How will blockchain reshape everyone's life?

"Blockchain is great. It creates conservation on a network where information is not conserved. In the past, people only did trivial things online, but with blockchain technology to carry value, we can do a lot of serious things," said Bai Shuo, former chief engineer of the Shanghai Stock Exchange.

In June this year, the listed company Luyitong planned to invest 3 billion yuan to acquire Canaan Creative, a mining machine manufacturer, which attracted market attention. The "blockchain" technology behind it has also gradually occupied the podiums of major forums. Recently, the Shanghai National Accounting Institute Alumni Sharing Conference specially invited Bai Shuo, the former chief engineer of the Shanghai Stock Exchange, to share the principles, applications and challenges of blockchain technology face to face with the alumni of the financial industry of the college. The Shanghai National Accounting Institute also hopes to provide a knowledge sharing and communication platform for alumni through the mechanism of alumni sharing.

Understanding blockchain from the application side

The most well-known application of blockchain is digital currency, including Bitcoin and Ethereum issued by private individuals. Li Lihui, head of the blockchain research working group of the China Internet Finance Association and former president of the Bank of China, calls it "self-circulating currency", which is still in a state of no country, no supervision, and no legal responsibility. "Its main operating mechanism is decentralization, anonymity, integrated issuance and maintenance, and liberalization of cross-border circulation." Bai Shuo said. "Issuance and maintenance integration, we call it subjective for ourselves - mining, and objective for others - bookkeeping."

Corresponding to the IPO in the capital market, there is also ICO (Initial Coin Offering) in the field of virtual currency. Participants invest in Bitcoin and obtain project tokens, and the value of the tokens depends on the subsequent development and design of the blockchain project. Internationally, in 2014, Ethereum created a record of raising more than 30,000 Bitcoins through ICO, which is the most successful ICO in the past two years and the blockchain project with the highest market value besides Bitcoin so far. In my country, Antminer was the first to complete the first round of ICO, raising 2,100 Bitcoins, worth about 4 million yuan. "The legal status of private digital currency is unclear, and it is easy to be associated with illegal fundraising. The reason why it has room for survival now is that it has not yet been recognized as a currency, but just a commodity. Then ICO is hoarding commodities, not illegal fundraising." Bai Shuo said.

Above the “self-circulating currency” is the higher level “digital currency bound to legal tender”. It has no independent exchange rate and is similar to the settlement reserve in the capital market. The next level is “legal digital currency”, which is led by the central bank and has legal effect.

Another application of blockchain is "rights registration and transfer". Bai Shuo said that the easiest application of blockchain technology is various "points" because the supervision is relatively weak. However, in reality, "points" are more like superficial articles, and merchants do not want to use up these dormant points.

Another major category of rights and interests includes common equity, debt, futures and options contracts, fund shares, financial products, etc. Dai Wenhua, general manager of China Securities Depository and Clearing Co., Ltd., once said that in view of the existing laws, technologies and risk control, blockchain technology can start from regional, new third board, non-trading aspects, and then embed into the existing system, rather than replace it. Bai Shuo also believes that blockchain is expected to be the first to make a breakthrough in the over-the-counter market.

In the public sector, the application prospects of blockchain are also promising. Bai Shuo shared a scenario, such as file downloading, in the fragment sharing order: Family A has two pieces 4 and 6, Family B has two pieces 2 and 3, and Family C needs to download all 1-6, initiate a download request, and after matching by the content sharing service, generate a request on demand and share 1 and 5 from Family D, and finally record and pay. "Ordinary people serve each other, or share fragments, or share broadband, and then record accounts separately."

The prospect of blockchain investment is not optimistic

"Blockchain is great. It creates conservation on a network where information is not conserved. In the past, people only did trivial things on the Internet. With blockchain technology to carry value, many serious things can be done." Bai Shuo also listed the challenges facing blockchain, "For example, to cancel a transaction, you need to reverse an already completed transaction. The completed transaction was issued with someone else's private key and has fallen into someone else's pocket. If he is unwilling to use the private key to spit it out, there is no way. If this knot cannot be untied, blockchain will be difficult to implement in China's capital market. There are many similar problems that need to be overcome one by one."

"The same goes for privacy. There are fundamental solutions as well as stopgap measures. We have proposed a stopgap solution that can withstand the test of time, and we will pilot it in a relatively important financial institution in the near future," said Bai Shuo.

Regarding the performance issues that were once widely questioned, Bai Shuo said that they have been continuously optimized. "Blockchain technology is developing too fast. Some people say that it changes three times a day. Just when you want to criticize it, it disappears immediately. There is no target for criticism."

Looking at the entire blockchain industry, it includes technology providers for institutions, service providers for industries, and equipment providers for the public.
The blockchain technology development path outlined by Bai Shuo covers three levels:

"We have seen a phenomenon that private digital currencies have already established a firm foothold in the currency field and are developing towards the asset side and non-financial side with their own currencies, platforms and communities. In addition, we also need to apply the technology platform to the main battlefield without currencies or communities. Everyone knows why Deloitte is so keen on blockchain. It may be intended to change the auditing industry." Bai Shuo analyzed, "If a new technology can be applied to such a complex group of people without any loopholes, then this technology is quite reliable. My suggestion for supervision is to let the private sector test the waters first, keep some running water for innovation, and then apply it to the main battlefield after the experiment."

Bai Shuo said that he is optimistic about the application prospects of blockchain. "Looking at the history of currency development, it took thousands of years to complete centralization and decades to start decentralization. There must be an internal law to form such a big trend."

However, he is not optimistic about the investment prospects of blockchain. "Startups that rely on pure technology will definitely fail. First, there is no technical barrier, and second, the profit margin in the operation and maintenance link is not large. In the future, we are still optimistic about leading enterprises, which can integrate the industrial chain, have rich application scenarios, have a steady stream of customers, and are not short of money, so they can continue to buy technology and teams. When start-ups encounter various bottlenecks, leading enterprises will reap the benefits."