The financial sector is arguably the most important application scenario for blockchain, bar none. Why is that? The reason lies in blockchain's ability to solve trust issues in finance.
This trust is reflected in two aspects. The first is the trust issue with data. For example, when we entrust funds to a financial institution for management, the institution's handling process is actually opaque—like a black box. We only know the final outcome, such as how much profit was made, but we have no way to truly understand where the institution used the money.
The second aspect is the trust issue between people. We all know that not everyone can enjoy the convenience of financial services, as participation in finance comes with barriers. For instance, you wouldn’t lend money to someone with no repayment ability, and banks wouldn’t lend money to a chronic defaulter. This is a matter of credit trust between individuals.
These issues were addressed by Satoshi Nakamoto in the original blockchain whitepaper. The essence of blockchain is an immutable, decentralized database. The information formed on the chain is not collected or aggregated by any single organization or institution, and there is no concept of a manager or centralized control. Transactions can occur directly between parties, solving the problems of high transaction costs, management costs, and risks associated with centralized management in the social credit system. The trust mechanism it establishes is more robust and credible than the credit management mechanisms under centralized models.
When financial institutions use blockchain technology to record data on a distributed ledger, the data is encrypted via hashing algorithms and cannot be altered. Every participant in the blockchain can access all on-chain information in real time, making the data transparent and traceable. When we want to track the flow of funds, blockchain allows us to do so clearly and effectively, solving the issue of information asymmetry in the social credit system—namely, the "black box" problem of financial institutions.
Beyond this, blockchain can decentralize traditional financial models through smart contracts. For example, in the case of bank lending, banks can be removed from the equation, replaced by smart contracts written in code that handle the functions of receiving and releasing funds. The entire process has no participation barriers, and the profits from lending are returned to users—meaning the money that would have gone to banks is now shared among all participants. This truly achieves decentralization and zero barriers.
Today, blockchain + finance has become a trend, with over 50 global banks investing in blockchain technology, including familiar names like ICBC and China Construction Bank. Additionally, decentralized finance (DeFi) is thriving, growing from an initial scale of a few billion dollars to hundreds of billions. It’s believed that blockchain + finance will open up a whole new market in the future, truly realizing the blockchain revolution.
