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Li Lihui: The attitude of developed countries to virtual currency is changing
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Li Lihui: The attitude of developed countries to virtual currency is changing

Recently, the Hongfan Institute of Law and Economics held a seminar on the theme of “ BlockchainFinancial Application” in Beijing. The seminar was led by Li Lihui, the former president of the Bank of China and the head of the Blockchain Working Group of the China Internet Finance Association. Mr. Li Lihui made a share on the application of blockchain finance and the development and supervision of virtual currency.

The blockchain and blockchain finance 

The blockchain is a data link composed of information blocks. It is a combination of various technologies, and is a time-series chained data structure; it is based on The real-time operating system of the consensus algorithm; there is a rule-based generation and execution of smart contracts; the other is a point-to-point network based on encryption algorithms.

For some people, blockchain is understood as a “second-generation Internet.” When we talk about blockchain finance, I think it is the application of blockchain technology in the financial field. It is different from the general blockchain. I think the key words of blockchain finance are “scale” and “reliability”.

In other areas, it may not necessarily emphasize scale, and it will be lower in terms of reliability requirements. However, I think that when we discuss blockchain finance, scale and reliability should be the most important aspects. The Three Key Points of 

Blockchain Finance 

1. Can Decentralization and Distribution Realize Large-Scale 
Blockchain? There are specific backgrounds for the emergence of technology. Everyone here may also be quite clear. One is the background of sociology, the other is the background of economics, and the other is the background of political science.

From the perspective of political science, there has long been a fruitless and anarchist anarchy. Blockchains are applied to such typical initial cases or scenarios as Bitcoin and Ethereum , and they use a decentralized and distributed book structure.

According to my understanding of this structure, it has high hardware requirements. The first is that huge amounts of data storage require huge space; the other is that the synchronization of data requires high-speed networks; the third is that each node’s operating capacity must be up to standard and balanced. I think that compliance and balance are necessary.

In addition, frequent transactions require huge amounts of electricity. Many experts have a lot of calculations in this area. Therefore, I think that such a decentralized structure is basically suitable for self-organizing, cross-regional, and small-scale “virtual communities.” This applies to bitcoins, which have relatively low traffic and a few transactions per second.

However, the financial applications of any new technology must focus on scale and reliability. When we talk about finance, it should have two major characteristics. Here we need to emphasize: First, financial transactions have high frequency, Multi-platform features. For medium-frequency financial scenarios such as bills, supply chain finance, asset management, etc., the peak of its transaction is hundreds of requests per second. Bank cards, foreign exchange transactions are tens of thousands of pens per second. VISA, Master, and China UnionPay can handle more than 60,000 transactions per second.

Able to do millimeter-level Alipay, may now be hundreds of thousands of transactions per second. The other is that financial transactions, whether they are products or services, are usually cross-platform. This is the first thing to understand.

Second, the financial transaction must meet the reliability, security standards, block chain can realize

The nature of financial services is to take other people’s money, do your own business; features of the financial industry is ever-present, ubiquitous risk; In addition, the social attributes of finance are the economic hub and the people’s wallet.

Therefore, when we apply new technologies in the financial field, we must ensure stability, reliability, and security, protect the security of customer information, and protect the security of financial assets.

Judging from the situation in our country, that is to say, we want to discuss the feasibility of some of the economy, we see that our country’s financial infrastructure is quite developed, and large financial institutions have built some information systems that are mainly large centers. And has formed a platform for sharing data clouds.

Therefore, if we say that we use the alliance chain mentality to build a distributed ledger system in which large and medium-sized financial institutions participate together to form a technical platform in which financial institutions can interconnect and communicate regardless of their size, and to achieve partial links between existing systems and innovative systems. Should be conducive to the development of inclusive finance, but also conducive to the full use of existing scientific and technological resources, to save investment, reduce transaction costs, ensure the speed of transactions, and achieve compliance control objectives.

My personal opinion: Whether it is technical feasibility or economic feasibility, the best path for blockchain financial applications should be distributed shared accounts of multi-central alliances.

Distributed architecture of the center to continue to survive and develop in the virtual community of small-scale, there are centers of shared books will be distributed blockchain mainstream construction technology of large-scale applications.

Blockchain important features that Internet banking is different from traditional banking finance is that it has the ability to determine its own rules of consensus, the automatic implementation of the rules and techniques of commercial credit blessing. In an economic environment, credit is based on contractual principles.

Third, the blockchain development and application of

September last year, held in Shanghai, the “third blockchain Global Summit” Ethernet Square founder Vitalik made a statement at the meeting, he made three very important points:

first A point of view that he thinks starting in 2017 or 2018, The development of the blockchain will enter the third stage. At this stage, many large-scale blockchain technologies may emerge.

The second point, he believes blockchain of large-scale or large-scale application if there is an obstacle, technical barriers is more serious than institutional barriers, it is imperative to improve the blockchain scalability.

The third point of view, he said that a very important point of view, in the future there will be more and more systems called blockchains, such as the application of a centralized database of hash algorithms.

Here I would like to draw your attention to his third point of view. Because Ethernet Square and still is a center of the structure to go, Vitalik is Ethernet Square founder, he proposed: “to hash algorithm as the core of centralized databases can also be referred to as blockchain , so I think that, if true to solve the blockchain problem of large-scale applications may require the introduction of such a centralized database technology platform. ”

We see in fact, before 2016, block Chaining underlying core technology, at least I can be observed in the application of scale to The scope, I think it is not a big breakthrough.

However, there have been some changes in the situation in 2017. Some new advances have been made in the development of underlying core technologies such as consensus algorithms, encryption algorithms, and smart contracts. Some application systems can already be applied to the needs of medium-low frequency transaction scenarios. I will briefly mention a few cases here:

WeChat Bank’s Universal Blockchain and Matrix Element jointly developed a blockchainOpen source technology platform, abbreviated as BCOS. It is to create a business-oriented distributed blockchain infrastructure, which is a multi-chain with cross chains operating in parallel, distributed storage is the way to take, while emphasizing privacy. They have optimized the alliance chain consensus mechanism and adopted a credible information management.

In the past blockchain , generally speaking, for example, in a smart contract, a certain price was written. This price cannot be changed. For example, we determine that the price of gold that we trade after two months is 1000. US dollar, then it is 1000 US dollars, but now that it has introduced a trusted information management technology, it can be on the two months later, for example, if you choose Beijing time in the afternoon or 3 pm in New York time, and then you adopt Which trading venue’s gold trading price will be automatically introduced, so this trusted information management is a very important progress for their BCOS.

MicronBank’s BCOS-based joint loan preparation fund management has been very successful. It has been more than a year now and the operation is still normal. They hope that the blockchain can provide better, but also for the supervision or for the need to understand the situation Can be more transparent.

They want to be a responsible bank. Therefore, one of their major characteristics is the opening of an observation node, allowing financial regulatory agencies to join the alliance chain as observation nodes to implement penetrating supervision.

There are also several, such as Tencent blockchain , Ant Blockchain , Ping An Group’s blockchain , universal automotive industry supply chain, and the Bank of China Blockage Blockchain Research Institute just launched a middleware billing network in March. spectrum block chain registered an open platform, I think this platform is actually a blockchain of another type of modern applications.

It is the premise of non-interference system partners for partners to provide credible proof of data, through a foregone blockchain joint parties on the user’s identity, digital certificate, as evidence credible data record for the user Provide information inquiry services that can be searched, verified, and supervised. Its primary application scenarios include product traceability, voting registration, registration of authentication certificates, medical data, and so on.

At the time of its launch in March, there were already fifteen institutions participating, including judicial institutions, credential agencies, financial institutions and companies at all levels.

I borrowed a few cases and talked about my general view: blockchain consensus techniques, encryption algorithms, smart contracts, and other core technologies. It built a multi-dimensional interactive architecture that can achieve zero distance between many participants or Say short distance, zero time difference or short time difference traffic. He can do it. I have written eight sentences here. It can “propose principles, coordinate governance, avoid verification, avoid duplication, streamline processes, share information, improve efficiency, and save costs,” and show outstanding technical advantages.

I would also like to say that from what we have observed, including China, we also include large countries including developed countries. We now all face a common shortcoming. What is it? There is no recognized technical standard, nor has a professional audit and verification system been established.

Therefore, the cases of successful applications that I mentioned earlier are enterprise-level, and some may be at the experimental level. They have not passed the test of recognized technical standards and have not undergone a specialized audit verification system. This should be the case.

The above are some of my own views on blockchain financial innovation. In general, we hope that the blockchain can be replaced from irreplaceable.

Here we are talking about the second question. Maybe we are more concerned with digital currency, that is, reality and virtuality.

In November last year, U.S. regulators approved Chicago’s options exchange to launch Bitcoin’s futures trading. On December 10, Bitcoin’s futures price was opened on the first day of the line, and the offer price was 15,000 U.S. dollars, but it was triggered twice in less than 3 hours. It is a rising fuse, and then the price jumps to 18,320 US dollars.

Bitcoin should be turbulent for the January-February period this year. February 6th should be the lowest, falling below 6,000 US dollars. Bitcoin has dropped by nearly 70% from its highest point. The overall fluctuation of the virtual currency is enormous. So, here I would like to discuss two aspects: one is a statutory digital currency, and the other is a virtual currency.

Blockchain legal digital currency: The liquidation function is larger than the payment function

Legal digital currency. The nature of money is defined in the middle school textbook as the general equivalent. Many scholars believe that the essence of money is a contract about exchange rights.

I think that digital currency is a form of money using digital technology, has legal status, has an endorsement of national sovereignty, and has a digital currency that is the subject of the issuance responsibility. It constitutes a statutory digital currency. This is, of course, my opinion and may not be accurate. Central banks such as the United Kingdom, Canada, the Netherlands, and Australia have all announced the launch of digital currency development based on blockchain technology. China has already started the research and development of digital currency. The research and development team released a research report more than a year ago. The report involves digital currency overall structure, technical standards, legal status, distribution business, and so on.

If blockchain technology is used to construct legal digital currency, it is theoretically possible to achieve high efficiency and high transparency. The first is that direct payments and cashless payments can reduce costs. The second is the central bank’s real-time and complete data, which can control the accuracy of the total money supply. The third is that the flow of funds is observable and traceable. Therefore, from the aspects of anti-corruption, anti-tax evasion, and anti-money laundering, it should be said that it is highly efficient.

I think that in fact, digital currency or legal digital currency can replace traditional currency. It depends on four key factors: the first is efficiency, the second is reliability, the third is cost, and the fourth is law.

I think that in the daily payment market, digital currency may not have the absolute advantage of replacing new electronic payment methods such as WeChat payment and Alipay. I think that in the daily payment market, digital currency is legal or not. Digital money cannot replace Alipay’s new electronic payment location. However, in a centralized transaction scenario, digital currency is most likely to become highly efficient. The tools.

In July and August of last year, Goldman Sachs received the first digital currency patent issued by the U.S. Patent and Trademark Office. Their digital currency is aimed at the securities trading and settlement market, and the U.S. securities trading liquidation T+3. T+3, 3 is too risky, and the unawareness is too high, so they hope to use digital currency. I feel that if we in China say that we want to introduce our digital paper system or we go to them and do some financial transactions, I think we must have a digital currency as the basis for liquidation.

Blockchain virtual currency two cores: consensus mechanism and incentive mechanism The

second is about virtual currency. In fact, our standard English words about virtual currency should be Coin and Token. These two things are within the virtual community as a value tag and payment tool. Some scholars emphasized the characteristics of digital technology. He referred to Coin as an encrypted digital currency. Some scholars highlighted the attributes of finance and used Token as a proof.

My superficial view is that if we agree that the essence of money is a contract on exchange rights, which I said earlier, this should be a more authoritative statement. These Tokens, Coins, etc., such a virtual currency, it does not have a qualified issue of the primary responsibility, there is no physical market support, there is no endorsement of sovereign trust, and thus not a legal digital currency.

When Nakamoto launched Bitcoin in 2009 and Bitcoin interviewed with a blockchain tag, few people could have an insight into the future. How much did Bitcoin’s price increase in 2017? It has increased 14 times. Virtual currency is no longer just a game for a few people in the virtual community, but it is parallel to the real world network financial space or virtual economic space. The expansion of virtual currency has speculative speculation factors, but there should be deep-seated reasons. I have summarized two reasons: One is the governance mechanism of network consensus. The other is a release token or a release. Virtual currency incentives.

It passes these two mechanisms, so the virtual currency is the participant’s accepted equivalent and payment instrument: Maybe it is nothing for me, but for the people involved, it is everything. Thechange in the attitude of thedeveloped countries overthe supervisionof virtual currencies is worthy of attention. I will focus here on four cases: The first is Singapore. It is under the “regulatory sandbox” mechanism that gives compliance with restrictions on virtual finance. For example, in March of last year, their regulatory authorities gave a number of Chinese-made ICOs with a conditional “no-objection letter”. The main condition is to prohibit the issuance and sale of virtual currency to Singapore residents.

I say this, everyone may not be very impressed. People who have been to Singapore meet at the coast to see two very high hotels. This hotel has a casino. The casino was built in Singapore, but it stipulates: Enter this casino to gamble.

Therefore, their so-called innovation in virtual finance is actually the same as this. Your shop can be located in Singapore. You can register in Singapore ICO, but I am sorry! The first point is that Singapore’s own residents are forbidden to buy or sell, and no entry is allowed.

The second is Japan . Japan should have been in March last year. The cabinet passed legal recognition of Bitcoin’s legal payment methods. In April, they amended a “Criminal Proceeds from Crime Prevention Act” to requireverification of virtual currency exchanges. Account holder’s identity, the source of funds, prevention of money laundering, etc.

Actually, on September 29 last year, we all know that on September 4th, China’s regulatory actionon these so-called tokens and virtual currencies , Japan approved 11 virtual currencies on the 29th of September. The exchanges, and in late December, approved four more. By January and February of this year, all virtual currency currencies worth more than one billion U.S. dollars were stolen in Tokyo last year and other virtual currencies were stolen. So they recently Do some regulatory review.

But in general, I personally feel that the Japanese government’s motives, it is difficult to judge some of the psychological state of Japan, but I think it may be desirable to route through the blockchain platform to expand financial markets, recapture the past 20 years in the Internet Loss of finance. Because they think that in the past 20 years, their Internet finance sector has lagged behind China.

Looking at the United States again , I think the United States is still doing something interesting. Prior to 2016, the US regulatory focus was on the prevention of virtual currency and other new technological forms and business forms that occupied the U.S. legal currency area, which they had always insisted on.

But in 2017 it took a series of new actions: The first is that the US Securities and Exchange Commission announced in late July that Coin under regulatory approval belongs to securities, and then the ICO is to be included in the regulation. Unregulated ICOs are illegal. Securities issuance.

In late December, they took legal actions against ICO’s illegal fundraising. The United States took a big move last year. The US Commodity Futures Trading Commission released the review results in early December: allowing the Chicago Board Options Exchange and the Chicago Mercantile Exchange, Allows both exchanges to conduct bitcoin futures trading. This should be a great improvement.

Therefore, the two companies launched bitcoin futures transactions on December 10 and 18 last year. In addition, the U.S. has a unified state law committee. U.S. states have legislative power. However, some businesses, such as financial services and a lot of commercial businesses, must have the same interstate law. Therefore, its unified state law committee has such a function. That is, it may involve the construction of laws such as the entire United States federal government.

In general, the draft law was proposed by them and they proposed aThe draft of the Unified Supervision Act on Virtual Currency Business, where it defines Coin as a virtual currency , and it believes that the virtual currency is not a legal currency. The draft also clearly states that virtual currencies have a blockchain , which helps to achieve fast, low-cost, cross-border or long-distance transactions; a balanced regulatory system can lay the foundation for its development. However, it also believes thatsuch problems as the anonymity of virtual currencies will inevitably bring about problems such as money laundering, illegal financing, and tax evasion. Therefore, it is necessary to exercise prudential supervision. This law provides specific regulations on the legal disclosure of information on licenses, law enforcement measures, resident protection, and compliance policies.

Look at our China again. Singapore focuses on innovative experiments in digital finance. Japan focuses on the development of the digital financial market. The United States focuses on the specification of the digital financial market. I think that our country focuses on the prevention of digital financial risks.

As we all know, on September 10 last year, 7 ministries and commissions such as the People’s Bank issued an announcement and found ICO to be an illegal public financing act.

Moreover, at the request of the People’s Bank of China, the trading platforms ofChina’s three largest virtual currencies , namely, Huo Yuan, OKCoin and Bitcoin China, have stopped domestic transactions.

My personal opinion is this: Preventing the occurrence of systematic financial risks is the bottom line of financial regulatory policies. Based on the government’s position and perspective, it is timely and proactive in the emergence of risks in the development of financial technology, preventing the evolution into systemic finance. The risk should be necessary.

The government needs to maintain the stability of the financial market and protect the interests of investors. This is the responsibility of the government. Therefore, based on the positions and perspectives of innovators and entrepreneurs, I believe that it is necessary to not violate the principles of the law and not violate the regulatory bottom line. So my opinion is that we must speed up the construction of the digital financial system and strengthen the coordination of all levels of supervision.

One is based on the sustainable development of digital finance, based on the prevention of systemic financial risks. Accelerate the development of statutory digital currency , pay close attention to the establishment of a statutory digital currency system, pay close attention to studying and formulating a virtual financial supervision system, and ensure the healthy development direction of digital finance.

The second, I think that the construction of the system still has to be easy. First introduced regulatory regulations, and then introduced the law. In the face of emerging technologies, although it is difficult, we should work hard to strengthen the coordination of scientific and technological supervision, reach consensus on supervision, establish standards for scientific and technological supervision, and take concerted action on scientific and technological supervision. We must also jointly develop feasible technical solutions to effectively control the illegal flow of funds across the borders.

In fact, one is the relationship between technological innovation and innovation in the financial system. I think that technological innovation is to promote innovation in the financial system. As a whole, why do regulators have to be cautious about the innovation of the financial system, and sometimes it can be a half-step slower? I think the slow half step is understandable. If we say a slow step or two slow steps, it may have a greater impact. In fact, our era calls for more efficient and more equitable financial services.

Traditional financial institutions take a complicated process such as going through procedures, reviewing and tendering, and financial science and technology may change the format of traditional finance. However, it does not change the nature of finance. The nature of finance is still value blending, and it is still trust creation. It is to use your money to do your own business.

Therefore, I think that the development of financial science and technology needs to be orderly and orderly and prevent systemic financial risks. Adhering to the protection of the fundamental interests of investors and depositors is the bottom line of financial regulation in mature countries and a consensus of the international community.

Sustainable financial technology development should be based on innovation, but stick to the origin of finance. Dare to change, but do not violate the bottom line of financial security. They are good at building shortcuts, but they do not take the sidelines. Innovations in financial science and technology and financial systems still need to penetrate the market, penetrate technology, and penetrate technology. (carbon chain value)

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