OKX Blockchain 60 Lessons | Episode 59: What is Blockchain + Finance?

Hello everyone, I'm Xiao K. Today we're going to talk about: "What is Blockchain + Finance"?

The financial sector is arguably the most important application scenario for blockchain — bar none. Why is that? Because blockchain can solve the trust problem in finance.

This trust manifests in two aspects. One is the trust issue regarding data. For example, when we hand funds over to a financial institution to manage, the institution's processing is actually opaque — like a black box. We only know the final result, how much profit was made, but have no way to truly understand where the institution allocated the funds.

The other aspect is the trust issue between people. As we all know, not everyone has access to the convenience of financial services — there are barriers to financial participation. Just as you wouldn't lend money to someone who lacks the ability to repay, banks won't lend to someone with a history of default. This is a credit trust issue between people.

Nakamoto addressed these problems in the whitepaper right from the birth of blockchain. The essence of blockchain is an immutable, decentralized database. Information recorded on-chain is not collected or compiled by a single organization or institution — there is no manager or centralized management concept. Trading parties can directly engage in Trading, which reduces excessive trading costs, management costs, and the risks associated with centralized management in the social credit system. The trust mechanism it establishes is more robust and more reliable than the credit management mechanisms under centralized management.

When financial institutions use blockchain technology to record data on a distributed ledger, the data is encrypted through a hashing algorithm and becomes tamper-proof. Every participant in the blockchain can access all on-chain information in real time — data is transparent and traceable on-chain. Whenever we want to track the destination of each fund, we can trace it clearly through the blockchain. This effectively solves the information asymmetry problem in the social credit system, also known as the black box problem of financial institutions.

Additionally, blockchain can decentralize existing financial models through the form of smart contracts. For example, the familiar banking lending process can eliminate the bank entirely — smart contracts programmed with code can take over the bank's role of receiving and releasing funds. The entire process has no participation barriers, and lending profits are returned to users, essentially transferring the profits that would have gone to banks to all participants. This truly achieves decentralization and barrier-free access.

Currently, Blockchain + Finance has become a trend. More than 50 banks worldwide have bet on blockchain technology, including the Industrial and Commercial Bank of China and China Construction Bank that we are familiar with. Moreover, decentralized finance (DeFi) is also thriving, growing from an initial scale of just over one billion dollars to a trillion-dollar scale. It is believed that in the future, Blockchain + Finance will open a brand-new market and truly achieve the blockchain revolution.

Special thanks to Liu Changyong for his assistance and guidance on this episode.

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