How can blockchain disrupt regulated industries and corporations? How can it bring an “organizational revolution”?
Today, Chinese blockchain economist and luminary Zhu Youping answered these questions in an interview with the Bank of China. The deputy director at the China Information Network Management Center outlined his views on the technology’s transformative power.
Corporate structures and DAO
Three years ago, the Decentralized Autonomous Organization (DAO) was launched on Ethereum. It hoped to use the blockchain’s immutability and consensus mechanism to create a fund controlled by its owners, not managers or directors. While a security flaw in its code caused a controversial hard fork in Ethereum, the original idea of the DAO is here to stay.
As Zhu explains: “The blockchain has created a DAO community through anti-counterfeiting and tamper-resistant data, strangers’ mutual trust, evidence-based incentives, and smart contracts.”
“In traditional enterprises, leaders and employees are in a sense of a game. The former wants employees to work harder for less wages. The employees hope that they will work less and get more wages. But the blockchain breaks this game relationship,” he continued.
“Through its intelligent contract mechanism, the target is set up, the benefit distribution mechanism and the incentive mechanism are set up, and self-organization cooperation can be realized. This has become a new production model of a new wealth organization, bringing about an organizational revolution.”
“In the future, all banks will become blockchain banks, insurance companies will become blockchain insurance companies, and stocks will become blockchain stocks,” said Zhu.
Indeed, by 2015 he was surprised that companies like Weizhong Bank were already researching it. Now, many leading banks, such as ICBC, China Construction Bank, Standard Chartered, and HSBC, have extensive work in the sector.
Zhu explains that blockchain allows smart contract-based “code credit”, which is more reliable, easily controlled, and less risky than conventional credit. In traditional banking, lending out this credit requires signatories and lengthy checks, which are still susceptible to fraud.
“But making loans on the blockchain, because the credit history of the blockchain cannot be falsified, so many credit endorsements are not needed,” he said today, also noting that loans can be completed in minutes rather than months.
“Another example is cross-border payment, which requires a power of attorney and many supporting documents. Since the blockchain is a non-tamperable credit, there is no need for complicated procedures,” Zhu added.
This characterizes the recent uptick in Libra-inspired cross-border settlement solutions, in which central banks are looking at the technology to improve their systems. “The speed and efficiency of the blockchain is unmatched by traditional financial institutions,” Zhu stated.
“For insurance companies, the blockchain will bring about subversive changes from the entire process of underwriting, claims, surveys, and damages,” he began “For example, the biggest pain point facing insurance companies before is fraud. If a blockchain is used, all data of the insured is irreversible and traceable. In this case, fraudulent insurance is impossible.”
Zhu gives examples of reconciliation and records. For the former, updating the terms of a policy, for instance, requires many parties to coordinate and ensure they have the correct version. This is further complicated since the parties do not necessarily trust one another’s isolated systems.
With blockchain as a single source of truth, the policy is stored transparently in one place. It can also be used retroactively, Zhu points out, because new records such as financial contributions can be saved automatically through smart contracts. This allows for automated insurance claims, payouts, and benefits allocation.
Zhu is additionally the Chief Strategy Officer for the Asia Blockchain Society and is credited with originating ‘Chain Reform’, using blockchain for governance.