Blockchain is a term in the field of information technology. In essence, it is a shared database. The data or information stored in it has the characteristics of “unforgeable”, “full trace”, “traceable”, “open and transparent”, and “collective maintenance”. Based on these characteristics, blockchain technology has laid a solid foundation of “trust”, created a reliable “cooperation” mechanism, and it has a broad prospect in application.
In general, blockchain is a decentralized distributed ledger database. The advantage of this distributed ledger is that buyers and sellers can directly trade without any intermediary. Everyone has a backup, even if you have something lost in the ledger, it doesn’t matter much.
If you have a ledger at home, your parents will give you the salary and let you record it on the ledger. You misappropriated a dozen yuan privately because of gluttony, and others don’t even know. But the way to solve the problem with blockchain is that the whole family mobilizes to keep accounts. Not only you are doing so, but your father, mother, brother, sister, younger brother, sister, etc. It cannot be changed, nor can anyone else.
Blockchain is a new application mode of computer technology such as distributed data storage, point-to-point transmission, consensus mechanism, and encryption algorithm. Blockchain technology has been widely used in different industries. Such as product traceability, copyright protection and transaction, payment and settlement, Internet of Things, digital marketing, medical care, etc.
With the continuous application and development of blockchain and people’s in-depth research on blockchain technology, the current problems in blockchain continue to emerge, mainly including:
- 1. The throughput efficiency of the blockchain is low.
- 2. Energy consumption and computing power are too concentrated.
- 3. The time for block confirmation lasts too long.
These uneven or imbalanced problems have severely restricted the development of the blockchain, and it is necessary to continuously explore and alleviate or solve the corresponding problems to expand the application of the blockchain.
Taken BITCOIN-NG by itself, it does but seems to be what it is not, it looks like a kind of blockchains at a distance, but it is detected by close analytics ,and as time goes on, people find it unbelievable , unreality and imbalanced.
For instance, it takes 10 minutes or more to confirm the transaction. The average transaction rate is about 4 transactions per second, and the maximum can reach 7 transactions. This shows the limitations of the current blockchain throughput. At the same time, the BITCOIN-NG block also has security issues.
Firstly, the wallet security issues: the existence of polluting transactions makes it possible for the leader’s private key to be obtained reversely.
Secondly, DOS attacks: Malicious Leaders can carry out DOS attacks by not processing transactions in micro blocks. Although the influence of the previous attack will be eliminated after the next Leader is elected, the 51% computing power attack and equivalently when combined with eclipse attacks, it will still bring to a greatly harmful conclusion.
The third, bifurcation problem: BITCOIN-NG exists in the process of forking the key block, which can only be solved when the next key block is generated and the duration is longer than that of in the micro block.
Energy consumption and concentration of computing power are another drawbacks in the Bitcoin consensus mechanism. The reason is that with the continuous advancement of CPU technology, the computing power of computers has increased geometrically. As the total amount of Bitcoin remains unchanged (21million), then you have to increase the difficulty of mining. In order to ensure the stability of Bitcoin’s block production speed, the PoW mechanism can only obtain the right to bookkeeping through violence, which is the most energy-consuming method, thereby increasing energy consumption.
At the same time, the development of technology and people’s profitability have led to the development of mining machines specifically for mining, and since then a special mining pool has been formed. The computing power is also concentrated on individual organizations and individuals, which makes it easier to form 51% attacks, thereby increasing the security risk of Bitcoin.
In the blockchain, from the customer’s perspective, the current more serious problem is the long confirmation time of the blockchain. In order to ensure that the transaction is not tampered with, the blockchain generally waits for the confirmation of multiple blocks. Bitcoin realizes that when the opponent controls 10% of the computing power, the probability of error is less than 0.1 %at the time when the 6 blocks are confirmed, and the average Bitcoin block interval is as long as 10 minutes. For transaction security, we have to wait at least 60 minutes, which is unimaginable in the daily transaction system.
Therefore, whether users want to borrow cycles from the servers deep in the forests of Oregon or the users high on the mountains of Guizhou, they have to think about the throughput rates, energy consumption, time wasted and security in supply chains. If the above mentioned three imbalanced barriers cannot be broken through, the new futures in data exchanges cannot be accomplished.
Don’t exaggerate or be superstitious about blockchain functionality. Industry practice over the years has proven that some blockchain application directions are not feasible. In particular, the modern financial system in the development process of continuous absorption of various technological innovations. Technological innovation will be integrated into the financial system as long as it helps to improve the efficiency of financial resource allocation and the security and convenience of financial transactions. Up to now, no technological innovation has had a disruptive impact on the financial system, and blockchain is no exception. Cryptocurrency supply is inflexible, lacks in-house value support and sovereign credit guarantee, can not effectively perform monetary functions, can not subvert or replace flat money. The anonymity of blockchain instead makes it more difficult to implement anti-money laundering (AML) and “know your customer” (KYC) in financial transactions.
Blockchain applications should be based on the actual situation, not tied to some overly idealized purposes. For example, it is very difficult to replace institutions and trust with technology, and in many scenarios, it is even utopia. For example, de-centralization and centralization have their own applicable scenarios, there is no advantage or disadvantage. In reality, completely centralized and completely centralized scenes are rare. Many blockchain projects start with the purpose of centering, but later more or less introduce a centralized component, otherwise, it will not be able to land. For example, out-of-block information is written into the blockchain, often requiring a trusted centralization mechanism, which is not possible.
At present, the blockchain investment and financing bubble is obvious, speculation, market manipulation, and even illegal behavior is common, especially involving public offerings of Token projects. Relevant government departments should strengthen supervision to guard against financial risks.
Application and analysis of blockchain in the field of securities and futures
Whether it is applied to the management of innovative financial assets and non-financial assets in the global market, or applied to financial supervision and financial risk prevention, blockchain technology is driving changes in the financial industry landscape and building a new type of information and value exchange network.
Blockchain, also known as distributed ledger technology, is the underlying technical framework of Bitcoin and other virtual currencies. Blockchain integrates technologies such as distributed storage, point-to-point transmission, consensus mechanism, and encryption algorithm. It is a multi-disciplinary and cross-field comprehensive innovation.
In a narrow sense, a blockchain is a chained data structure of data blocks organized in chronological order, supplemented by an immutable and undeniable distributed ledger guaranteed by cryptography and other principles. Broadly speaking, blockchain is a value exchange network that uses cryptography, consensus mechanisms, smart contracts, etc. to realize data transmission and access, generation and update, programming and operation, and ultimately completes the transfer of information and capital flows.
In the short term, the application of blockchain in the field of securities and futures faces many challenges. On the one hand, there are uncertainties in laws, regulations and regulatory policies. Once blockchain technology is widely used in the financial industry, it will pose challenges to existing laws, regulations and regulatory frameworks. Therefore, more and more domestic and foreign government agencies and financial regulatory agencies have incorporated blockchain into their regulatory systems.
On the other hand, the blockchain technology itself has yet to be improved. In the actual use of the blockchain system, there may be problems such as node manipulation, transaction privacy leakage, and the centralization of the identity authentication mechanism.
In the long run, the characteristics of blockchain, such as multi-center, non-tamperable, safe and reliable, and privacy protection, are closely integrated with financial business pain points, and will become a key underlying infrastructure in the future. Whether it is applied to the management of innovative financial assets and non-financial assets in the global market, or applied to financial supervision and financial risk prevention, blockchain technology is promoting changes in the financial industry structure and building a new information and value exchange network.
Application exploration of blockchain in the field of securities and futures
The current structural feature of the securities and futures market is that it requires an authoritative third-party agency, information intermediary or central counterparty as a guarantee to help market participants realize the value exchange of assets and rights. As a cross-disciplinary innovation paradigm, blockchain can realize the transformation of the network from centralized trust to weak centralization and multi-centralization with the help of its multi-party consensus mechanism and non-tampering characteristics. It can also bring about “transaction is clearing”. Efficiency improvement.
(1) Transactions in the field of securities and futures
As an emerging business, the domestic over-the-counter derivatives business faces many problems while developing rapidly. Among them, there are two main pain points: one is the high credit risk, and the other is the lack of inter-agency trading market.
With the help of blockchain technology, an over-the-counter trading platform can be built to connect a large number of scattered customer resources in various markets. Buyers and sellers can query performance information and lock trading opportunities as long as they analyze the transaction data of the ledger on the node.
With the help of smart contracts on the blockchain over-the-counter trading platform, institutions can broadcast to the entire network when there is a demand for quotations, or obtain transaction quotations on the blockchain in real time, and automatically execute them according to the conditions agreed in the contract; When the contract calculates that the credit risk of the counterparty reaches the pre-warning line, it will automatically alert the institutions involved in the transaction.
(2) The securities and futures field of blockchains
1. Futures brokerage business contract management
Futures companies have strong demand for electronic contracting for brokerage and non-brokerage businesses. The use of blockchain technology to build an electronic contract platform for futures brokerage business will help to combine the life cycle of electronic contract with the characteristics of multi-centrize, non-tamperable and traceable features of blockchain, and open up a series of processes such as authentication, contract formation, flow, signing, filing and legal dispute response, so as to reduce the signing and management costs of futures brokerage business, improve the efficiency of signing and promote the infrastructure construction of the futures industry.
2. The electronicization of private equity
At present, the equity of unlisted companies is often proved by agreement, asset certificate or paper securities. Blockchain can replace paper documents as electronic carriers of private equity, regulate the registration and circulation of such securities, and ensure that there is no possibility of human tampering in the process.
In June 2015, Nasdaq and blockchain start-up Chain established a partnership to use the blockchain platform Linq for the issuance and transfer of private equity. In December 2015, NASDAQ reported the use of Linq to complete and record the first private equity transaction. The first transaction was for Chayn, which digitally identified and recorded private equity.
With blockchain security, transparency, non-tamperability, and ease of traceability, NASDAQ has improved its private equity record and its history of changes to make equity registration more efficient and credible. Start-ups can achieve paperless, compliant and standardized securities registration without relying on third-party public trust.
(3) Other applications in the field of securities
In addition, blockchain has many other applications in the field of securities and futures. For example, in 2016 the Abu Dhabi Stock Exchange (ADX) launched blockchain voting services, in 2017 JPX published a study on the use of blockchain concept testing in the KYC (Know Your Customer) process, and several domestic exchanges have conducted high-performance alliance chains with market institutions on topics such as main board securities bidding, blockchain application security management, and the use of blockchain technology to build warehouse order systems.
In summary, blockchain is reshaping the basic framework of the financial industry, accelerating the innovation and iteration of securities and futures businesses and products, improving the efficiency of capital markets before, during and after trading, and promoting the upgrading of exchange infrastructure.
(4) Blockchain in the field of securities and futures development
(a) Aim at the pain points and keep the first things first
As an important fintech technology, blockchain system research and development should be carried out for the purpose of service business, combining business pain points and business scenarios. The practical experience of domestic and foreign exchanges shows that it is necessary to study blockchain platforms, such as shareholder voting, private equity transactions, settlement, etc., which meet the functional and non-functional needs of their own or industry applications, in order to maximize the characteristics and advantages of blockchain.
(b) Step by step and carefully seek the practical approach.
Blockchain technology is still immature at this stage, although there are many platforms on the market, but they are still in the process of evolution and iteration. In 2015, the UK pioneered the “regulatory sandbox” system. Financial core institutions and regulators may consider using this model to build a “fintech sandbox”.
In a controlled environment, POC verification of innovative technologies such as blockchain is carried out. On the one hand, fintech operators can report frequently to regulators and are subject to review and supervision at any time, and on the other hand, regulators and fintech operators can more effectively assess the true impact of the new system. It is worth mentioning that the POC allows failure to avoid further losses for the next project. From this point of view, POCs and sandboxes are an insurance measure.
(c) It is the stone from another mountain, which can burnish the jade.
Financial core institutions such as exchanges should be open and inclusive to innovative fintech such as blockchain. In the current industry mature application cases less, research accumulation is less, actively explore open and shared cooperative research model, cooperation with specialized blockchain technology companies, integration of technology companies’ technical capabilities and core institutions of resource data advantages, jointly promote blockchain technology research, the formation of a conducive to the domestic securities and futures industry security and efficient development of technology research and application of landing results.