Research Report | The central bank will talk about legal digital currency, and the blockchain industry is expected to benefit?

Summary
The central bank proposed to accelerate the pace of research and development of China's legal digital currency, which was previously "solid progress."

At the beginning of August, the People's Bank of China (hereinafter referred to as the “Central Bank”) held a video conference for the second half of 2019. The meeting called for accelerating the pace of research and development of China's legal digital currency (DC/EP), tracking the development trend of domestic and foreign virtual currencies, and continuing to strengthen Internet finance. Risk remediation. This is the second time after the central bank’s 2018 national currency gold and silver work video conference on the development of the central bank’s digital currency on March 28, 2018, when the central bank proposed that its currency gold and silver sector steadily advanced the central bank’s digital currency research and development, 2018 It is necessary to promote the central bank's digital currency research and development in a solid manner. It can be seen that the statement of the central bank in 2019 conveyed at least the following information: (1) Although Yao Qian, the director of the Central Bank Digital Money Research Institute, went to China Securities Depository and Clearing Co., Ltd. in the second half of 2018 (hereinafter referred to as “CSI” As a general manager, the central bank did not give up tracking research on legal digital currency and virtual currency, and put forward higher requirements for the speed of research and development of legal digital currency; (2) English abbreviation of legal digital currency in China (DC/ EP).

Our legal digital currency focuses on payment.

DC/EP was first proposed by Zhou Xiaochuan, the then central bank governor, on March 9th, 2018 at the "Financial Reform and Development" theme conference of the 13th National People's Congress. He stated that the name of the legal digital currency developed by the central bank is “DC/EP” (DC, digital currency, EP, electronic payment, electronic payment). This term is more focused on payment than CBDC (central bank digital currency), which was previously proposed by central bank officials for all central bank digital currencies. This means that the main purpose of the central bank's digital currency is in currency three. “Means of payment” in large-scale functions, not “value storage” and “value scale”.

The central bank’s research and development of digital currency has continued. Since 2014, the central bank has been active in digital currency research and development. They include at least the following aspects: (1) Specially proposed “central bank digital currency” in the above two working conferences, and deployed relevant work; (2) set up special Digital Money Research Institute, the institute also initiated the establishment of a wholly-owned Shenzhen Financial Technology Company; (3) actively applied for relevant patents, the State Intellectual Property Office patent inquiry system showed that as of August 4, 2019, the central bank’s digital currency research A total of 74 patents involving digital currency were applied; (4) The pilot application scenario of using the digital ticket trading platform as a legal digital currency was determined, and relevant tests and trial runs were completed.

The blockchain industry may benefit from the research and development of China's central bank digital currency. According to Zhou Xiaochuan, former president of the central bank, Yao Qian, former director of the Central Bank Digital Currency Research Institute, and Wang Xinhe, director of the Research Bureau of the People's Bank of China and the director of the Monetary and Financial Bureau, and his speeches, a possible central bank digital currency (hereinafter referred to as "CBDC" "or" DC/EP") The framework for R&D is gradually revealed: The Central Bank Digital Money Research Institute is co-organizing distributed R&D with the industry, relying on the way of cooperating with the market to develop digital currency; the preliminary definition of China's legal digital currency is dominated by the central bank. The digital currency based on the encryption algorithm is issued while maintaining the physical cash issuance, that is, part of M0 is composed of digital currency; China’s central bank digital currency may adopt the “one currency, two banks and three centers” structure; the blockchain is expected to be applied to The registration, circulation, inventory check and demise of China's legal digital currency are registered in the whole process to establish a centralized bookkeeping center with centralized distribution. We believe that at least the following institutions may benefit from PBC digital currency R&D: (1) market institutions that develop digital currencies along with the central bank's digital currency research institute; (2) big data analytics institutions; and (3) identity authentication services; 4) Wallet service providers, technical service providers, identity and transaction registration service providers with experience in retail payment business in the blockchain industry… Risk warning: Blockchain technology development is not up to expectations; regulatory policies are becoming stricter. 01

 
Central bank again proposes legal digital currency

At the beginning of August, the People's Bank of China (hereinafter referred to as the “Central Bank”) held a video conference for the second half of 2019. The meeting called for accelerating the pace of research and development of China's legal digital currency (DC/EP), tracking the development trend of domestic and foreign virtual currencies, and continuing to strengthen Internet finance. Risk remediation. This is the second time after the central bank’s 2018 national currency gold and silver work video conference on the development of the central bank’s digital currency on March 28, 2018, when the central bank proposed that its currency gold and silver sector steadily advanced the central bank’s digital currency research and development, 2018 It is necessary to promote the central bank's digital currency research and development in a solid manner. It can be seen that the statement of the central bank in 2019 conveyed at least the following information: (1) Although Yao Qian, the director of the Central Bank Digital Money Research Institute, went to China Securities Depository and Clearing Co., Ltd. in the second half of 2018 (hereinafter referred to as “CSI” As a general manager, the central bank did not give up tracking research on legal digital currency and virtual currency, and put forward higher requirements for the speed of research and development of legal digital currency; (2) English abbreviation of legal digital currency in China (DC/ EP). DC/EP focused on paying DC/EP. Zhou Xiaochuan, who was then the governor of the central bank, first proposed on March 9th, 2018 at a press conference on the theme of "financial reform and development" at the 13th National People's Congress. He stated that the name of the legal digital currency developed by the central bank is “DC/EP” (DC, digital currency, EP, electronic payment, electronic payment). This term is more focused on payment than CBDC (central bank digital currency), which was previously proposed by central bank officials for all central bank digital currencies. This means that the main purpose of the central bank's digital currency is in currency three. “Means of payment” in large-scale functions, not “value storage” and “value scale”. The central bank's digital currency research and development is constantly based on public information. Since 2014, the central bank has been active in digital currency research and development. They include at least the following aspects: (1) Specially proposed “central bank digital currency” in the above two working meetings. (2) set up a special digital currency research institute, the institute also initiated the establishment of a wholly-owned Shenzhen financial technology company; (3) actively applied for relevant patents, the national intellectual property office patent inquiry system showed that On August 4, 2019, the Central Bank Digital Currency Research Institute applied for a total of 74 patents involving digital currency; (4) Determining the pilot application scenario of using the digital ticket trading platform as a legal digital currency, and completing related tests and trial runs. 02 03 04

Central bank officials clamoring for legal digital currencies

Zhou Xiaochuan, former president of the central bank, Yao Qian, former director of the central bank's digital currency research institute, and Wang Xin, director of the Research Bureau of the People's Bank of China and the director of the Monetary and Financial Bureau, and other central bank officials have repeatedly voiced the central bank's digital currency. These statements highlight the statutory status. The importance of digital currency. For example, Yao Qian, former director of the Central Bank’s Institute of Digital Money, said at the time of his post, “If finance is the core of the modern economy and the blood of the real economy, money is the core of the economic core, and the blood circulating in the blood of the economy. The legal digital currency is the crown jewel of financial technology and has a huge impact on the future development of the financial system.

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Blockchain industry may benefit from China's central bank digital currency research and development

According to Zhou Xiaochuan, former president of the central bank, Yao Qian, former director of the Central Bank Digital Currency Research Institute, and Wang Xinhe, director of the Research Bureau of the People's Bank of China and the director of the Monetary and Financial Bureau, and his speeches, a possible central bank digital currency (hereinafter referred to as "CBDC" "Or "DC/EP") The framework for R&D is gradually revealed: – Issuer: The digital currency as the legal tender must be issued by the central bank; – Positioning: The initial definition of China's legal digital currency is dominated by the central bank, maintaining physical cash issuance At the same time, a digital currency based on an encryption algorithm is issued, that is, a part of M0 is composed of digital currency. In other words, the central bank's digital currency is a partial replacement of cash in China . The responsibility for research and development of digital currency is currently in the Monetary and Financial Bureau; – Cooperative institutions: The Central Bank Digital Monetary Research Institute is co-organizing distributed R&D with the industry, relying on sharing with the market. The way of cooperation to develop digital currency; – Purpose: The purpose of the central bank to study digital currency is to pursue the convenience, speed and low cost of the retail payment system , while also considering security and privacy protection; "from the central bank – commercial banks – Non-bank financial institutions – unit accounts – personal accounts, until the final replacement of physical cash completely " is an easy to difficult, from B to C, from wholesale to retail, gradually expand the scope of use of the central bank digital currency controllable Evolution path. 08 – Architecture: The issuance and return of the central bank's digital currency is based on the current "central bank-commercial bank" dual system; China's central bank digital currency will adopt the "one currency, two banks and three centers" structure. Among them, “ one currency ” refers to an encrypted number string that is guaranteed and signed by the central bank and represents a specific amount. “ Two libraries ” refers to the bank library of the central bank’s issuing bank and commercial bank, and also includes individuals or units in the circulation market. The user uses the “wallet” of the central bank's digital currency. The “ three centers ” refer to the certification center (centralized management of agency and user identity information) and the registration center (recording the central bank's digital currency and corresponding user identity, completing the ownership registration; recording the flow of water , complete the above-mentioned currency generation, circulation, inventory check and demise registration process.) and big data analysis center (anti-money laundering, payment behavior analysis, analysis of regulatory indicators, etc.); -Technical route: DC/EP can be block Chain-based digital currency can also be based on existing electronic payment evolution technology; blockchain is expected to be applied to establish a centralized/distributed equilibrium for the generation, circulation, inventory check and demise of Chinese legal digital currency. bookkeeping registration centers; – the availability of the block chain: when he was director of the Institute of digital currency in the central bank before Yao "central The experimental study of the digital currency prototype system analyzes the feasibility of applying the distributed ledger technology (this report is called “blockchain” in a large number of occasions) to the central bank digital currency prototype system. . He mentioned:

“The central bank digital currency prototype system applies the distributed ledger technology to the CBDC confirmation registration experiment. Initially, the central bank and commercial banks construct a CBDC distributed confirmation book, providing a website for external CBDC confirmation through the Internet. The function of the CBDC online money detector is to use the distributed account book to be tamper-proof and unforgeable. It adds a layer of technical support to CBDC to enhance security. The prototype system will issue the CBDC update information generated by the registration subsystem, and issue the confirmation message. The system is released to the distributed confirmation book. The issue registration subsystem and the distributed confirmation book ensure consistency within a certain time and frequency.

"Using distributed ledgers to construct a copy of CBDC confirmation information and provide external query services through the Internet. This design isolates and protects the core issue registration subsystem from the outside world, and at the same time utilizes the advantages of distributed ledgers to improve The data and system security of the right query; on the other hand, since the distributed ledger is only used to provide query access to the outside, the transaction processing is still completed by the issue registration subsystem, thus effectively avoiding the existing distributed ledger in transaction processing. Performance bottlenecks.

“At the same time, through the prototype system experiment, distributed account book technology also faces a series of problems in practical application, and needs continuous technical improvement to enhance its usability. For example: CBDC amount is important privacy data, distributed ledger needs strict protection, can Applying the additive homomorphism of ECC (elliptic curves cryptography) algorithm, with zero knowledge proof, privacy protection can be realized. Distributed account nodes can not be maintained offline, system vulnerabilities are difficult to repair, and emergency intervention can be built in the bottom layer. The interface is authorized to a specific user, and the system is suspended as needed. The consensus algorithm of the distributed ledger lacks flexibility, and the consensus node cannot dynamically join or exit. The dynamic management of the consensus node can be realized through the smart contract management whitelist. – Identity authentication: The user identity authentication of digital currency adopts the principle of “ voluntary at the front desk and real name in the background ”, which not only guarantees the privacy of users, but also avoids the risk of illegal transactions;

– Construction process: The construction process of the central bank digital currency prototype system is divided into multiple phases. Among them, the first phase of construction is mainly aimed at the first layer of the closed loop from the central bank to the commercial bank, involving the issuance, return and transfer of legal digital currency (the second layer is the central bank digital currency of commercial banks to individuals or business users). Access, at which point the currency is transferred in the commercial bank library and the digital currency wallet of the individual or business; the third layer is the circulation of the central bank digital currency between the individual or business user, at which point the currency is in the personal or corporate digital currency The transfer between wallets, wallets, big data analysis centers, etc. will not be realized in the first phase of construction.

From the above statements and other official research data on the central bank's digital currency, we can also make some intuitive inferences, at least the following institutions will benefit from the research and development of digital currency: (1) research and development of digital currency with the central bank digital currency research institute Market organization; (2) big data analysis organization; (3) identity authentication service organization; (4) wallet service provider, technical service provider, identity and transaction registration service provider with experience in retail payment business in blockchain industry…

risk warning
1. The development of blockchain technology is not up to expectations; 2. The regulatory policy is becoming stricter.