What impact does blockchain have on the financial sector?

Cao Huining:What we are mainly discussing today is the impact of blockchain on commercial banks. Let me start with a little bit of discussion.

First, in terms of application, many people think that the blockchain has a great impact on the banking field, because banks are doing intermediary business, and the blockchain uses machines to generate trust through distributed bookkeeping, so many transfers and transactions Trust does not need to go through commercial banks. However, commercial banks still have certain other functions. They can define good companies and bad companies, as well as manage risks.In terms of transaction credibility and convenience, part of the transfer function may be replaced by the blockchain, and the intermediary business of the bank (the part that requires the trust of the transaction) may be replaced by the blockchain. In other respects, commercial banks can still provide some functions. .

In addition, the simplest model of a commercial bank is to invest depositors’ money and generate interest spreads to obtain profits from it. This is one of its most important functions. Others, such as some self-operated businesses and channel businesses of commercial banks, can also earn some money. profit. Therefore, the impact of the blockchain on the loan business is that in the future, if the debts of many small and medium-sized enterprises can be converted into assets through tokenization, commercial banks can also invest in tokenized assets for asset management in the future.

In terms of lending, on the one hand, everyone deposits money through the trust provided by the bank. In addition, in the debt model, the bank itself can also turn its products into tokens in the future, and the liquidity will become better.

In my opinion, the impact of blockchain on commercial banks: one is transaction trust, and the other is liability and asset certification. Professor Hu Jie, what do you think of the application of blockchain, especially in finance.

Hu Jie:I am very glad that Henry (Professor Cao Huining) and I are old friends, and the form of this interaction is also very novel. I also thought about the relationship between blockchain and commercial banks, and I understand it this way.

First of all, the impact of blockchain itself on the financial industry is self-evident, because it is a public ledger. In fact, the banking industry, or the financial industry in a broad sense, is doing business around the ledger. The ledger sets up an account for each person. The so-called transfer and distribution of money is the digital change between the accounts, so it is viewed from a mechanical point of view. Features at the operational level. So now the blockchain also generates a ledger. In the past, this account book was kept by one person, but now the blockchain account book is kept by everyone. The way everyone keeps it together will definitely have a lot of impact on the entire financial industry.

I will not expand on it, but just talk about it in general. Let's come back to the topic we care about today, commercial banks.The business of commercial banks can be simply described in three words: deposit, loan and remittance.Remittances need to be processed in the middle of deposit collection, loan lending, and process. Remittance is the intermediary business mentioned by Henry (Professor Cao Huining). Let's see how blockchain technology can help these three businesses one by one.

First of all, it is obvious in the "remittance" section. Sometimes a remittance, especially a cross-border remittance, involves four or five financial institutions.Any business that involves multiple entities, I think blockchain has advantages.Because when a matter requires everyone to cooperate, it needs to keep an account. Now if we use the blockchain to do it, and the accounts are recorded in a public place, then it can indeed improve a lot of efficiency. So I think the "remittance" of the three businesses of deposit, loan and remittance will definitely change a lot. I believe this.

As for deposits and loans, we will look at them one by one. The core of the loan business is to evaluate the credit of the loan object. What impact will the introduction of the blockchain business have on the credit evaluation? Many people think that lending entities, such as companies, will put their business information on a blockchain-built ledger for some reason. It's possible, but it's not an easy thing to do. Because it is a big challenge for a company to put the core transactions on it and make the information transparent. It has to weigh the pros and cons. When the information is transparent and the availability and authenticity of the company itself are improved, it will definitely help the loan business, but how much this help will be implemented in the actual banking business still needs to be considered. This is the loan aspect.

Cao Huining:Then let me add that in addition to trust, there is also the concept of tokens in the blockchain. There is also asset securitization business in banks, that is, after assets come in, they are turned into securitization in order to increase their liquidity. That is to say, some assets are automatically certified through the blockchain, which can save the bank from doing asset securitization again, so this can be considered.I think that in addition to credit enhancement in the blockchain, asset tokenization increases liquidity, which can also be used by commercial banks in the future.

Hu Jie:Yes, I totally agree with this. Let me talk about the impact of blockchain on deposits. I think its impact on deposits is marginal. For example, in terms of account opening, it will be more convenient, because the current bank account opening system is still relatively complicated. The reason why deposits exist, I think, is to bring together private funds. Why collect it? There are actually many mismatches between funds from idlers to users, from depositors to lenders. For example, there are issues such as amount mismatch, term mismatch, risk mismatch, investment professionalism, time, etc., which cannot be solved by the holders of scattered funds and idle funds themselves, but must Entrusting funds out is the basic reason for deposits. Therefore, blockchain technology cannot directly solve the problem of configuration. In the future, some people will still collect funds. It doesn't matter whether it is called a deposit or something else.Finally, let’s look at the three businesses of commercial banks—deposit, loan and remittance. I think each of them may be affected by blockchain technology, but we need to look at each item’s specific impact.

How to combine traditional banks and blockchain?

Cao Huining:How to combine traditional banks and blockchain is also an interesting question. We just talked about remittances. We know that Ripple, the second largest digital currency in the blockchain, is doing remittances between banks. Although I think the bubble is also big, I don't like Ripple very much. It is a very centralized model, but it is a blockchain that can really be applied now. This is what Ripple does better.

There are also traditional banks, such as Goldman Sachs, JP Morgan, and many domestic banking institutions, which are also vigorously researching blockchain. Many of their current specific businesses are the part of asset securitization that I just mentioned. For example, the management of commercial paper in China has been relatively chaotic for a period of time. After the commercial paper is certified through blockchain technology, management is relatively more convenient through distributed ledgers.

However, for traditional banks to issue tokens, due to regulatory reasons, both China and the United States are more cautious. butAfter money laundering and KYC identity authentication are determined in the future, I think traditional banks can do asset tokenization under supervision. For example, assets can be tokenized through STO.

Therefore, from two perspectives, traditional banks are afraid to actively participate now. The key lies in supervision. However, after the regulatory regulations come out, there is still a good prospect in asset tokenization; If a technology company is actively involved in the banking business, it may be similar to Ripple, which has some advantages in remittance. But as Professor Hu said,For credit analysis of loans and professional risk management, traditional banks still have great advantages. This is my opinion.

Usefulness of blockchain technology in the financial industry

Hu Jie:I often joke that we see blockchain technology because Bitcoin draws our attention to blockchain technology. The subsequent series of developments triggered by Bitcoin have given us three good things, which I jokingly call "three legacies": one is the public ledger, and this public may be for the whole world, or it may be a local or a group The public ledger between people and a group; the second is the equity certificate. Many features of equity certificates are particularly good, and it is very convenient to trade; the third is smart contracts. If smart contracts are used to assist ledgers, many things can be simplified and automated. If these three things are used in our industry, I think there may be three types of usefulness that are relatively clear.

The first is anti-counterfeiting traceability.Once the public ledger is introduced into the field that requires anti-counterfeiting, is it possible to use the public "notepad" to record what everyone needs to know, and to cheat? It's still possible, but harder. Of course, this does not mean that the introduction of blockchain will definitely solve the problem of anti-counterfeiting and traceability.

The second is the expression and transaction of rights and interests.When finance does not have blockchain technology, the introduction of securitization has brought many benefits. For example, housing loans in the United States began to be explored in the 1960s and 1970s, flourished in the 1970s and 1980s, and then the particularly developed mortgage securitization of loans has also greatly changed the US construction industry. Securitization turns loans from non-standard assets into standardized securities, and can classify and classify securities to introduce different types of investors. This is what happened in the past. Today, with blockchain technology, securitization has become very simple. Let's take a non-financial example, the timeshare of a house, you have a sea view room, I have a mountain view room, we divide it into 365 shares, one represents one day, then we put it on the Internet, use Expressed in tokens, it is easy to trade. There are many financial assets and non-financial assets that can be expressed in tokens. This is convenient for everyone to communicate, trade, configure, and form their own optimal combination. I think this area has great potential.

A third application area is collaboration, especially cross-company collaboration.At present, cross-company collaboration is mainly bound by contracts. But in fact, if various companies, entities, and individuals are connected with public ledgers, public notebooks, or blockchains, the collaboration between them may become more efficient and smooth. For example, e-commerce is a large-scale collaborative business activity, and it is only through the cooperation of many people that such an ecology can be built. But now the e-commerce collaboration is organized by a centralized leader, such as Alibaba, Airbnb and Uber. But if we say that we use the blockchain to build a public ledger, and then build a supporting system on it, then many buyers and sellers can cooperate on it.

At present, the additional value generated by aggregation, such as cooperation, is taken away by the platform side. In fact, since it is the extra value generated by the gathering of everyone, it is also a way of thinking to share it with the gatherers themselves. So you can imagine that in the future Ali's shares will be dispersed among the so-called buyers and sellers.Share rights may be carried by certificates, and then distribute certificates to everyone according to certain rules, that is, "business is mining". Everyone comes to do business, and the benefits and value generated are passed on to everyone through tokens.These are the three aspects above.

Cao Huining:In addition to commercial banks, blockchain has a great impact on other businesses in the financial industry: insurance, asset management, and securities industries. For example, the insurance business can actually be carried out through the blockchain.For example, if mutual insurance can be carried out through the blockchain, many insurance premiums can be reduced, or the problem of platform running away can be avoided.For example, if life insurance is done in the field of mutual aid, it is relatively convenient for everyone to put assets in a public account and then automatically deduct them from it.

Blockchain has a lot of implications for exchanges right now too. Now that miners are dying, exchanges make the most money in the blockchain industry. They generally obtain high profits through listing fees, withdrawal fees, and commissions. Interestingly, exchanges are now centralized, and in the future there will be centralized exchanges and decentralized exchanges, which is equivalent to complementing each other, which can reduce the profits of centralized exchanges.

In addition, blockchain has a great impact on asset management. We know that a large number of studies in the United States have shown that many funds are not very useful, and basically the sum of profits is not as good as the market. In the future, idle funds can be directly converted into index funds through the blockchain, and then after the index funds are certified, they can be traded in the blockchain. This piece has great prospects.

Hu Jie:For example, the insurance business is indeed a business that cooperates with multiple parties. From product design, product investment, claims settlement, service to sales, the business of insurance is actually very different. These different businesses are all coordinated by an insurance company, but in fact there are many links in which the whole society can cooperate.It is conceivable that if the blockchain is used to coordinate what everyone wants to do, then many tasks that are currently coordinated by large insurance companies can be broken down.Mutual insurance is actually like this to a certain extent. Because it is a mutual aid type, then professional sales will be diluted, because everyone undertakes the sales task to a certain extent. If claims can also be coordinated through the Internet, the insurance business can be done in a hurry. In the past, claims were sort of like a black box where you had to trust the insurance company. Well, now if a lot of information is made public using the blockchain, then everyone can collaborate without relying on the insurance company itself.