Yao Qian: The “Before and Present” of the blockchain and the central bank digital currency

Beijing News reporter Zhang Yixin Cheng Weimiao

Source: Beijing News

Blockchain, a concept that was widely discussed in IT and finance before, because the Central Political Bureau quickly became a high-frequency word and “net red” among ordinary people. For a time, the concepts, technologies, and industries associated with blockchain have received unprecedented attention.

Among them, the relationship between blockchain and digital currency, electronic payment and other concepts is the focus of attention. “Gold and silver are not money, but the currency is naturally gold and silver.” So, is the blockchain a distributed database that cannot be tampered with and unforgeable, and does it exist with digital currency? What is the relationship between blockchain and digital currency? In what direction will the future of the central bank's digital currency develop?

In this regard, Yao Qian, general manager of China Securities Depository and Clearing Co., Ltd. and former director of the Digital Money Institute of the Central Bank, told the Beijing News reporter about the relationship between the blockchain and digital currency.

Yao Qian, general manager of China Securities Depository and Clearing Co., Ltd. and former director of the Digital Currency Research Institute of the Central Bank.

The Origin and Evolution of Cryptography in Blockchain

A revolutionary breakthrough in modern cryptography is to solve the problem that symmetric cryptographic algorithms cannot be popularized in large-scale information encryption transmission. A symmetric cryptographic algorithm refers to the encryption and decryption sharing a single password, also known as a single-key cryptographic algorithm.

In 1976, Diffie and Hellman proposed that the original key be split into two pairs of keys, one for encryption and one for decryption. The encryption key is exposed, called the public key. The decryption key cannot be made public, but it is secretly held by the person and cannot be known to others. It is called a private key. For example, Zhang San wants to send information to Li Si, and Zhang San wants to encrypt the information with Li Si's public key. Only Li Si's private key can be unlocked, and no one else can solve it.

In 1978, Rivest, Shamir, and Adleman proposed the RSA cryptographic algorithm, and for the first time implemented an asymmetric cryptographic algorithm. In addition to solving the problem of large-scale key distribution in open systems, the asymmetric cryptographic algorithm also brings the functions that the original symmetric cryptosystem does not have, which is a very unique authentication function. For example, Zhang San wants to send messages to others. Zhang San not only encrypts the message with someone else's public key, but also uses Zhang's private key to sign it, so that others can use Zhang San's public key for verification. Is the message sent by Zhang San?

Hash algorithm is another leap in modern cryptography, which is also known as information digest. The earliest SHA hash algorithm was designed by the National Security Agency and was released in 1993. In 2010, the China National Cryptography Authority announced the Chinese commercial password hash algorithm standard: SM3 password hash algorithm.

Unlike symmetric encryption and asymmetric encryption, the hash function is a fast convergence algorithm. The calculation from input to output is very fast and converges quickly. It does not require huge computational resources, and it is almost impossible to reverse the input from the output. . Based on such excellent characteristics, the hash function is widely used, and the renminbi crown number we take for granted can be understood as being generated by the hash algorithm.

In the field of digital currency, the hash algorithm is widely used. For example, hash algorithms are often used as tools for digital currency trading mining, trading block links, and wallet address compression.

The origin of digital currency

For a long time, cryptographers have an idea. Since mail can be encrypted and signed, can cash in hand be added to a digital envelope like a mail, encrypted and signed, and sent from one end to the other? This is the origin of the earliest digital cash ideas.

In 1982, David Chaum published a paper "Blind Signatures for Untrackable Payment Systems" at the top secret cryptography conference. In this paper, a new cryptographic protocol based on RSA algorithm-blind signature is proposed. The use of blind signature to construct an electronic cash system with anonymity and non-trackability is the earliest digital currency theory and the earliest test system that can be landed. It has been highly recognized by the academic community.

However, the model that Chaum built at that time was still the traditional “bank, individual, merchant” centralized model. As the volume of transactions increases, the database of digital currency serial numbers has become larger and larger, and the verification process will become more and more difficult.

In 2008, Nakamoto published a classic paper "Bitcoin: A Peer-to-Peer Electronic Cash System", which proposed a new decentralized electronic cash system. One of its core ideas is to eliminate it through peer-to-peer network. Single-center dependency, realizes point-to-point transactions, and converts the spent digital currency serial number database into an unexpended digital currency serial number (UTXO) database, controls the data size, and uses the hash algorithm to mark the time and connect. In this way, a brand-new distributed netbook based on the consensus of the whole network can be constructed, and the centralized bookkeeping in the usual sense is divided into distributed bookkeeping about once every ten minutes. The right of bookkeeping is selected by the whole network competition, bookkeeping The data is connected in chronological order and broadcast across the network. Any node can be synchronized to all the bookkeeping records on the network, and all computing resources can participate in the contention of bookkeeping rights. An attacker cannot attack the bookkeeping (link) system if he does not have more than 50% of the computing resources of the entire network.

Through such a design, the point-to-point transaction that people could not do before through the mountains and rivers can now be realized without relying on intermediaries such as banks and relying on distributed ledgers.

Blockchain innovation

From the perspective of system architecture, blockchain technology is a brand-new information network architecture that opens the walls of traditional centralized systems. Each node can be either a client or a server. This makes the C-end customer's autonomous control ability and its right to speak in the system greatly enhanced.

From the accounting point of view, it is a brand new distributed ledger technology (DLT), adopting a new accounting method: everyone can participate, all participants share and share the book information, can detect and verify the book information . Compared with the traditional ledger technology, the advantages of DLT ledger technology are that it is not easy to forge, difficult to tamper with, open and transparent, and traceable. Easy auditing can not only ensure the consistency of multiple accounts, but also automatically complete the real-time account matching, account matching, and accounting. Match. From a technical perspective, an instantaneous balance sheet preparation may become possible.

From the account point of view, it is a brand new account system. Traditionally, all of our financial business is carried out around the bank's account. Now the private key is generated locally, very secret, from which the public key is derived, and then the wallet address is transformed. Opening accounts for yourself, not requiring an intermediary, and changing the account system is a very significant change in financial history.

From the perspective of asset trading, it is a brand new value exchange technology. Based on this technology, we can create a new financial market model: as a trust machine, asset transactions can be de-mediated.

From the perspective of organizational behavior, it makes effective distributed collaborative work truly possible: no board of directors, no company charter, no strict subordinate system, no centralized manager, everyone builds and shares, this is an economic activity organization. Formal change.

From the perspective of economics, it has created a new type of algorithmic economic model, characterized by de-intermediation and openness, emphasizing and respecting the voluntary principle of market transactions, and exerting the incentive mechanism of market price incentives, both planning and market. The advantage of the mechanism is an economic model that is closer to the market.

Insufficient blockchain

One is the performance issue. One of the concepts of blockchain technology is distributed sharing, but assuming that nearly 10,000 nodes share data, the speed naturally slows down and is inefficient. At present, the transaction of Bitcoin must wait at least 10 minutes, sometimes it takes more than one hour, which is not tolerated by many people.

The second is privacy protection. The entire book of Bitcoin is open, and privacy protection has become a research hotspot of blockchain technology. Some solutions have emerged, such as zero-knowledge proof, homomorphic encryption and other technical means.

The third is security. At present, smart contracts are still in the initial stage. Once there are loopholes, they will be attacked. There may be major risks. The security needs to be further improved technically. Formal verification is a possible solution. The security of the private key is a crucial issue.

The fourth is the lack of governance. When the community faces major decision-making events, how to get the community involved, form a community opinion with a certain mechanism, and finally express it on the blockchain.

The fifth is the issue of interoperability. As a new generation of value Internet, blockchain has no universal agreement. At present, it is still a self-organizing model of community. There is no unified norm for cross-chain interoperability, which limits application innovation to a large extent.

Blockchain technology development direction

The consensus agreement is the key technology of the blockchain, and its core indicators include the robustness, efficiency and security of the consensus agreement. At present, the biggest difficulty in consensus agreements is how to achieve a balance between security and efficiency. Under the premise of ensuring security, there are probably several ideas for improving efficiency: one is the new consensus agreement; the second is the new data structure; the third is the system improvement without changing the consensus agreement; the fourth is the improvement of hardware and computing power; Layered fragmentation technology.

There are now various chains: public chains, alliance chains, and private chains. When the business between different organizations interacts, how to interact between different chains and chains will become a big problem. Cross-chain technology is the focus of the next blockchain technology development.

The blockchain itself is a natural voting system. Previously, regulators in many countries tended to define initial token issuing (ICO) tokens as securities. To this end, the blockchain system of securities-type tokens needs to consider how to embed the compliance requirements proposed by the regulatory authorities in the system. The general idea is to set up a supervisory interface in technology, transform the public chain, and establish a chain of supervisory alliances. Provide customer identification, anti-money laundering, counter-terrorism financing, project tuning, risk rating, information disclosure, risk monitoring and other regulatory functions.

Blockchain makes autonomy possible. It can itself act as a decentralized public key infrastructure (PKI) to make public key systems more useful and secure.

Blockchain technology creates a new privacy protection model: users don't have to transfer data rights, and personal data is self-controllable. For example, the user autonomously generates a local public and private key, and publishes a valid wallet address through the public key calculation to block the association between the wallet address and the real identity of the wallet holder, and independently complete the transaction in the blockchain network by controlling the private key.

In terms of digital wallets, digital wallets are now trying to move from pure wallet services to digital asset ecological portals, hoping to gain greater market share and develop richer asset management services, mainly asset management, asset trading, information aggregation, DApp distribution and other directions. With the continuous development of the digital asset industry and the continuous improvement of the ecology, the scene function of the digital wallet will become more and more important. There are three aspects to its future development: first, to ensure the security, openness and convenience of wallet services; second, to build a digital asset management platform around asset value-added needs, to provide users with rich financial products and improve user conversion rate; The connection between assets and the real world, enrich the application scenarios of digital assets, and build a digital asset ecology.

Self-organizing business applications built on smart contracts can help to increase the value of blockchain technology and expand the scope and scope of the programmable economy model. Regarding the application of smart contracts, on the one hand, it needs to guarantee its security from the technical level; on the other hand, it needs to clarify its compliance from the legal level. Since smart contracts have natural certainty and do not have the flexibility and selectivity of ordinary contracts, in certain scenarios, an intervention mechanism is needed to allow code to be suspended or terminated.

In the integration with other technologies, cloud computing, big data, artificial intelligence, blockchain technology, etc., are all embodied in the "algorithm + data", and the integration between them is inevitable. For example, in the scenario of asset securitization, the information of the underlying assets needs to be continuously disclosed, and large-scale distributed file storage is also needed. Blockchain technology can ensure the consistency of the distributed ledgers of all transaction parties through transaction signature, consensus algorithm and cross-chain technology, so as to ensure the real-time performance of the transaction, and automatically complete the information disclosure in real time, so as to achieve the accounting The accounts are consistent and the accounts are consistent, which greatly improves the credit rating of tradable products and greatly reduces the cost. Integrating blockchain technology with distributed file systems, big data analytics, cloud computing, artificial intelligence, etc. is an important direction for future development.

Difference between cryptocurrency and third-party payment

Alipay's data transmission process is encrypted and does not mean it is cryptocurrency. There is a fundamental difference between the two account systems. If Alipay's technology is compared to 4G, the payment through cryptocurrency is more like 5G.

In terms of financial inclusiveness, the current payment system is a multi-level account system and a corresponding dedicated channel for information transmission. The cost is huge, especially for cross-border payment, resulting in high financial service fees and thresholds, serious imbalance in financial development, and damage to finance. Pratt & Whitney. At the same time, the payment institution actually controls the user's payment process, and its closed system and commercial competition may limit and influence the user's autonomy. The payment of cryptocurrency saves the cost of “pave the way”, is not restricted by the traditional account system and closed private network, and directly reuses the existing Internet infrastructure. Anyone who can connect to the Internet can participate, any Participants are technically equivalent.

In the privacy protection of users, third-party payment belongs to the traditional central mode. Individuals cannot completely control their own data. The central node can easily abuse user data and easily become the target of attack. Once the risk is broken, it is harmful to individuals and platforms. There have been 50 million user data breaches on Facebook. However, blockchain technology has created a new mode of privacy protection based on cryptography and user autonomous control in a non-centralized, multi-party shared environment. Data is not stored in a third-party organization, and users can control it autonomously. Personal data is anonymized without the need to transfer data rights. In other words, the data is transparent to the person, the degree of transparency, and whether it can be tracked is controlled by the user.

The future direction of the central bank's digital currency

Instead of simply copying Bitcoin and Ripple coins, Facebook did not simply imitate Alipay. Instead, it introduced a new concept of Libra, indicating that the digital currency that truly represents the future direction of technology development is likely to absorb both advanced and mature digital currency technologies. We must inherit the rational connotation of the long-term evolution of traditional currency.

I think the central bank cryptocurrency (CBCC) is one of the important directions for the central bank's digital currency research and development. The starting point of China's central bank research is CBCC. Over the past decade, digital technology has seen significant new developments in payment, clearing and settlement. The cryptocurrency represents the frontier of this wave of tides.

The prototype of China's legal digital currency can be seen in an article written by the author in 2016. It is mentioned in the article that we need to fully absorb the advanced and mature knowledge and experience from the international community and deeply analyze the core technology of digital currency. On the one hand, starting from the theory, combing the research results of cryptocurrence in the academic circles at home and abroad, and constructing the theoretical basis of China's legal digital currency; on the other hand, starting from reality, in-depth study of various typical electronic and digital currency systems in operation Analyze and build the basic prototype of China's legal digital currency.

At present, the central bank digital currency tests carried out by various countries, such as the Bank of Canada Jasper project, the Singapore Monetary Authority Ubin project, the European Central Bank and the Central Bank of Stella project, are mostly based on blockchain technology for encrypted digital currency testing, but still stay in wholesale. (Institutional) application scenario. This is because the central bank has always been considered not good at the retail business. There is a concern that when the digital currency is issued to the public, the central bank may face enormous service pressures and costs.

Our digital currency prototyping system explores the application of blockchain, but does not rely entirely on it. In design, it constructs a blockchain-based CBCC confirmation book using the characteristics of the non-tamperable and unforgeable distributed books, and provides external query services through the Internet, which is equivalent to the network “counterfeit detector”. On the one hand, this design isolates and protects the core issue registration book from the outside world, and at the same time utilizes the advantages of distributed ledgers to improve the security and credibility of the authentication system and data. On the other hand, transaction processing is still done by the issuance registration system using the traditional distributed architecture, and the distributed ledger is only used to provide external query access. The transaction processing subsystem and the confirmation query subsystem are separated and adopt different technical routes, which can effectively avoid the performance bottleneck of the existing distributed ledger in transaction processing.

At the same time, the prototype system also adopted the “total/divided double-book structure”, which not only relieved the pressure of the central bank, but also guaranteed the central bank's overall control ability.

At present, most of the academic hotspots are based on the research of central bank cryptocurrency based on blockchain technology.

Libra and central bank digital currency comparison

Although both use cryptocurrency technology, the technical routes have similarities. However, there are differences in issues such as issuer, technology platform, traceability, anonymity, degree of coupling with bank accounts, and support for asset issuance.

From the monetary level, the central bank's currency is M0 level, traditional credit currencies such as bank deposits are at the M1 and M2 levels, and Libra is at a higher monetary level. The latest statistics show that the ratio of M0 to M2 in China is about 4%. Compared with the digital M0, the numbers M1, M2, … Mn are more imaginary.

From the perspective of innovation, the central bank digital currency experiment is basically a relatively secret "Manhattan" project, which may not meet the development needs of the modern open source open community.

The code of the Libra project is open source according to the Apache 2.0 standard. Anyone can view, copy, and deploy the underlying source code of Libra according to the open source protocol standard. They can also submit suggestions for modifying the open source code according to their own ideas, once approved by the Libra Association. The modification will be incorporated into the production system. According to the operating experience of the open source community for ten years, this open and intelligent approach fully reflects the interests of the vast majority of participants, ensures the cohesiveness of the project, promotes its rapid development, and fully promotes the technical system and market demand. The matching and integration will eventually foster a technologically advanced, market-recognized digital currency ecosystem.

Any digital currency is subject to market test and competition.