Mo Xiaokang, Director of the Blockchain and Privacy Computing Research Center: The nuclear power revolution of financial technology in the next 25 years

On July 28, Mo Xiaokang, director of the Blockchain and Privacy Computing Research Center of Beijing Big Data Research Institute, attended the 2021 Zhongguancun Financial Technology and Financial Security Summit and delivered a speech.

The original text of the following speech was provided by Director Mo Xiaokang:

1. Human beings are migrating to cyberspace

The migration of human life to cyberspace (CyberSpace, also translated as information space, or cyberspace) is one of the biggest development trends in the 21st century. Today I want to explore the general trend of the future development of financial technology from this perspective. There will be four observation points: the scientific theory of cyberspace, the engineering technology of cyberspace, the digital gold of cyberspace, and the most important theme: the financial technology of cyberspace.

At the turn of the century about 20 years ago, the largest wave of immigration in human history began, that is, the immigration from physical space to cyberspace. The Big Bang 15 billion years ago created the physical universe in which humans live today. The commercialization of the Internet, which began in 1994, created an important habitat for humans in the future: the cyber universe. The economic activities of human society are migrating from physical space to cyberspace at an alarming speed.

Observe the changes in the composition of the world’s top listed companies in the past 30 years. In 1989, the top 10 companies by market capitalization were: Japan Industrial Bank, Sumitomo Mitsui Banking Corporation, Fuji Bank, Daiichi Kanye Bank, Citibank, General Electric, Tokyo Electric Power, IBM, Toyota Motor, AT&T. In 2021, the top 10 companies by market capitalization are: Apple, Saudi Aramco, Microsoft, Amazon, Google, Facebook, Tencent, Tesla, Alibaba, Berkshire Hathaway, namely 7 information technology companies, 1 An oil company, an automobile company, and an investor Buffett’s company.

At present, everyone’s high attention to the digital economy is also a manifestation of this world trend. A few days ago, at the opening ceremony of the “2021 World Blockchain Conference Hangzhou” held on July 24, I heard some unique views on blockchain development from Professor Li Daokui of Tsinghua University. He believes that in addition to the traditional primary industry (mainly agriculture), secondary industry (mainly industry) and tertiary industry (mainly service industry), there will be a fourth industry in the future. Because in the future, human beings will live more in the digital world. I personally agree with Professor Li’s views. Today, I want to discuss the development of financial technology from a similar perspective.

2. Cyberspace Science and Technology

For hundreds of years, scientists have made in-depth explorations of the natural laws of the physical world, forming important scientific theories such as Newtonian mechanics, electrodynamics, special relativity, general relativity, and quantum physics. Scientific theory is further transformed into engineering technology, which gives humans the ability to accurately manipulate the physical world. Therefore, mankind invented the steam engine, realizing mechanical power instead of manpower. Through the use of electromagnetic force, humans have mastered the long-distance and instantaneous transmission of energy, as well as the wired and wireless transmission of information. In the era of relativity and quantum physics, humans have mastered more advanced technologies such as atomic energy, lasers, semiconductors, GPS navigation, new materials, and quantum communications, and they have become more and more able to control the physical world.

So, does this cyber world, which was born in 1994 (for humans), have its own laws of nature, and the corresponding scientific theories and engineering techniques? My personal opinion is: the basic science of cyberspace is exactly what we call the science of private computing (the term advanced cryptography is more commonly used internationally, that is, advanced cryptography). The basic technology of cyberspace is what is called blockchain today, and it may evolve into a more advanced form of technology in the future. Of course, this is not all, but it should be the most important basis.

Blockchain and privacy computing share a common ideal, which is to build an infrastructure of mutual trust for all mankind, so as to transform the business model (or social management model) based on “indirect trust” for thousands of years into a business model based on “direct trust”. “Trust” business model. Technically speaking, it is to use distributed programs and algorithms to build a complete “direct trust” system to replace the reliance on a trusted third party (Trusted Third Party, TTP).

The above-mentioned grand idea can also be understood as: the rich and barbaric cyber planet (the state of the human internet world today) will undergo a large-scale greening and ecological transformation to make it a civilized planet that is more suitable for human living. The completion of this cyber civilization planet will in turn bring a huge constructive effect to the economic life of mankind in the physical world.

3. Privacy Computing: The Science of Playing Poker on the Phone

To further illustrate this problem, I would like to explain in a few minutes what is privacy computing. Let us return to the source of this subject, the famous MIT paper published in 1979 by the inventors of the RSA algorithm, Shamir, Rivest and Adleman: Mental Poker. The abstract of this paper reads: Can two potentially dishonest players play a fair game of poker without using any cards (eg over the phone)? Can two players who may be dishonest complete a fair game of poker without using any cards (that is, on the phone)?

We all know that two chess masters can play chess without a board. If one is in Beijing and the other is in Shanghai, they can play chess on the phone without the help of any person or material. But what if the two poker masters are in Beijing and Shanghai respectively, can they play cards on the phone? Think about it, is this possible? Playing cards means that two people need to complete the actions of shuffling, drawing, and playing cards. How can this be done on the phone? What the two people can do on the phone is to talk to each other, you say one sentence, I say one sentence, you say another sentence, I say another sentence. No third person is allowed to help, nor is it allowed to use any physical devices.

Take shuffling as an example. When two people have a physical card, shuffling is a sequence of randomly creating 52 cards, and the information of this sequence is kept secret for both parties at the same time. If two people can only talk on the phone, how do they create the sequence of this deck of cards? If they can really create this sequence, then this information must be included in the content of the dialogue between the two parties. But in that case, how can this information be kept secret from both parties? Through this dialogue, both parties have to create an objective existence, but at the same time confidential information for both parties. This sounds like a fantasy.

But what is shocking is that these three cryptographers and mathematicians really did this. Based on the RSA algorithm they had discovered before, they constructed such an interactive protocol (ie a set of specific dialogue rules), so that both parties can really complete a fair game of poker through a magical dialogue. To outsiders, this is a bit like the description in “The Emperor’s New Clothes”, as if there is an “invisible card” to help them complete the game.

In my opinion, this is a great scientific discovery. Although not as famous as Einstein’s theory of relativity, it is likely to have the same groundbreaking significance. From here was born the science now called “privacy computing”. Since then, the well-known Chinese scientist Mr. Yao Qizhi further raised the problem of millionaires in his 1982 paper: Can two millionaires be able to judge who is richer through dialogue with each other, but they cannot disclose each other how much money they have , The most important thing is that you can’t rely on the help of a third party. He then put forward a more general problem of secure multi-party computing and found a genius solution, which made the science of “privacy computing” officially enter the room.

Like the science of the physical world, privacy computing, as the science of cyberspace, and the engineering technology developed from it, also gives humans the ability to accurately manipulate the cyber world. With the help of these technologies, humans can construct equivalents of various things that people are familiar with in the physical world in the cyber world. To cite the simplest example: the gold that corresponds to the physical world can be used to construct the gold of the cyber world. And this is just the beginning, just the tip of the iceberg.

4. Digital gold in cyberspace

According to research by physicists, after the Big Bang gradually cooled down, hydrogen was first produced, and the hydrogen gathered under the action of gravity to produce stars. Large stars further evolve into neutron stars, and then through the collision of neutron stars, gold elements are produced. With its rarity and other good physical properties, gold has become the most trusted commercial value medium and carrier in human history.

So how will the gold of cyberspace be practiced? The human cyber world, which was born in 1994, is growing explosively in scale and carrying great commercial value, but at the same time it is also a barbaric place lacking internal order. The emergence of the blockchain in 2009 showed people the possibility of building a new internal order in the cyber world. This is also the first step in cyber alchemy. However, the Bitcoin that it produces is technically lacking one of the most important attributes of physical gold: anonymity.

In 2013, privacy computing research achieved an important technological breakthrough, and the Pinocchio protocol with zero-knowledge proof was proposed. In 2016, a group of imaginative scholars and related technical teams realized the Zcash protocol in engineering and made it run on the line, thus constructing the equivalent of physical gold in cyberspace for the first time. We can regard it as a kind of cyberspace. gold. It has no issuer, no manager, and its circulation process can be completely anonymous, that is, only the parties know about it, and no one else can see it. Just as physical gold only follows the natural laws of the physical world, cyber gold only follows the mathematical laws of the cyber world.

Here, we do not evaluate the social significance of this invention. Any technological invention may be used by humans for constructive or non-constructive purposes. Our focus here is to pay attention to its huge technological innovation and its potential power to change the world in the future. The realization of Cyber ​​Gold is just a small preview of this potential power.

V. Fintech in Cyberspace

Corresponding to the traditional financial technology in the physical world, does Cyberworld have its own financial technology? I personally think that the advent of the blockchain in 2009 is exactly the start of cyberspace financial technology. The successful launch of Zcash in 2016 further showed us the depth of cyberspace. It can do things we can’t imagine, or think it seems impossible.

The explosion of DeFi (distributed finance) in 2020 indicates that cyberspace financial technology has entered a new period of rapid development. In the cyberspace, it builds banking services without banks, including mortgage loans, multi-currency transactions, transactions of various complex financial products, and so on.

Technically speaking, it gives people such hope: through algorithms and programs, it is possible to break through the limitations of various human nature (possibility of doing evil) and the limitations of human organizational structure (resistance, inefficiency, etc.). The operating efficiency of the system has been increased by hundreds to thousands of times. And its overall transparency and supervisability, early prediction and efficient management and control of financial risks are also difficult for traditional financial technology to achieve. If in the next 5-10 years, in the virtual cyber world, such a new type of financial technology will gradually grow, what will it be? I think it will not only be content to entertain itself in the virtual world, but will definitely return to the real world, and it will be related to traditional financial business and real human economic activities, and unprecedented new chemical reactions will occur. Gradually realize in-depth integration. At that time, how should our traditional financial technology respond?

6. 2050: Prospects for Fintech

Looking back at the impact of Internet technology on the world in the past 30 years, we might as well look forward to the next 30 years. How will the new generation of Internet technologies represented by blockchain (including artificial intelligence, big data, cloud computing, Internet of Things, etc.) change the world in the future?

Here I would like to express a little personal opinion, please correct me if there is something wrong. My opinion is: The first Internet revolution that started in 1994 built a global interconnection infrastructure and technically solved the problem of global human information interoperability. The blockchain technology (and privacy computing technology) that emerged in 2009 is triggering the second Internet revolution. By 2050 (or earlier), it will build a global mutual trust infrastructure to technically solve the problem of global human business mutual trust. The entire “Internet” will be fully upgraded to a “mutual trust network.”

The main function of this infrastructure is to enable any two (or more) strangers in the world to instantly establish full commercial trust. This kind of trust is not based on one party’s ethical expectations of the other party, nor is it based on the traditional “Trusted Third Party (TTP)” (that is, the middleman guarantee model), but on a huge network built with distributed algorithms and programs. It makes doing evil on the Internet extremely costly and almost infeasible. This will fundamentally change the “indirect trust” business model based on TTP for thousands of years, and evolve a new business model based on “direct trust”.

Recall the story of Kodak: With the popularity of digital cameras, film is no longer needed. A huge business empire collapsed almost overnight and ceased to exist. When “direct trust” is gradually popularized, “indirect trust” will no longer be needed. What kind of transformation is needed for those TTPs that traditionally provide “indirect trust” as their main business?

So who are these TTPs? At present, the world’s largest TTP may be the dollar system. When China and Russia do business, why can’t they use the renminbi or the ruble, and instead use the U.S. dollar? This is where TTP is strong, but at the same time it is also vulnerable. If Chinese and Russian companies can easily establish “direct trust”, they can completely avoid using US dollars.

What is finance? The most important function of finance in the traditional sense is to provide indirect trust for parties that cannot directly trust each other. People with money want to borrow money, and people who need money want to borrow money. But they can’t do this business directly because they lack mutual trust. In the past, banks, bank accounts, and various financial institutions in modern society played the role of TTP to a large extent. So by 2050, what will the financial business of traditional financial institutions be like? What kind of transformation do they need to make? And what kind of changes need to happen to the financial technology that accompanies it? I think there is a big unknown space here, waiting for us to explore and discover together.


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