened the basic research and standard development of blockchain technology, successively promoted the construction and landing of the digital bill trading platform and the trade and financial blockchain platform of the people’s Bank of China, seized the first mover advantage, and made positive progress. At the same time, in order to resolutely win the three major battle, we made a thorough investigation and Study on the financial risks of asset bubbles, malicious speculation, token financing and other derivatives that may be triggered by the block chain, and put forward some suggestions for promoting the healthy and orderly development of the block chain industry.
Technical characteristics of blockchain
Blockchain is a new type of distributed database, also known as distributed ledger. Blockchain technology uses blockchain structure to verify and store data, uses consensus algorithm to generate and update data, uses cryptography to ensure the security of data and ownership, and realizes data collaborative computing through programmable script code.
Main advantages of blockchain Technology
One is business data trustworthiness. Different from the traditional distributed database, the blockchain introduces the concept of “everyone keeps accounts”. Each participant has the right to keep accounts, and everyone keeps the latest account book and all historical records. This kind of highly redundant data storage method can enhance the information transparency between untrustworthy entities, realize that the account data can not be tampered with and left traces in the whole process, and further promote multi-party information sharing and collaborative operation. In the actual business, through the business data link, it can realize the electronic of paper documents and the credibility of electronic information, reduce the friction cost of mistrust between multi-agent, solve the problem of traditional business methods that consume a lot of human and material resources to audit the authenticity of documents and bills, and also facilitate the implementation of risk management and control by financial institutions.
Second, the participants are equal. When building information system across departments, the biggest problem is which organization or department manages the centralized data. The unified distributed ledger technology of blockchain naturally solves the problem of “business sovereignty”, effectively realizes the identity equivalence, power equivalence, responsibility equivalence and interest equivalence of each participant, and realizes the real-time synchronous update of data among all participants, which makes the cooperation more convenient and efficient, and improves the enthusiasm of partners.
Third, the means of supervision are multidimensional. Regulatory authorities can add regulatory nodes on the blockchain platform, obtain regulatory data in time, and flexibly customize the statistical caliber and granularity of financial regulatory data to achieve rapid analysis. At the same time, programmable scripts such as smart contracts are used to increase the corresponding regulatory rules. The regulatory focus is gradually rising from the compliance review and risk control of financial institutions to the identification and monitoring of systemic risks, so as to realize the whole process of supervision system before, during and after the event, effectively prevent financial risks and maintain financial stability.
Main deficiencies of blockchain Technology
In terms of performance, the performance and scalability of blockchain are still limited. In the blockchain, transactions can only be processed in order, and all transaction results and payment records have to be synchronized to the nodes of the whole network, which seriously affects the processing performance of the system; In an ideal laboratory environment, the number of transactions per second may exceed 10000). With the increase of the number of participating nodes, the overhead of data synchronization and verification will increase, and the performance of the system will be further reduced, which will affect the scalability of the blockchain.
In terms of security, blockchain lacks systematic security protection. First, the blockchain generally adopts the internationally used core components such as cryptographic algorithm, virtual machine and smart contract, which are not completely autonomous and controllable, increasing the risk of attack. Second, the blockchain has an endogenous security defect, that is, 51% attack problem (that is, rewriting the blockchain data by mastering 51% computing power). When 51% attacks are mentioned below, they all refer to blockchains based on consensus algorithms of computing power and proof of rights and interests). Third, blockchain is still in its early stage, and there may be unknown vulnerabilities in security. When the traditional system has security problems, it can be cancelled, withdrawn, emergency intervention or even stop service. However, blockchain does not support cancellation, withdrawal and other related operations.
In terms of storage, the storage mechanism of full backup is easy to encounter storage bottleneck. Each node of the blockchain needs to store complete historical transaction information. When the blockchain is used in the retail payment system, the storage capacity of the node will expand instantaneously. For example, in the “double 11” of 2019, the peak value of network connection processing services is 71500 transactions per second, and some simple devices can not meet the storage requirements of nodes.
In terms of interaction, the interaction of different blockchain systems is difficult to solve. At present, the same type of blockchain can read, verify and operate data with each other relying on the customized communication protocol. However, due to the inconsistency of programming languages, data dictionaries, system interfaces and smart contracts between different types of blockchains, cross chain data is difficult to communicate, which easily leads to business fragmentation.
In terms of operation and maintenance, business continuity should not be underestimated. The blockchain system maintained by many parties will also bring great challenges. For example, member joining / quitting, system upgrading, business rule updating, etc. currently, there is no mature standard, system and operation specification, and multi-party offline communication is needed to deal with the problem of collaborative governance on the chain.
In terms of compliance, blockchain cannot guarantee the finality of settlement. Due to 51% attack and other problems, the payment system based on blockchain cannot guarantee the finality of settlement. When building a payment system based on blockchain, we need to consider whether it meets the requirements of the principles of financial market infrastructure (pfmi) to avoid legal risks.
In terms of functions, the decentralization of 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 the centralized system, which conflicts with the decentralized characteristics of the blockchain. Therefore, it is not recommended to transform the traditional payment system based on blockchain.
Application fields of blockchain
Blockchain is not suitable for high concurrency scenarios such as traditional retail payment, because it costs a lot of redundant data synchronous storage and common computing, and sacrifices the system processing efficiency and part of customer privacy; However, blockchain has been widely used in areas with higher requirements for information trusted sharing and lower requirements for concurrency, such as transaction settlement, trade finance, property rights transfer, etc. As an important breakthrough for independent technological innovation, the Institute of digital research has started to study legal digital currency since 2014, actively promote the research on blockchain standardization, and explore the financial innovation of blockchain in the fields of transaction settlement and trade finance.
One is to take the lead in formulating the industry standard of financial distributed ledger. The Institute has taken the lead in the preparation of a number of financial industry standards such as the security specification for financial distributed ledgers, and actively participated in the formulation of relevant rules of international financial standard setting organizations such as the bank for International Settlements (BIS) and the Financial Stability Board (FSB), as well as the development of blockchain standards such as the international organization for Standardization (ISO) and the International Telecommunication Union (ITU). At present, the people’s Bank of China has applied for a number of blockchain patents, ranking first in the world.
The second is to build the trade finance blockchain platform of the people’s Bank of China. The platform was successfully launched in Shenzhen on September 4, 2018. It has successively carried out four businesses: multi-level financing of supply chain accounts receivable, tax filing form of external payment, rediscount fast track and supervision of international trade accounts. 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 an international docking. In the future, it will cooperate with similar overseas trade finance platforms to build an ecological system. As of December 17, 2019, 38 banks have participated in the promotion and application of the platform, with a business volume of more than 87 billion yuan.
Third, build a digital bill trading platform. In 2017, the Shanghai Securities Exchange and the Institute of Statistics jointly led the construction of a digital bill trading platform based on blockchain technology. The platform was successfully put into trial operation in the experimental production system on January 25, 2018, and successfully completed the digital bill issuing, acceptance, discount and rediscount business based on blockchain technology, which is the first practice of applying blockchain technology to the real production environment of bill business in China.
Potential risks related to blockchain
Asset bubbles and financial risks brought by encrypted assets. Encrypted assets based on blockchain can not guarantee the stability of its anchored assets, or even lack of real asset endorsement. They are mainly speculative transactions. Some makers and speculators wantonly manipulate the price of encrypted assets by means of knockout, which leads to drastic fluctuations in the market and the formation of asset bubbles. By the end of September 2019, there are 2417 kinds of encryption assets, including bitcoin, with a total market value of US $219.2 billion. At the same time, some dark net trading websites carry out money laundering, bribery, tax evasion, terrorist financing and other crimes by encrypting assets, which has great potential risks.
Taking advantage of the opportunity to speculate, to raise funds with token, to cheat investors and run away, and other financial chaos have made a comeback. For a period of time in the second half of 2019, many listed companies revealed their actions or intentions of “going on the chain” in order to catch the hot spots. Blockchain concept stocks were hot for a while, and even there was a frenzy of trading more than 100 stocks in turn; As the market tends to be calm and rational, these stocks have fallen sharply, falling to the limit one after another, and many blindly chasing investors have been locked in high positions. At the same time, the wind of token financing (ICO) revived, some institutions ran away with money after raising funds, and investors suffered heavy losses.
The difficult tampering characteristics of blockchain form a major test for public opinion control. Blockchain technology decentralizes the storage of information on multi-party servers, and its technical characteristics of “difficult to tamper” will lead to the persistent retention of information on the chain, conflict with the “deletion right” and “correction right” in personal information protection, and even encounter the problem of harmful information on the chain.
Guide the healthy and orderly development of blockchain industry
First, we should eliminate the false and retain the true. We should not confuse “currency” with “chain”. Although blockchain originated from bitcoin, it is not the same as bitcoin. Blockchain is an integrated innovation of cryptography, peer-to-peer network, consensus mechanism and other traditional technologies, which should be treated objectively and rationally. In order to win the three major battles, we should keep a high pressure on illegal fund-raising, fraud and other illegal activities under the guise of blockchain, and speed up the survival of the fittest in the market.
Second, we should promote it in a pragmatic way. We should not engage in image engineering for the sake of blockchain. We should believe but not believe in the role of any advanced technology. To correctly understand the application scenarios of blockchain technology, not all projects need blockchain, and not all data need to be chained. At this stage, the blockchain technology is still immature, facing challenges in performance, safety, standards, compliance and other aspects. All parties should think calmly and explore with great concentration, effectively use the blockchain to resolve the industry pain points, and deeply serve the real economy.
Third, we should be based on the long-term and recognize the systematic, long-term and complex characteristics of the application of blockchain technology. At present, the focus of the industry is whether the blockchain can achieve the consistency between the account and the reality on and off the chain, as well as the security compliance. All parties involved should comprehensively consider the requirements of market development, risk management and control, legal compliance and other dimensions, and realize the linkage between on chain and off chain, the combination of technology and business, innovation and management, so as to give full play to the digital enabling potential of “blockchain +”.
Fourth, we should put standards first and guide the standardized and orderly development of the blockchain industry. We should fully learn from the experience and lessons of the special rectification of Internet financial risks, avoid “pollution before treatment”, especially pay attention to the possible impact of external risks on financial security. The formulation of technical standards and business norms can enhance China’s international discourse and rule-making power in the field of financial blockchain, help clarify the “right and wrong” and “true and false application” of blockchain, help maintain market order and financial stability, and promote the healthy and orderly development of the industry.
Editor in charge: CT