Digital Money and Electronic Payment: Opportunities and Challenges for Global Governance

Author: Heng Jin Cai, from Thatcher and chi Institute of Computer Science, Wuhan University; Wang Kai, from the School of Computer Science, Wuhan University

Abstract: The “One Belt, One Road” initiative has strengthened political mutual trust and economic integration between China and many countries. With the continuous development of blockchain technology, digital currency and electronic payments (DC/EP) have added new influencing factors to the current complex international economic situation. How to take advantage of this new global competition is a problem that China must consider now. In this paper, we think about the law of wealth circulation and the essence of human beings, and introduce the concept of self-affirmation needs. Self-affirmation of demand can promote social development, but it will inevitably lead to social problems caused by expected and actual mismatch. From the national level, we have summarized four solutions to the needs of self-affirmation and have demonstrated from the perspective of historical development. Starting from the self-affirmation needs, we can deduce the four characteristics that the future currency should have: credit-based, certain inflation, mechanisms for making wealth flow to the bottom, and multi-currency. From this point of view, some digital currency projects, including Libra, although they have some advantages, may have a good momentum of development in the short term, but in essence it is difficult to continue to circulate as the future world currency. Under such circumstances, China should seize the historical opportunity, promote the digital currency facing the future, further promote the development of the “Belt and Road” and gain the upper hand in the competition and construction of global financial restructuring. To this end, we propose a billing model based on the pass and a digital currency scheme, which have the advantages of high scalability and parallelism, and are the infrastructure that should be prioritized when developing the digital currency system in China.

1 Self-affirmation of demand at the national level

Whenever possible, people's evaluation of themselves is generally higher than the average level within his cognitive range, and in the distribution process he prefers to get a higher than his own evaluation. This kind of demand is called self-affirmation demand. Self-affirmation of demand itself does not have the distinction between good and evil, is the attribute of human beings, is a rigid demand, and is not weaker than material needs. From the perspective of self-affirmation needs, we can explain the historical dynasty replacement, the transfer of wealth centers, and the volatility of financial markets, especially the financial crisis.

Self-affirming needs seem simple, but not the same as "people are rational," "people are selfish," and "people are maximizing profits." Many times people will behave as rational or selfish, but in essence, the inner driving force is at work. Self-affirming demand will have two effects. One is to push itself forward, thus pushing the whole society forward, which is the force that promotes social progress. But on the other hand, it sometimes brings some negative consequences. For example, every member of the team tends to overestimate their contribution and expect more distribution, so the current output of the team is not enough for everyone to be satisfied. In this case, the gap between the actual available output and everyone's expectations, if not compensated as quickly as possible, the team will be in a state of disharmony.

At the national level, things in the human condition have almost disappeared, and there is only a direct interest relationship. Therefore, some people say that there is only a permanent interest between the countries and there is no eternal friend. When we study how to fill the gap between the expectations of the people of the country and the current output, we find that there are four main ways in which wealth can emerge.

The first is learning and independent innovation. Learning can be seen as learning from others and directly acquiring shaped products or technologies, so that we can produce more benefits in a relatively short period of time to compensate for the gap. Of course, we can also create inventions on our own, and there is a certain monopoly in technological progress. If there is patent protection, we can have higher returns to meet everyone's expectations.

The second is external acquisition. In the commercial society, our external access is mainly trade activities. In the case of a trade surplus, we can create more benefits and satisfy everyone. In the agricultural society, external access may be more manifested in aggression to seize land, weak meat, or to squander and buy road money, in order to achieve rapid access to external wealth. In short, we regard this society as a system, and we must have foreign wealth coming in. The development of a city will be like this. If a company with strong development momentum is stationed, then the city will be more prosperous.

The third is the overdraft of the future. The current output is not enough, we can promise the future. At the national level, taking national debt as an example, we use new debts to pay off old debts, and debts are actually issued in a rolling manner. Many countries have had serious overdrafts. For example, the total amount of US Treasury bonds is about 22.5 trillion US dollars. In fact, the United States is not only having these debts, but also the Liabilities of the future. The actual value of the event is as high as more than two hundred trillion US dollars, almost ten times that of national debt. The value-added of US financial assets is very fast. After inflation, the average can be 10% to 14%. According to Einstein's "Seventy-two Rule," financial assets will double every five years or every seven years. After 100 years, this number will be exaggerated. On the other hand, the annual GDP growth in the United States is actually less than 3%. It has not grown much in 100 years, but the net worth of the stock has accumulated more than a thousand times in 100 years. This gap is mainly due to the US external debt and commitment to the future.

The fourth way is to start again after the crash. If the above three methods can't keep the country or society going, it can only be started after the collapse, that is, all reintroduced. This requires huge social costs. The main performance in China is the replacement of the dynasty. In the West, it is more represented as the transfer of wealth centers. The Western countries began their wealth centers from Portugal and Spain, to the Netherlands, to the United Kingdom, and then to the end of World War II. The hegemonic transition to the United States has only passed more than 300 years. From the time of the founding of the United States from 1776 to the present, it has been more than 200 years. It can be seen that the empire's grand occasion is difficult to maintain.

From here we can easily see the law of the rise and fall of the country. If, according to the general understanding, the national system is good and the culture is advanced, then it should always be prosperous, but we see that there is no country like this in modern times. The once-in-a-day empire – Britain, Newton's mechanics, Maxwell's equations, Turing machines, steam engines… Many major innovations have emerged in the UK, but their prosperity has not been maintained. The development of the country certainly requires excellent institutions, culture and innovation to prolong life, but even if there is, it is not enough to last for a long time, because people's pursuit of self-affirmation needs no end.

It can be seen clearly from the laws of Chinese history. From the beginning of Qin Shihuang to the present 2000 years, if we divide Chinese history with a long-lasting dynasty as a node, we will find that it is characterized by strong quasi-periodicity. The three countries, the Western Jin Dynasty, the Eastern Jin Dynasty, and the Northern and Southern Dynasties are quite special, but they can also be understood with self-affirmation needs. Because of the influence of Buddhism and Taoism, the Confucian orthodoxy is challenged, especially from the thoughts of the seven sages of the bamboo forest. Therefore, there is actually no orthodox thought running through this period of time. It is not easy for people to reach a consensus at that stage, so this history is chaotic.

The longer dynasties have a common feature, that is, in the period of 100 years or so, or during the period of the third generation of emperors, there is a "prosperous world". In the later period, even if the emperor worked hard and was smart, he could not continue the dynasty, and many corruptions continued to occur, eventually leading to the collapse of the dynasty. This quasi-periodicity can be understood by the theory of self-affirmation demand. For example, why did the Qin Dynasty have a powerful army capable of destroying the six countries, but suddenly disappeared in a short period of time? The reason is that in the process of the Qin State's destruction of the six countries, the rewards and punishments are clear, and the external resources available for encroachment are sufficient. According to the law of Shangyu, as long as there is military merit, the land and the title can be obtained. But when the big countries are formed as a whole, the external resources are drastically reduced, and even the wealth already existing inside needs to be consumed. The original incentives cannot be fulfilled and become a burden. After the founders took over the regime, there were many measures to flatten the wealth. For example, in the early Han Dynasty, the king of Liu was abolished, and the king of Liu was also cut off. These operations can be regarded as wealth. Muping, in this case, the country is more likely to develop at a lower level and last longer.

China's reform and opening up has also played a similar effect. Decentralization of power is actually the right of the central government, so that the interests of the central government. In this case, the enthusiasm of labor will be greatly enhanced, and wealth will emerge in large numbers. So we can see the rapid economic growth of China in recent decades, and at the same time there are positive foreign trade activities to help.

The Roman Empire can also be seen with self-affirmation needs. A dynasty is difficult to maintain for more than 400 years, but the Roman Empire continued to expand in 600 years, the population increased by almost 600 times, and the land increased by almost 6,000 times. In an agricultural society, land is a landmark measure of wealth. Land acquisition is more than the population increase, and it is the state that can continue to develop. By the first year of AD, Rome had expanded to the border, and the resources that could be harvested outward were less than the cost. At this time, the expansion was stopped, and the social structure was changed and changed. Later, the monarchy replaced the republican system. It is difficult to understand with the usual theory. Why does it seem that the more advanced republican system will be replaced? It is because after expansion to the border, it is gradually unable to satisfy all citizens, and the interests of citizens cannot be maintained. Only the interests of the oligarchs and the military can be placed in the first place. The competition for internal competition and mutual deprivation is an unstable state. In the end, it can only It crashed quickly.

2 Important characteristics of future world currencies

In the beginning, people carried out physical exchanges. Later, there were shells and other easily-divided and easy-to-carry things as evidence. This is the original form of money. This form essentially exchanges what was in the past as a voucher.

When the banknotes appeared, more of them became credits. In the past, credit as a certificate was not easy to maintain because someone must overuse his credit. For the currency, at the beginning we want to make a full mortgage with a full equivalent, such as gold or silver or physical assets. However, due to the role of self-affirmation, everyone has the pursuit of wealth, and still can not fill the gap, which is the problem Libra will eventually face. The full amount of mortgages is not necessarily a good thing, because if all the social wealth is used as collateral, we require that the distribution still exceeds our current output, so the credit currency itself is inevitable, and society has this demand, which is bound to happen. of.

With the passage of time and the strong technical means, if we can have a better understanding of some characteristics of credit, then the future world currency is more than just the actual wealth of the real thing, but more biased towards credit. itself.

Our current blockchain and artificial intelligence technologies have actually provided the technical foundation and provided more possibilities. Under this trend, we must also see the law of essence: self-affirmation of demand, each person will overestimate their contribution, overestimate their importance, and hope to have more than one share on this basis. Then it will lead to the expansion of credit. If it expands excessively, it will eventually lead to a breakdown.

If the actual wealth growth is faster than expected, it will lead to the bursting of the accumulation bubble. This is one of the characteristics of the future world currency, which necessarily requires a certain amount of inflation. For example, wage illusion, we must maintain a certain illusion, feel that our wages are rising, in order to meet self-affirmation needs, but in fact the inflation rate may have to offset some of the rising wages.

The second key feature of the future world currency is the mechanism that requires wealth to flow to the bottom. Because there is a self-affirmation demand, people will benefit and avoid disadvantages, and wealth must flow to a few people. This is an inevitable trend. Then the monetary authorities actually have to let the wealth return to the underlying mechanism, otherwise the society will be more likely to collapse if it gathers too fast. In modern systems, such as in the West, individuals can file for bankruptcy, which is a form of compensation for the flow of wealth to the bottom. In China, such as secondary payment, secondary distribution, three distribution or transfer payment, these are also a way, although its strength is enough to be doubtful. Some places in the West are now experimenting with the basic income system, including Yang Anze, who recently elected the president of the United States, and also advocates basic income. This is also a way for wealth to flow to the bottom. Whether Libra will have a similar mechanism is critical. We still don't see this motivation and possibility, because we usually think from a purely commercial point of view. A good system is to maintain the steady development of the system, not a bubble. A good investor should try to suppress the bubble and let the social dynamics be ordered and slowly released. In this case, the time can be maintained longer. This mechanism is needed for the design of the future monetary system.

The third characteristic of the future currency should be multi-currency, and it is a multi-currency in the era of cheap money. The trend we are seeing now is that many countries are negative interest rates. Japan used to have low interest rates and negative interest rates for a long time. Now that Europe is already a negative interest rate, the United States is also looking in the direction. Why emphasize multi-currency? If they are all on the same value scale, it is more difficult to meet the self-affirmation needs of all. We need a society with a lot of value systems. Everyone can choose the value system that suits them and move up in the system. For example, some people are now speculating on shoes. Of course, they are not all rational, but they are reflected in the value of collection, which can satisfy self-affirmation needs, rather than a series of numbers in bank accounts.

Blockchain technology gives us a whole new way of reaching consensus. The discussion at the outset was how to reach a consensus on technology, but it is slowly reflected in the community consensus, which is the inevitable direction of the future. The community is not big and comprehensive. The goal of achieving consensus is not too big. It is to reach a consensus on small issues, and reaching consensus will bring about changes in value and kind of transfer. Such community operation is good. In the community, everyone really feels that this direction is right, there is a future, and in this system find their own way to meet self-affirmation needs.

We must admit that each person's level of cognition is different. Then you need to let people with different levels of knowledge find their own value system and fight and grow in the value system. Therefore, the future world currency is required to have different currencies. For example, food vouchers in the United States can get supermarkets to buy food and daily necessities, but they can't take investment. This is actually a different kind of currency. For example, China has targeted RRR reduction, industrial policy inclination, etc., which can also be achieved through different currencies or certificates.

Similar to the European dollar principle, if a RMB digital currency system is implemented along the Belt and Road or beyond, as a regional digital currency system that maintains a certain independent relationship with the domestic circulation system of the RMB, it can also use the RMB credit endorsement for domestic production capacity. The export of overseas and the diversification of terminal consumption tokens will help promote the internationalization of the RMB in the form of digital currency.

3 The impact of digital currency

When it comes to digital currency, the first thing that comes to mind is bitcoin. The ups and downs of bitcoin prices in recent times have also become one of the hot topics. Bitcoin is considered to be a symbol of the blockchain 1.0 digital currency era. Like traditional currencies, it can afford to pay and trade, but at the same time it has lower fees, faster speeds, and decentralization. . Its founder, Nakamoto Satoshi, said that he wanted to use Bitcoin to confront the national currency. Bitcoin's accounting method is based on a transaction model, using UTXO (unexpended transaction output) accounting. The advantages of blockchain were quickly explored by people, and the era of blockchain 2.0 came, and Ethereum became the symbol of this era. Ethereum is an account-based accounting method that can carry digital assets and support smart contracts. After the Ethereum, different mechanisms and different characteristics of digital currency projects followed. On June 18, 2019, Facebook released the Libra white paper. As the world's first large-scale Internet giant cryptocurrency, Libra has accelerated the global promotion of digital currency.

Libra also comes with Ethereum's account-based color, which also emphasizes the transaction itself, the "move", moving from one place to another. One of the drawbacks of account-based accounting is that its account has limitations, such as the difficulty of achieving fragmentation or cross-chaining. When designing Move, Libra took these two issues into consideration, considering the needs of hundreds of millions of potential users, and adopted the new HotStuff as a consensus mechanism for Byzantine fault tolerance. Libra is a chain of alliances, and the number of nodes can be controlled, initially setting 100 nodes. Even so, the transaction of carrying hundreds of millions of users is still very difficult. It is still unclear to meet the TPS of such users. The global network itself has a delay, and it takes a certain time to reach a consensus. It will be even harder for Libra to change to the public chain after five years, and may even need to be completely structurally changed. Although the problem is serious, we still believe that Libra can be implemented because the digital currency world does need value anchoring. With value anchoring, the pricing of other passes will become more convenient. And because Libra has enough potential users, it can bring more users into the blockchain world.

There is another dimension around Libra's discussion, which is financial competition and confrontation at the national level. Historically, competition between big powers has been between the pound and the franc, the dollar, the euro and the dollar. This is also the case with digital currency competition. Digital currencies that reach such a broad consensus, such as Bitcoin and Libra, will have a significant impact on the currency once they join the battlefield. The G7 finance minister is opposed to Libra, and Trump is also opposed. The reason behind this is that the basis of the legal currency is not so strong. Although Libra advocates not fighting against sovereign currency, but as a means of payment, as a secured currency, the problem is that in the future, financial markets will be turbulent, and confidence in the mainstream currency will be shaken. Libra will have a wealth as a mortgage. The digital currency will look more attractive. In other words, regardless of whether Libra wants to become a competitor to the French currency, it is bound to become one of the fidelity factual competitors.

Libra will have a certain threat to the renminbi, but its threat to the dollar is the number one. Behind the US dollar is the endorsement of government credit. In theory, it is to support the US dollar through future taxation. The U.S. government has a large social security and medical insurance commitments ($200 trillion discounted), and it is very likely that the pits will not be filled yet, and big problems will break out. In contrast, China's financial situation is much better. Although many banknotes have been printed in China, resulting in rising house prices, there are at least many state-owned enterprises with a very large value. The difference here is that the United States has been developing for many years, and the debt owed by the world hegemon has accumulated too much, while China has only developed for decades and has less debt. In the game of the world stage, digital currency and the US dollar and the renminbi will compete in a certain sense, and the blockchain will occupy an important role. One day the government will realize its importance and will be tilted in policy. Although we can't predict which day will happen, we are now ready to do so. Coupled with the rapid development of new technologies, especially China is now in a rising historical position, the financial confrontation between China and the United States will be more intense. In this fierce confrontation, the blockchain may become another ruler to measure wealth.

4 The accounting model with the core as the core

In view of the current understanding of Libra, we strongly recommend the use of a token-based (Token-based) accounting model to develop the central bank's digital currency system. One of the advantages of the accounting model's accounting method is that it supports in-kind parallelism. The trading model focuses on token ownership, rather than on the actions between two accounts. The digital currency belongs to whoever signs the signature. The model involves the operation of two accounts must be completed at the same time (atomic) so that there is no error, avoiding the phenomenon of stolen money caused by the inability of the two accounts to balance. In the pass model, each token has an ID. If it involves double-flowering or 51% attack, then a certain governance mechanism can effectively prevent double flowers, especially the double flower caused by 51% attack. Bitcoin's POW mechanism is always likely to face 51% of attacks, which is a flaw in Bitcoin, and another drawback is energy consumption.

At the launching ceremony and the first academic seminar of the Digital Finance Open Research Project held on July 8, 2019, Wang Xin, director of the Research Bureau of the People's Bank of China and head of the Money and Banking Bureau, pointed out that the Central Bank is now officially approved by the State Council. Organize market institutions to conduct research and development of central bank digital currency. The central bank's digital currency is defined as M0 in China. Libra will form a battle with the legal digital currency and a few digital stable coins. Behind the currency is interest, power, politics, international politics, and diplomacy. Therefore, if a payment instrument plays a monetary function to a considerable extent, it will inevitably impact the legal currency and thus an international currency. Regulation, financial regulation, and even all aspects will have a direct impact. The central bank will continue to explore digital finance to better support the development of the real economy, improve the institutional framework for financial technology supervision, develop regulatory technology, and strengthen the construction of digital financial infrastructure.

On August 10, at the China Financial Forty Forum, Deputy Director of the People's Bank of China Payment and Settlement Department, Mu Changchun introduced the design concept and technical framework of the central bank's digital currency: in order to meet the high concurrency performance of the retail level, pure district The blockchain structure cannot meet the requirements; the central bank's digital currency adopts a two-tier (central bank-commercial bank) operating system; the two-tier operating system does not change the currency creditor's rights and debts in circulation. In order to ensure that it is not over-extended, the commercial institution will fully pay the central bank 100. % pays the reserve; does not preset the technical route; the central bank's digital currency design at this stage focuses on M0 substitution instead of M1 and M2 substitution; Libra does not limit itself to M0, and may have currency overshoot; DC/ EP must adhere to a centralized management model; central bank digital currency can load smart contracts.

The blockchain system based on the Token-Based Bookkeeping Method can be used to implement a regulatory-friendly digital currency banking architecture. The architecture is divided into two main parts.

First, the M0 issuer. The central bank's center can be Beijing, Shanghai, Shenzhen, Guiyang, Wuhan and other geographically distributed centers. The central bank can also invite other banks (such as the top five). Banks and technology companies (such as telecommunications, Huawei, etc.) enter the alliance of M0 issuers, and the alliance can reach a consensus to issue coins. The distributed structure of geography and network makes the work of the entire M0 Alliance work normally even if some centers in the system are attacked or destroyed.

Second, other commercial banks. Commercial banks interact with the M0 issuer. Each commercial bank can be divided into different levels of head office, branch, and branch. Each level can be a “one-to-many” relationship, that is, a branch of a head office has multiple branches, and one branch has subordinates. A number of sub-branches. No matter how Facebook is linked to the federal government, once there are many people using it, it is a globally competitive currency, so Libra is the de facto contender for the dollar. Qin lost his deer, and the world went by. The views advocated by the central bank are very close to our judgment. Compared to Libra's Move mechanism, which emphasizes the operation itself, the Token-based accounting model is much more straightforward. The technology is completely developed by the Chinese technical team and is very mature and has been applied to the underlying implementation of the public chain everiToken. The single-chain main network has a TPS of more than 10,000. In addition to high concurrency, it also has outstanding features of regulatory friendliness and high security. The CSI-based approach is a banking architecture of pure blockchain technology that will meet all of the needs of future business development and national governance, including the Belt and Road digital currency system.

Compared to Libra's Move, we believe that the Citation model is better than Libra's design, it has good scalability and can have all the features of Libra. In this framework, the token in the monetary sense can be expanded in theory in an infinite way. It is easy to understand it as the relationship between the head office, the branch, and the branch. It can be understood as paying with a check. Of course, this involves the branch. Liquidation problems between or across lines, but liquidation in the electronic world is not a difficult thing. More importantly, the certificate model is also particularly suitable for non-monetary certificates, because the future "coin" is not only the current mainstream currency, but also the different assets corresponding to different tokens in the blockchain world, or even different. Fragment of consciousness. If it is only limited to paying stable coins, now Alipay and WeChat have done a good job under the premise of centralization. The decentralization method will not bring much benefit. We use blockchain technology, it should be better in a new scenario, the original technology can not be overcome or it is difficult to do. We believe that the future of the spiritual world also needs pricing and evolution, and may be a vast world with more potential and more vitality.


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