[JD Says] How to Understand the Financial Buzzword -- Blockchain in a Correct Way?
2016-07-07
[JD Says] Focusing on industry investment and witnessing the development of enterprises, JD Capital shares with Chinese enterprises its best practice in investments.
[Sharer] VC Foundation of JD Capital and JD Capital Institute
VC Foundation of JD Capital: an investment team of male professionals in mobile Internet. Dedicated to pioneering in Fintech, pan entertainment and mobile e-commerce and discovering aggressive entrepreneurs in those fields, the team strives for every possibility to transform the industry, and even change the world.
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Nowadays, as the sharing economy sweeps across the globe, such Internet giants as Airbnb and Uber have become part of our daily life.
In the next Internet era, “sharing” won't be the only business model with the rise of the “distributed” model. In this upcoming commercial society featuring “distribution”, everyone is a participant and everyone has the initiative.
In the previous models characterized by centralization, receivers can only receive information passively, and the distribution of wealth, prosperity and freedom was controlled by a selected few. In contrast, in the new commercial society led by Internet, there will be no such third parties as economic institutions, banks, and governments. Therefore, it’s impossible to establish mutual trust and ways to confirm the identity of the counterparties in all the commercial activities. Such being the case, activities such as frauds, illegal data collection, and privacy infringement will emerge in an endless stream.
If this new commercial society is coming as we predict, it will facilitate not only information flow, but the flow of value and capital. Then how to accomplish transactions without a strong intermediary agency? And how to establish a better and safer business model?
“Blockchain technology” is believed to be the answer to these questions. “Blockchain revolution” is now guiding the current commercial transformation, and leading human into a new era.
Q&A
Q: What is Blockchain technology?
A: Blockchain technology can be understood as a mechanism of public ledger. It's more a technical solution rather than a specific product. The basic idea is to form a set of online public ledger, in which all the online users keep and check accounts so as to ensure that the information is authentic and unmodifiable.
The reason why it’s named “Blockchain” is that the data is stored in a chain of online “storage blocks”, each containing all the data of online information exchanges within certain time. The chain continues to extend with time.
Q: How does Blockchain link to Bitcoin?
A: Bitcoin used to be the most successful application of Blockchain technology. Specifically, Blockchain is a series of data blocks generated through cryptography, and every block contains data of several times of online Bitcoin transaction validation. Bitcoin is in a way a “killer application” developed out of the idea of Blockchain. Blockchain is the basic technical support for Bitcoin, but is far more than that
Q: What are the technical advantages of Blockchain?
A: With a p2p network in its OSS and construction, Blockchain has advantages over the traditional network in supporting currency-related services, payment, for instance. Its advantages include decentralization, skip of entrust system and intermediary agency, unmodifiable data, and encryption.
Q: How does Blockchain technology make data more authentic and unmodifiable?
A: New blocks are linearly linked to the existing block in a time-based manner and the linked blocks form a chain . In this process, data is distributed and stored in different computers. This way of decentralization makes data more authentic and unmodifiable. Every transaction can be supervised by all users across the world, and may be called off if the users do not recognize its legitimacy. In this way ,the data in blockchain is maintained collectively by users.
Q: Does this powerful blockchain have any defects?
A: Problems of Blockchain such as potential security hazards, low efficiency, and large resource consumption are yet to be solved. Firstly, the blockchain supervision is the concerted efforts of all the nodes in the network, so theoretically, one holding 50% computing power of the whole network is able to modify or fabricate blockchain data. Secondly, every node in blockchains using distributed storage keeps a database, and all other nodes must verify and record its every transaction, thus lowering system efficiency. Thirdly, the function of blockchain mostly relies on the computing power of network nodes, but such computing power does not generate actual social value and therefore is considered to be wasted.
Applications of Blockchain in various areas
After the release of Blockchain technology, many people believe that DAC can be achieved.
[Keywords] DAC (abbreviation of Distributed Autonomous Corporation) refers to an autonomous organization system run under open and fair rules, and without external interference or control.
DAC can take various forms: a digital currency, a system, an entity, or even a driverless car. This organization system can provide clients with useful services including currency (e.g. Bitcoin) transfer, asset transaction, domain name service, and other commercial businesses. Therefore, through information sharing, Blockchain technology can bring profound transformation to various industries by cutting costs and enhancing security.
JD Capital believes the current Blockchain technology can be applied in the following aspects.
-- Existence proving
The technology can be used for right verification in Internet finance. In other words, Blockchain proves that “your parents are truly your parents.”
--Intelligent contract
The technology can guarantee contract validity by ensuring conformity to the Electronic Signature Law, as well as reliable methods for data and telegraph transmission, content integrity maintenance, and sender identification.
-- Internet of things
Blockchain can address issues of coding standards and interactive interface.
-- Identity verification
The data of electronic signatures are exclusively controlled by signers. With the Blockchain technology, any change to their signature, telegraph contents and the forms can be identified.
-- Market predication
Augur, a stock market prediction platform, is exemplary in this regard. Everyone in any region of this world has access to Augur, which promises unprecedented liquidity and turnover to the market.
-- Asset transaction
NASDAQ OMX Group Inc. is testing Blockchain technology, and considers that the technology can change the traditional financial transaction mode into the one similar to Bitcoin.
-- E-commerce
Since the mode of Bitcoin can be directly used, it is possible for e-commerce businessperson to forge a “harmonious” e-commerce market without supervision?
-- Social communication
Magma VC has invested 400,000 US dollars in GetGems (formerly known as Gems), a startup application of decentralized social communication.
-- Document storage
It will directly impact and even replace the traditional cloud computing structure.
-- Data API
Chain, a Blockchain API service provider, has received an investment of 9.5 million US dollars from its lead investor Khosla Ventures. Wall Street financial companies are investing in Blockchain to snatch market shares in the future. For example, Visa, NASDAQ, and Citi Ventures also invested 30 million US dollars in this Blockchain startup headquartered in San Francisco.
What can Blockchain do in the financial sector?
In this sector, in addition to providing a transaction platform for Bitcoin, JD Capital believes Blockchain technology can also significantly improve various transaction systems for assets besides the current digital currency. The technology will play an important part in post-transaction market procedure such as liquidation and settlement of financial derivatives, foreign exchanges, private equities, credit-linked energy investments and other assets.
-- Efficiency enhancement
The general settlement time in American securities market is two to three days, which can be reduced by Blockchain technology to several or one hour, or even within one minute, reducing 99% settlement risks, as well as systematic risks and capital cost. In Blockchain, transaction verification and settlement are carried out holistically. After system confirmation, a transaction at a node will be autonomously recorded on the distributed account, and meanwhile, all other nodes will update their accounts. This automatic mechanism can accelerate the settlement cycle by a large margin.
-- Cost reduction
If the current settlement mechanism is to speed up the settlement procedure, the settlement cost and initial investing expenditure will have to rise significantly. Blockchain technology can shorten the cycle in a more efficient way by wiping out some intermediary procedures and thus saving a large sum of costs. And the cost saved is exactly the market space of Blockchain-related industries.
-- Security strengthening
Blockchain technology incorporates intelligent contract technology to deal with the complicated derivative transactions in a systematic manner and to standardize and automatize the settlement process. The time-based linear structure of the chain help supervisors identify violations. Intelligent contract technology can automatize compliance inspection, minimizing the foul play possibility from the very beginning of settlement. The 24h uninterrupted operation of Blockchain technology makes the trans-states data exchanges and processing among different stock exchanges more stable and reliable.
-- Besides securities transaction and settlement, Blockchain can also be applied to the registration and publication of digital asset proprietary rights.
Blockchain technology can greatly automatize the procedures, while intelligent contract technology is able to incorporate a lot of complex terms of derivative transaction in the registration and publication procedures supported by Blockchain technology. This combination enables the Blockchain network to react swiftly and correctly when transactions occur. In November 2015, Linq, a new Blockchain technology project co-developed by NASDAQ and Chain, has completed the first private equity transaction on the publication transaction platform of Blockchain.
-- The application prospect of Blockchain in the accounting sector has also attracted much attention in the industry
Accounting, auditing, and compiling are very costly activities for global enterprises including the four giant accounting firms. Procedures automatized by Blockchain technology can cut the relevant costs to a great extent, for companies no longer need to recruit employees to audit internal accounts and all the transactions are recorded in the internal blockchains. Because of the irreversibility and the time tags of Blockchain, the external auditors of the four giant accounting firms and the regulators can supervise corporate accounts in real time by tracking these blocks. In this way, companies can also be much more efficient since they rely less on auditors in financial transactions auditing.
As Blockchain technology becomes more mature and more applicable in many areas, Blockchain startups emerge like mushrooms after rain in developed countries. Currently, the world’s leading Blockchain companies concentrate on such pain-point businesses as transaction, payment, liquidation, and the Internet of things. Some have already been of a large scale and developed a relatively clear business model, with diverse businesses expanding along the industrial chain and blockchains, covering payment, transaction, risk control, etc., so as to make the best use of the multi-point coordinating effect. JD Capital is also paying close attention to Blockchain technology projects and applications in various sectors.