Da Hongfei: In the post-epidemic era, why is blockchain important as a financial infrastructure? Author: distribution of Hongfei Technology founder and CEO

Summary of main points

1. In the post-epidemic era, the anti-globalization trend has led to a decline in international macro policy coordination power and the global industrial chain division of labor is facing reorganization. Technological innovation will become the main driving factor in the new cycle. Regardless of providing a new international collaboration paradigm empowered by technology, or as part of a new infrastructure technology stack, the application of blockchain has huge potential.

2. Blockchain, as a new technological infrastructure, will provide a landing path for the data element market in the era of digital economy. Its core value comes from data credibility and value sharing. Today, when platform-based institutions isolate and monopolize data, blockchain will bring new opportunities to the digital economy.

3. Blockchain, as a financial infrastructure, provides a penetrating underlying framework for supervision. As central banks’ CDBC and large-scale financial institutions’ experiments with distributed platforms continue to advance, blockchain’s application model innovation and supervision The adaptive rules will enter accelerated development.

4. The formulation of general technical standards, the maintenance of market openness, and the neutrality of institutionalized supply are crucial to maintaining market vitality and innovation activity in the initial development of blockchain industrialization.

The adjustment of the anti-globalization industrial chain in the post-epidemic era

The rapid evolution of the new crown epidemic has had a wide range of social and economic impacts on a global scale. The most obvious manifestation is that the development of the global political and economic structure inevitably stagnates in the short term, and multiple links in the global industrial chain are blocked, which intensifies trade protectionism and industry. The trend of solidification and dispersion within the chain is rising against the trend of globalization. In today’s world, serious antagonisms and conflicts in terms of race, culture, and religion are becoming the biggest hidden danger that has long-term damage to mutual trust between nations, and restricts institutional cooperation between nations and economic globalization.

When facing the current predicament, we review the process of globalization, which reflects the evolution of the main driving factors at different stages, from economic factors and security factors to the promotion of emerging technologies. Blockchain technology has changed the way of business cooperation and decision-making, and has provided more possibilities for business cooperation. Innovation will become a rigid need for industrial recovery, and blockchain can become a natural solution to the “trust problem”, which is even more important in the current environment. Blockchain is promising in many situations where there is a need for trust.

Blockchain will be an integral part of the new infrastructure

“At the National Development and Reform Commission’s press conference on April 20, 2020, the National Development and Reform Commission introduced that the new infrastructure mainly includes three aspects: information infrastructure, converged infrastructure, and innovative infrastructure. Among them, information infrastructure includes 5G, Internet of Things, The communication network infrastructure represented by the industrial Internet and satellite Internet, the new technology infrastructure represented by artificial intelligence, cloud computing, and blockchain, and the computing power infrastructure represented by the data center and intelligent computing center.”

We have begun to look forward to a new digital world driven by technologies such as artificial intelligence, big data, 5G and blockchain. With its unique inherent characteristics, once the key issue of trust is resolved, we believe that blockchain will become the core technology component in the next wave of globalization.

If the blockchain is regarded as an “operating system”, its technical architecture itself has a strong “infrastructure” attribute, which determines that the blockchain can become an important facility to support multi-party interactive collaboration and sharing. With the in-depth application of industrial blockchain in traceability, medical treatment, government affairs, bills, and supply chains, the blockchain will be more deeply coupled and even reshape the existing collaboration and interaction modes.

In the exploration of industrial blockchain, we believe that the core value that blockchain will create comes from credible data and open circulation. The first is to generate credible basic data based on electronic certification on the blockchain . The second is based on new infrastructure such as blockchain distributed storage . Data on the chain cannot be tampered with, providing strong proof of existence of electronic information, orderly circulation of data, realizing credible digitization, giving value to data, and creating a credible digital economy The new ecology reduces the cost of trust and provides new opportunities for entrepreneurship and innovation.

As the focus of economic reform gradually shifts from the supply side to the demand side, blockchain plays a role in reshaping industrial production methods and factors, but also at the demand level. In the digital economy, digital identities will serve as the anchor point for data confirmation, integrating and making full use of trusted computing, secure multi-party computing, cryptographic algorithms, biometrics and other information technologies to jointly establish a sound and secure diversified identity authentication system , Enriching digital verification methods, ensuring the traceability and non-tampering of the financial transaction process, and improving the authenticity, confidentiality and integrity of financial transaction information.

From financial technology, to technology finance, to open finance

As the basic protocol of the digital economy era, blockchain is used in the industry to provide solutions for achieving openness and credibility. In the financial sector led by institutions, blockchain provides the possibility of using shared infrastructure to reduce technical expenditures and operating costs. Sex.

“Open Finance”-Open source financial service infrastructure based on public blockchain may be the next major digital financial form after FinTech. This openness is reflected in the rational use of scientific and technological means to enrich financial service channels, improve product supply, reduce service costs and channel barriers, optimize financing services, and improve financial service quality and efficiency. In 2018, people’s vision for open finance is still limited to the banking system to provide users and companies with more investment and service channels by sharing data; and in 2021, the U.S. Office of the Comptroller of the Currency (OCC) has issued a guidance document that allows the banking industry to publicize An explanatory document for the inclusion of blockchain networks and digital tokens in the scope of operations, allowing banks to deploy businesses on existing public blockchain networks.

In the evolution of supervision, we can see the changes in the path of technology and finance integration and the dynamic adjustment of supervision, that is, when new technologies are systematically spread from the introduction stage to the expansion stage, the existing social framework and regulatory model are uncomfortable. And coping. Whether it’s the application of new technologies based on existing frameworks to repair, or finance actively participates in the application of new technologies that are beginning to take shape, the combination of technology and finance aims to provide the public with more inclusive, more efficient and lower Worn financial services.

The evolution process of the integration of financial and technological innovation is also full of efficiency and openness. The original intention of fintech is to describe the adaptive innovation of the financial system in the wave of digital economy transformation, and the role of financial entities is still concentrated in traditional institutions.

Financial services in the Internet era, with the support of big data, AI and cloud computing, provide a new way to tap and serve the scattered long-tail financial needs. This kind of financial service-oriented and advanced technological means to users Data is analyzed and modeled, and the way to improve capital utilization efficiency and risk control capabilities has evolved into technology finance. At this time, the role of financial subjects has overflowed from traditional institutions to Internet companies, the boundaries of industrial division of labor are gradually blurred, and the definition of financial services cannot be separated from conventional businesses.

Combined with the popularization of mobile Internet, the product form of technology finance is close to the user’s usage habits, with a huge user base, or user access is more direct and easy, the development of technology finance enterprises has quickly reached an impressive scale. However, as the scale effect and head effect of platform-based companies become more and more significant, the default attributes of “fair competition” and “information sharing” in the Internet era have gradually become pain points. Monopoly, isolation and information black boxes have become constraints to the continued growth of technology finance.

A few days ago, the State Administration for Market Regulation issued the “Guidelines for Anti-monopoly in the Field of Platform Economy (Draft for Comment)”, which also means that the anti-monopoly clarion call in the field of Internet platform economy has finally sounded. Based on the risk control mechanism of supervisory efficiency, improving the comprehensive supervisory capability of the market has become an important issue in the development of finance and technology.

The contradiction lies in the fact that platform enterprises have achieved a considerable degree of centralization through long-term accumulation of resources, while forming strong internal advantages and external barriers. On the other hand, platform companies that also have their own “infrastructure” attributes operate in an absolute center and achieve monopoly, which poses corresponding challenges to market competitiveness and regulatory effectiveness.

In order to achieve the ultimate goal of open finance, the underlying platform needs to have certain open attributes, and more participants can be introduced to jointly build infrastructure, without non-technical elements as the main barrier; at the same time, it needs to have information transparency, verifiability, Auditable specifications and cannot be tampered with. The underlying protocols of the blockchain are very consistent in these attributes, which is why the blockchain is gradually becoming an important underlying technology supporting financial infrastructure.

The top-down blockchain application and standard-setting pace are also accelerating. On February 5, 2020, the People’s Bank of China issued the first financial blockchain standard specification “Financial Distributed Ledger Technology Security Specification”, which clarified the financial compliance standards of blockchain technology. Distributed ledger technology is a distributed infrastructure and computing paradigm formed by the high integration of multiple core technologies such as cryptographic algorithms, consensus mechanisms, peer-to-peer communication protocols, and distributed storage. The integration of the blockchain will also provide a technical path for supervision. The supervision based on the blockchain can flatten the ideas of governance and code some regulatory rules. Regulators can require the regulatory rules to be incorporated into the blockchain to achieve Coding of regulatory rules. The technical characteristics of the blockchain can help supervision achieve penetrating, coordination and innovative management mechanisms.

It is imperative to promote blockchain as a financial infrastructure

Although the application model of blockchain in the current technological development stage to deal with the digital transformation of the industry is still in the groping stage, the current blockchain new infrastructure is still small in scale, but the inter-regional chain is optimizing the mobile payment technology architecture system and providing services Value carrier tools with transparent and effective review capabilities, reducing the cumbersome process of clearing and settlement and cross-border payments, and ensuring the transparency, irreversibility and traceability of information play an important role, making legal digital currency projects and large-scale finance led by central banks Institutions have joined the application trial.

With the orderly implementation of the DCEP pilot nationwide and the launch of the BSN network, the realization of the blockchain as the infrastructure of the digital economy is accelerating, and the application path of the blockchain is gradually clear. Payment and settlement, loan financing, and transaction settlement from the perspective of the financial sector; trusted digitization, data sharing mechanisms and digital identities from the perspective of the data element market, and from the perspective of open collaboration; realization of the interconnection of heterogeneous networks and strengthening of the region The interoperability of each ecology of the blockchain connects the digital infrastructure of the non-chain structure.

In addition, institutionalized supply is very important in the development period of technological innovation. On the one hand, the national innovation-driven development strategy represented by new infrastructure provides a rare historical opportunity and institutional space for the application of blockchain. On the other hand, it needs to be relieved. Make a balance between risks and maintaining market mechanisms. The premature clear distribution or directional tilt of institutionalized supply among market entities may cause difficulties in market entry and unsustainable establishment of newly established institutions, resulting in a new monopoly by a few institutions. This obviously goes against the original intention of the blockchain technology architecture.

In the future supervision and industry guidance framework, adaptive adjustments will be made based on the technical attributes of the blockchain, the establishment of a long-term mechanism for the prevention and control of security risks of the blockchain, the research and formulation of the governance system and standards of the blockchain, and the regular organization of the Investigate the links of risk events to ensure the security of data assets such as identity, property, accounts, credit, and transactions, combined with the overall design of international supervision cases, so that regional cross-chains can exert greater energy under the new infrastructure.

Author/ Translator: Tae Kon Jung