Six-point analysis of China’s CBDC white paper: What is the relationship with blockchain and cryptocurrency

On July 16, the central bank issued the “White Paper on China’s Digital RMB R&D Progress” and held a media briefing.

There are several points worth paying attention to:

First, the name is tentatively designated as e-CNY, and the previous expression of DCEP (Digital Currency Electronic Payment) is no longer used . According to the white paper, the letter abbreviation is tentatively designated as “e-CNY” in accordance with international usage practices.

The change in the name of the central bank’s Crypto currency has experienced a series of patents from the Central Bank’s Digital Currency Research Institute that began to use D-RMB (also called D currency in the paper) on March 25, 2016, and used DCEP in 2018. Now we start to use Crypto renminbi (e-CNY), but it is still called “tentative” in the white paper, and it may change in the future.

Second, the specifications are high . From the media briefing, this is the first time that Fan Yifei, Deputy Governor of the People’s Bank of China, Luo Rui, Director of the Currency and Gold and Silver Bureau, Chen Jianxin, Deputy Director, and Mu Changchun, Director of the Institute of Digital Currency, etc. Participate in the Crypto renminbi media briefing and report on the development of Crypto renminbi in a high-level summary.

Third, it is only a preliminary result . The “White Paper on China’s Digital RMB R&D Progress” was released under the name of the “People’s Bank of China Digital RMB R&D Working Group”. The release of the white paper was not under the name of “People’s Bank of China Digital Currency Research Institute”. “Or a certain department of the People’s Bank of China issued an announcement, combined with the high specifications of the media briefing, to lock this into a symbolic stage in the development of Crypto renminbi.

Fourth, it has an antagonistic relationship with cryptocurrencies and stablecoins. In the white paper, the third part of e-CNY’s research and development background is the part of cryptocurrency, which is basically all negative.

Cryptocurrencies, especially global stablecoins, are developing rapidly. Since the advent of Bitcoin, the private sector has launched various so-called cryptocurrencies. According to incomplete statistics, there are currently more than 10,000 influential cryptocurrencies, with a total market value of over US$1.3 trillion. Bitcoin and other cryptocurrencies use blockchain and encryption technology, claiming “decentralization” and “complete anonymity”, but the lack of value support, sharp price fluctuations, low transaction efficiency, and huge energy consumption make it difficult for them to be used in daily economic activities. Play currency functions. At the same time, cryptocurrency is mostly used for speculation, which poses a potential risk of threatening financial security and social stability, and becomes a payment tool for illegal economic activities such as money laundering. In response to the large volatility of cryptocurrency prices, some commercial organizations have launched so-called “stable currencies” in an attempt to maintain currency stability by pegging with sovereign currencies or related assets. Some commercial organizations plan to launch a global stablecoin, which will bring many risks and challenges to the international monetary system, payment and settlement system, monetary policy, and cross-border capital flow management.

Fan Yifei also stated at the press conference on July 8 that Crypto currency issuers can be divided into private cryptocurrencies and central bank cryptocurrencies. We must vigorously promote the central bank’s Crypto currency.

Fifth, using some of the blockchain technology , it was stated in the briefing:

“Financial Times” reporter asked: Everyone is very concerned about the technical route of the Crypto renminbi, mainly because the blockchain technology is not used in the Crypto renminbi system? If adopted, what are the specific applications?

Mu Changchun, Director of the Digital Currency Research Institute of the People’s Bank of China, said:

Blockchain has the advantages of non-tampering and traceability of data, but it has shortcomings in performance and scalability. It is more suitable for scenarios such as low concurrency and low sensitivity for asset confirmation, transaction transfer, and ledger verification. According to the technical characteristics and scope of application of the blockchain, the People’s Bank of China has explored innovative applications of the blockchain in the fields of trade finance, confirmation transactions, and transaction reconciliation, such as the trade finance blockchain platform and the Crypto bill trading platform.

According to the top-level design requirements of Crypto renminbi, the technical route design needs to be based on the principles of long-term technological evolution, practicality and efficiency. The first is to meet the requirements of high retail concurrency and centralized management by the central bank, and a centralized approach should be adopted at the transaction level; the second is to promote fair competition and improve the efficiency of supervision; the third is to improve the efficiency of clearing and reconciliation, and achieve “payment as payment”. “Settlement” and efficient error handling; the fourth is to meet the anti-money laundering requirements while protecting privacy.

Therefore, in the transaction layer of the Crypto renminbi payment system, in order to support high concurrency and low latency, and to realize the direct holding of central bank claims by the public, a centralized structure is adopted, and all inter-institutional transactions are transferred through the central bank. At the same time, the design is based on The Crypto renminbi expression of the crypto string retains the characteristics of security, anti-double-spending, and unforgeability. It can also load smart contracts with currency-related functions to promote business model innovation and become a catalyst for Crypto economic activities. At the issuance level of the Crypto renminbi payment system, a unified distributed ledger is constructed based on alliance chain technology. The central bank, as a trusted institution, uploads transaction data to the chain through application programming interfaces to ensure that the data is true and accurate, and operating institutions can conduct cross-institutional reconciliation, Collective maintenance and multi-point backup of the ledger. In order to fully embody the advantages of Crypto renminbi “payment as settlement”, the Crypto renminbi system combines the blockchain consensus mechanism and programmable smart contract features to realize automatic reconciliation and automatic error handling. At the same time, using the irreversible feature of the hash algorithm, the blockchain ledger uses hash digests instead of sensitive transaction information to achieve data isolation between different operating institutions, which not only protects the security of personal data privacy, but also avoids financial data triggered by distributed ledgers Security Risk.

On the other hand, the white paper also stated that Crypto renminbi realizes programmability by loading smart contracts that do not affect currency functions, so that Crypto renminbi can conduct automatic payment transactions based on the conditions and rules agreed by both parties on the premise of ensuring safety and compliance. , To promote business model innovation.

Sixth, there are relatively few individual users. According to the white paper, as of June 30, 2021, the number of Crypto RMB terminal pilot scenarios has exceeded 1.32 million, with more than 20.87 million personal wallets and 3.51 million public wallets. The cumulative number of transactions is 70.75 million, with an amount of approximately 345. 100 million yuan.

From the published data, it can be calculated that the Crypto renminbi (e-CNY) has issued a total of 34.5 billion yuan, and a lot of terminal pilots have been deployed. If all the experimental amounts are traded with offline terminal pilots, then each terminal pilot will trade approximately 26136 yuan. , There are 24.38 million personal and public wallets, and the average balance of each wallet is about 1,415 yuan. Since 3.51 million large-value public wallets are included, after excluding large-value public wallets, the personal wallet balance should be very small.

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