Terry In market activities, due to the existence of human “limited rationality” and “opportunistic behavior”, market transactions are always in a state of incomplete information. This can lead to market price signals failing and traders “scamming” each other.
Prior to the advent of Bitcoin and distributed ledger technology, the transmission of value over the Internet was considered infeasible. The replicability of digital information and the problem of repeated payments in electronic cash were not well addressed.
We continued to follow the traditional risk reduction approach of either taking a peer-to-peer proximity exchange of physical value or having a credible third party, such as a government, bank, etc., act as a centralized center to track and verify the authenticity of all transactions.
Blockchain uses a purely technical approach to make value transfer possible.
Blockchain technology enables the secure delivery of value over distance on an open platform without third-party endorsement.
Distributed ledgers span multiple nodes, regions, and institutions, keep a history of all transactions, and all authorized participants in the network keep an identical copy of the ledger, so that if a change is made to the ledger, the entire copy data will also be fully modified within minutes or even seconds.
Distributed ledgers offer the possibility of reliable and irreversible digital information transfer and prevent duplicate payments from occurring because each record in the distributed ledger is unique at the time of its characteristics.
This purely peer-to-peer value transfer system guarantees the security and accuracy of the information stored in the ledger by using keys and signatures to manage user permissions. The consensus mechanism ensures that the information cannot be tampered with, and that it can be transferred accurately even in the event of an attack.
Authorized nodes are responsible for updating the ledger according to rules recognized by the entire network. Compared to traditional centralized transaction processing systems, such as securities clearing and registration systems and cross-border trading and settlement systems (which are costly and inefficient), blockchain integrates traditional IT technologies, legal frameworks, and existing and potential emerging technologies.
No mutual trust between nodes is required, and the system ensures that all data records are complete and secure and can be separated from third-party institutional recognition, effectively reducing the complexity and risk of transactions.
The best application of value transfer is the cryptocurrency Bitcoin. Its blockchain-based distributed ledger eliminates duplicate backups, relies on cryptography and related technologies, standardizes the supply of bitcoins, and keeps track of changes in bitcoin ownership. This reduces the complexity and high operational costs of centralized system architectures and provides a new low-cost model for operating a currency.
Central banks, government treasuries, financial institutions, and regulators around the world have shown great interest in the application of digital cryptocurrency and distributed ledger technology, and have formed or participated in relevant research organizations to explore commercial application scenarios.
Blockchain can reduce the transaction cost in the process of value transfer.
The informatization of the attributes of value elements sharply reduces the transaction costs to be paid for value transfer. Under the current business model and social organization structure, value exchange activities require a credible third party (e.g. government, bank for credit endorsement) to establish credit, otherwise strangers lack the basis of trust for transactions to occur.
Blockchain technology fundamentally changes this centralized credit creation method and uses a set of consensus-based mathematical algorithms to complete credit creation, thus realizing economic activities without the need for third-party credit intermediaries, bypassing the restrictions of cumbersome institutional service systems, and achieving low-cost value transfer.
In October 2015, Visa, a leading credit card organization, and DocuSign, an e-signature startup, partnered to launch a car trading and leasing platform using blockchain technology. They simplified the car buying, selling and leasing process to three steps: “click to view, contract to sign, pick up”, while making car and car transaction information completely transparent and public.
From the customer’s selection of the vehicle and insurance, to the subsequent signing of the contract and completion of the payment will be automatically recorded and updated on the blockchain.
The complex transactions originally handled by intermediaries, such as the complex and tedious process of insurance evaluation and loan application for car purchase and lease, will be completely digitalized.
Customers will be able to operate on mobile terminals to complete transactions, greatly reducing business costs.
On the distributed ledger of the blockchain system, users can search for information at low cost. Transaction records can be reused and tamper-proof. Databases can be updated, distributed and highly trusted in real time.
These features create the basic conditions for value attributes and associated transaction data, etc., to be securely transferred, recorded and stored over the Internet.
For example, when clearing cross-bank transactions, blockchain technology reduces cross-bank validation costs and coordination costs by presenting each transaction in real-time, transparently and accurately using digital encryption algorithms, and saves costly audits after the fact.
Blockchain directly connects all parties to a transaction through a distributed ledger in a peer-to-peer network (P2P network), and distributes the processing through the network to improve transaction efficiency and reduce transaction friction, breaking many of the ground rules and practices established by traditional business processes.
Especially for traditional centers of value exchange, such as banks and payment companies, the development of peer-to-peer networks has returned to consumers the profits they took away dependent on the intermediary function, benefiting many consumers while forcing companies to think about how to create service value in a more efficient and cost effective way.
Blockchain enables the delivery of value carrying transaction rules.
Programmable contracts built on top of distributed ledgers enable intelligent value delivery. Transaction subjects can express the conditions, preferences and needs of value delivery, and also establish self-executing contracts between strangers and ensure compliance, economy and clarity of responsibility in the process of value delivery, which makes blockchain-based value delivery infinitely scalable and has strong application prospects.
In the field of welfare benefit distribution, the government can better achieve control over welfare benefit distribution based on the transparency and integrity of distributed ledger.
With the system carrying the function of identity verification and the function of authority management of recipients, it can ensure that welfare benefits actually flow to individuals who are eligible for assistance at the specified time, and the time and flow of welfare recipients’ withdrawals can also be designed and tracked, such as restricting welfare recipients to spend welfare benefits only on necessities.
With greater transparency and more effective financial management, the government can focus more on collecting funds and developing assistance systems to reduce or prevent fraud, theft, and misappropriation of funds and promote a virtuous cycle of welfare administration throughout society.
The openness of the Internet has created innovative information ecosystems and new business opportunities, such as the emergence of social networking platforms such as Facebook, Twitter, and LinkedIn.
Similarly, open source and distributed blockchain technologies have every potential to form previously impossible and unimaginable open value exchange networks and further build rich value exchange ecosystems.
In the field of value delivery, blockchain systems offer exciting and tremendous opportunities by ensuring the economy, security and efficiency of the transaction process.
