On June 28th, Innovation Leads, “Chain” Connects to the Future – Blockchain Technology Application Conference in Jiangbei New Area and Signing Ceremony of Wanxiang Blockchain Joint Stock Company was held in the Central Business District of Jiangbei New Area. Xiao Feng, Vice Chairman and Executive Director of China Wanxiang Holdings, Chairman and General Manager of Wanxiang Blockchain, was invited to deliver a speech on how the new digital finance can lead the digital advancement of economy and society and serve the digital economy and society.
The following is the full text of the speech compiled according to the on-site stenography, slightly abridged.
I am honored to have the opportunity to communicate with you in Jiangbei New Area. I am very grateful to all the guests who have just witnessed the official settlement of Wanxiang Blockchain and the three laboratories of Wanxiang Blockchain in Jiangbei New Area. Just now, Luo Qun mentioned in his speech that the positioning of Jiangbei New Area is “two cities and one center”, and the center refers to the new financial center. Today, I would like to share with you some personal views on new finance and digital finance.
Recently, I have been thinking about the topic of “What kind of finance is the new digital finance”, and I have studied a lot on the Internet and read some books. However, I think these study materials and books do not make the new digital finance clear and simple enough, so I will try to summarize it more simply.
My first view: the new digital finance must be based on a completely new social platform and infrastructure. Therefore, new finance and digital finance should be finance on the “value network”. I divide the evolution of network platforms in the past 100 years into three stages. First, there was the communication network phase, then the information network phase, which was born in the middle of the last century due to the development of computers and the Internet. Today, with the gradual maturation of technologies such as blockchain, the phase of value networks is beginning.
In the communication network stage, it was because of the telegraph and telephone that there were truly modern companies like AT&T. AT&T was initially based on the communication network and was so large that it felt like it could stand, but then it was broken up because of an alleged monopoly. Now, both in China and in the United States, there are discussions about how to limit the boundaries of the Internet platform and its ubiquitous “tentacles,” as was the case at the end of the communications network phase, when AT&T was split up.
The advent of the communications network era has increased the convenience of communication and dramatically reduced the cost of communication. Business happened as a result, and not only did companies like AT&T, GM, and GE emerge, but people began to be able to build networks based on communications technology.
There was a telegraph before there was a railroad network, and before there was a telegraph the railroads could not be dispatched. The contribution of information technology to U.S. GDP began with the telegraph, because with the telegraph, the entire railroad network was built. After the railroad network was built, a second network, the media network, emerged in the United States. Before the telegraph, it was difficult to get a New York newspaper to Washington, D.C., Boston or Philadelphia on the same day, and the Wall Street Journal you read in Philadelphia might be 3-5 days old. With the telegraph, the New York Times was able to send news stories to its Washington, Boston, and Philadelphia branches for printing and sale the same day, and the same was certainly true for the Washington papers.
Do not underestimate such networks, which brought physical distances quickly closer together. Based on communication networks and communication platforms, commerce was transformed. The decline of Britain stemmed from a weakening of relative power, and the United States took over world dominance from Britain. The telegraph was invented in Britain, but Britain did not enter the communication era in the first place, while the United States kept up with the times at this time and productivity increased dramatically.
In the middle of the last century, computers and the Internet were born in the United States, and the United States continued to lead global innovation while global computer and Internet companies emerged. In the Internet era, information networks dramatically changed many businesses, and many large Internet platforms emerged, bringing the cost of information processing down to freezing while also dramatically improving the efficiency of information processing.
The Internet era has seen many business changes, and the most significant business change has resulted in the birth of Internet platforms. After two or three decades of development, the Internet era also faced the same problem as the communication network era – Internet giants. At the beginning of this century, a new network platform was quietly born, with cloud computing, AI, and especially blockchain technology, which are slowly moving towards application. I believe the impact of this platform of value network on business and the future business results created is no less than the previous network platform.
The main feature of the value network is to minimize the cost of trust on the business platform and to raise the efficiency of trust to the highest. In the era of value networks, two unfamiliar organizations or people can easily go to complete a business transaction or establish a business relationship. Communication networks bring down the cost of business transactions and communications, information networks bring down the cost of information, and value networks bring down the cost of overall business transactions. As a result, two new phenomena have emerged in business networks, one of which is the “eco-attractive organization”, or eco-business model. Two or more organizations are able to cooperate on the blockchain without equity relationships or mutual acquaintance, or even the need to make competitive or backward transfers, or to rely on intermediaries. Based on this technology you can obtain ecological benefits and create an ecological business model.
The other is decentralized self-organization based on blockchain technology, also known as DAO, which no longer needs to deal with business, commerce, transaction, and exchange in the form of a company. At present, the application of value networks is still experimental, but more than a decade of experiments are enough to prove that these things are “alive”. What we need to consider next is how we can transform, optimize and iterate the business organization and forms based on blockchain technology that are truly beneficial to our human society. Digital finance or digital new finance is a new finance based on value networks and built to serve ecological business models or self-organized business organizations.
New finance and digital new finance are not built to serve traditional business models, business forms, business organizations, and business activities, but because new things evolve in business with economic development that require a new economic and financial service model. The new financial service model is first based on a new financial network platform, which is the first view I share with you.
The second observation: the account model on which the new digital finance is based is completely different from traditional finance and the finance that people are familiar with now. So far, there are three different stages of the account model. The earliest is the familiar and currently commonly used bank account. Your money, salary and bonus are placed in a bank account, and the bank strictly supervises the account. But what you usually use most frequently is not a bank account, but Alipay or WeChat payment. Alipay and WeChat Pay are Internet accounts, which means that changes in amounts are recorded in WeChat and Alipay accounts not in the way banks keep accounts but through Internet platforms.
Three years ago, before the central bank required all Internet platforms or third-party companies to subject their users’ assets to central bank supervision, assets were secured by Internet finance outside the bank account system. Because of the Internet and information networks, financial services are integrated into more and more scenarios.
When we have payment needs such as shopping online, it is difficult to exit the Internet platform and then log in to our bank accounts and pay with them because the asymmetry of information and funds makes it difficult to achieve instant payment. Third-party payment companies such as WeChat Pay and Alipay can be fully integrated into an application or demand scenario to meet the demand for fast, convenient and secure payments.
It is now safe to manage assets through Internet payment platforms because when the regulation of Internet financial order was carried out, the central bank required that all reserves be supervised by the central bank. Being supervised by the central bank is different from being supervised by a bank. If you put your money in the central bank, the central bank will not fail, your money is kept by the central bank, your money must be there. That’s not the case with banks. Your money is in the bank, and the bank relies on its balance sheet to do a leveraged business. Banks around the world are the same, when it goes bust you only get the amount of deposit insurance. In the U.S. it is $250,000 and if a bank fails and you are a customer of that bank, when you deposit more than $250,000, the bank does not guarantee compensation for deposits over $250,000. If the bank can afford it, it will pay out, if not it will be insured by the federal deposit procedures to pay out $250,000. If your money is at the Federal Reserve, the Federal Reserve will definitely give you that your money is 100% safe.
Even if banks strictly regulate accounts, Internet accounts have other risks. Blockchain technology brings a third account model that is different from Internet accounts, namely blockchain digital accounts. From a technical point of view, blockchain is not an account model, so there are some voices that resist blockchain digital accounts. Blockchain digital accounts use cryptographic algorithms, and even though your money is in the contract, it is still in this account, which is an account that manages money and records it. Digital accounts are a new opportunity for banks as central banks’ digital renminbi becomes more common. Anyone who wants to provide new financial or digital services needs to first consider how to cross over to Internet accounts and better build digital accounts into their services to provide digital account-based financial services to their customers.
Banks are getting beaten at this stage of Internet accounts. Although maintaining a bank account system, when it comes to scenario-based finance eventually, users are not using the bank account system to make Internet payments, but using Internet accounts to make payments. With the promotion of the central bank’s digital currency, financial institutions are not based on the traditional bank account system, but on the blockchain digital account system to reconstruct the technical basis for serving customers.
The foundation of digital accounts is the shift of account model. You can no longer use the bank account system for digital financial services, but provide new financial services based on a new account model. Digital accounts provide a new opportunity for banks to promote digital RMB, and for financial institutions, licensed financial institutions and banks to get back what they lost in the Internet stage and may be able to get back in the blockchain digital account stage.
The third observation: digital new finance not only has a different account model, but the bookkeeping method has also changed. The new digital finance based on blockchain, its bookkeeping method – distributed bookkeeping has two biggest features. First, your account is not kept by you, but by all the nodes of the blockchain on the network, i.e. your account is not kept by one person, but by the whole network together. This makes the act of bookkeeping feasible and untamperable, for example, a company’s financial manager cannot tamper with the company’s financial accounts. Therefore, we presuppose that the books kept by others and the books kept by the whole network are irrevocable, true, accurate, and untamperable, and that any changes need to be made by the whole network. The practice of “no evil” is Google’s business guideline, and the blockchain common bookkeeping and other people’s bookkeeping is not only self-restraint not to do evil, but impossible to do evil. This bookkeeping model does not do evil, because it is impossible for one person to decide how to keep the books.
Distributed bookkeeping is a decentralized approach. When it comes to decentralization, people may wonder if it would be politically incorrect or why it must be decentralized, etc. You can do your best to keep your own books and make sure you do not lie, but it is difficult to gain the trust of others. The so-called decentralization is actually a governance mechanism.
Building trust and cooperation with strangers in a complex economic environment at low cost requires decentralized governance mechanisms, i.e., consensus in a community or ecosystem to agree on something. Consensus is always slow, for example, it takes a long time to reach the consensus that “the blockchain can only be built by all the people in the room today working together”. Not everything in the world requires efficient or fast decisions. There are many things where slow is fast and slow is good.
When the previously mentioned business models (ecological business models and self-organized business organizations) are built based on blockchain, their governance must be achieved through consensus. Consensus is a decentralized, bottom-up, spontaneous mass movement. If you need high efficiency and fast decision making in business activities you can use centralized approach. The characteristics of decentralization are nothing but the pursuit of fairness and efficiency, and we find a balance point within such a boundary.
There is an opportunity for digital new finance now, that is, the central bank starts to offer legal digital currency. The so-called digital new finance should serve digital organizations, new economic organizations, models and business models, which need to use digital means to provide services. If not, it would be “reinventing the wheel” to use a Western proverb. Traditional finance already covers traditional economic organizations, models, and industries, plus Internet finance covers more comprehensively, I think there is no need to invest more resources and energy to recreate a new system to continue to serve these organizations and industries. There must be new needs, scenarios and business models that require digital finance services, and digital finance will come into being.
Therefore, the new finance must be the new digital finance, and the new digital finance must have a new organizational form, which is different from the traditional financial institutions, and is largely a distributed self-organization of peer-to-peer, and the smart contract based on blockchain replaces many contracts of financial intermediaries. When traditional financial institutions do digital new finance, they must first find their own digital survival model, that is, how to provide new financial services in a digitally productive way to serve these new economic organizations. This brings some questions to the digital generation and digital production of financial institutions: what does digital generation mean? What is meant by digital production? What is the path of digital production and digital generation to take?
I personally see the overall economic and social digitization as three stages. The first stage is the digital twin, which digitizes the physical world, the real world, and reconstructs a digital real world. The twin is because there is a real world, a real existence, a physical existence, and then the establishment of a digital existence, these two one-to-one correspondence, this is the first stage of digitalization.
The second stage of digitalization is called digital native, which means creating a new, digital result or world that the real world does not have. Digital native is parallel to the real, physical world. Digital native has come to the fore in the last few years, and it is a new trend that deserves our attention. As an example, a few weeks ago, Tsinghua University accepted virtual humans as first-year undergraduates for admission. This is a virtual human called Hua Zhi Bing, based on Microsoft’s Xiao Bing and created through a three-way collaboration between Beijing Zhiyuan AI Research Institute, the Zhipu AI team and Xiao Bing. She is now at the level of a first-year student enrolled in Tsinghua University and can draw, write poems, and also write novels. Tsinghua University hopes that when she graduates in four years, she will actually be at the level of a Tsinghua graduate. This is the digital native, the digital world from nothing to something. The parallel world of digital primordial is getting stronger and stronger, and it will definitely affect our real world in turn.
The third stage is called virtual reality. In such a digital process, the digital economy has a very broad prospect. Blockchain technology is the “steel” and “cement” of digital financial services for the digitization process of human society and economy, and is the infrastructure on which new digital financial services need to rely in the digitization process.
The digital things themselves cannot be seen and touched, they are a string of numbers on the network, and they can be easily copied by others or spread at “zero cost”, while blockchain technology can give digital things a confirmation of property rights. Only blockchain technology can give uniqueness and certainty to digital things, so that all things in the digital world have physical properties and physical sense similar to “table” and “chair” in the real world, which is a reflection of the value of blockchain application.
From digital twin to digital native and virtual reality, we must rely on blockchain to give uniqueness and certainty to those invisible and untouchable digital universes. If the ownership and uniqueness are ensured, we will use can these things to exchange, trade, mortgage, borrow and lend, and digital finance is thus born.
These are some of my personal views on digital finance, I welcome your criticism and correction, thank you!
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/wanxiang-blockchain-xiao-feng-what-kind-of-finance-is-the-new-digital-finance/
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