Li Lihui, Former President of Bank of China: To Study Issuance of Global Digital Currency Dominated by China (full text)

Source: Sina Finance

Sina Finance News On November 29, 2019, the ReFinTech Financial Technology Summit was held in Beijing New World Hotel. Li Lihui, the leader of the Blockchain of the China Mutual Fund Association and former president of the Bank of China, attended and gave a speech. The topic of the speech was "National Strategy and Fiat Digital Currency."

Li Lihui said that blockchain can be defined as a blockchain that is a distributed shared ledger where participants establish digital trust based on consensus mechanisms and smart contracts.

I. Blockchain technology architecture

Li Lihui pointed out that blockchain is an integrated innovation of multiple technologies and has the following four characteristics.

Chain block structure based on timestamp, it is difficult to tamper with the on-chain data;

Real-time running system based on consensus algorithm, specified data can be shared;

Based on self-rules of smart contracts, technical trust can be authenticated;

Based on the end-to-end network of the encryption algorithm, the counterparties can choose each other.

According to different technical architectures, blockchain can be divided into 3 types .

The basic characteristics of the public blockchain architecture are: a decentralized distributed ledger that uses open read, write, and transaction permissions; a decentralized digital trust mechanism that uses consensus algorithms and encryption algorithms; and a virtual currency incentive mechanism that demonstrates work contribution and equity. .

The technical drawbacks of the public blockchain architecture are high hardware requirements and low transaction speed. If the public blockchain can break through the technical bottleneck of transaction speed and resource utilization efficiency, and achieve publicly recognized reliability, it may be able to expand the territory in social life and modern commerce.

The characteristic of the private blockchain architecture is that the distributed ledger is centralized, and the read, write, and transaction permissions must be approved by the "central" and subject to the constraints and restrictions of the "central". The digital trust mechanism of the private chain does not emphasize "going intermediary".

Private blockchain has the "centralization" feature of traditional information technology architecture, but uses blockchain technology such as distributed ledger, smart contracts, and encryption algorithms. Blockchain platforms are easy to integrate with existing information technology platforms and can establish bureaus Regional multi-dimensional interaction architecture improves data processing speed and quality.

Alliance blockchain can generally be regarded as a collection of private blockchains. It adopts a distributed, multi-center, intermediary architecture. Its basic characteristics are open-source, multi-center distributed ledger, limited license, limited authorization. Read, write, and transaction permissions, without emphasis on the digital trust mechanism of intermediaries.

Different from the traditional big center data architecture, the "central" status of the alliance chain may not be designated by the administration, but largely depends on the competitive results of technological advancement and service friendliness; "trust" can come from intermediaries and rely on tradition Credit model can also be technical trust without intermediary.

The characteristics of distributed, end-to-end, open source, and multi-center that the blockchain technology theoretically possesses are likely to restructure the technology architecture in a certain range and rebuild the business model in a certain range.

First, the distributed architecture and end-to-end network are helpful for the parallel transmission of information, the realization of information sharing, and the parallel control of control. In the scenario of many counterparties, many transaction links, long management chains, and high degree of discreteness, time-space folding can be constructed And three-dimensional interactive business architecture to improve cooperation efficiency and operation efficiency.

Second, the chain block data structure, consensus mechanism, time stamp, and key technologies can help prevent tampering of the original data, control the risk of data leakage, and protect privacy and data security.

Third, smart contracts help to achieve differentiation and credibility of transaction rules, automate the execution of business processes, ensure the timeliness of transactions, avoid false transactions and repeated transactions, and reduce moral and operational risks to a certain extent.

In the financial field, the application of the alliance's blockchain technology is likely to build a distributed ledger system in which large, medium and small financial institutions participate together, forming a technical platform for financial institutions to interconnect and interconnect, and to achieve a seamless link between existing systems and innovative systems to achieve financial The direct link between the service system and customers enables information sharing, product sharing, and service sharing to provide more efficient financial services.

The practice of blockchain technology development and application proves that in large-scale commercial applications, the alliance blockchain is most likely to become the mainstream architecture.

Second, the central bank's legal digital currency

Digital currencies with legal status, endorsement of state sovereignty, and subjects with issuance responsibility constitute legal digital currencies, or central bank digital currencies.

Central banks of many countries have long announced the launch of digital currency research and development. But regarding the basic structure of legal digital currency, countries are still demonstrating and have not yet made a choice.

The development of China's fiat digital currency lasted for 5 years, and there have been recent signs of preparation for issuance. According to the information disclosed by central bank officials, China's legal digital currency may be called DC / EP, Digital Currency / Electronic Payment, that is, digital currency and electronic payment.

First, adopt a two-tier operation delivery system to inherit the indirect issuance model. Applying digital technologies such as blockchain, fiat digital currencies can adopt the "central bank-public" direct issue model. In the direct issue model, the central bank can have the absolute power and ability to regulate the money market and can directly absorb public deposits, which will limit the initial credit capacity of commercial banks. If the indirect issuance model of the fiat currency "Central Bank-Commercial Bank-Public" is selected, it will inherit the current money market operation mechanism and monetary policy transmission mechanism.

The benefits of inheriting the current model are savings and robustness. First, it is not necessary to rebuild the financial infrastructure, which is conducive to saving investment; second, it is not necessary to restructure the currency issuance and management structure in addition to the old cloth, which is conducive to managing risks; third, it is not necessary to look forward and backward to connect different characteristics of the currency issuance model, which is conducive to market stability.

Second, adopt a parallel technical route and adhere to the central bank's central management model. Based on the judgment that "the existing blockchain technology cannot meet the high concurrent demand of the retail market in the super market", fiat digital currencies should remain technologically neutral and do not rely on a single technology. The central bank should adhere to a centralized management model to ensure the reliability of the monetary policy transmission mechanism, the efficiency of currency control, and prevent financial institutions from overspending.

Third, the "account loose coupling" method is adopted to replace the currency M0. Electronic payment tools such as WeChat Pay and Alipay use the "tight coupling of accounts" method. They need to be tied to a bank account and transfer value through the bank account. Under the real-name account management system, the need for anonymous payment cannot be realized. The fiat digital currency may adopt the method of "account loose coupling" plus electronic wallet, to achieve end-to-end value transfer from bank accounts, reduce the dependence of financial intermediaries on transaction links, and achieve controllable anonymous payments within the scope permitted by the central bank.

At present, the design of China's legal digital currency may be limited to replacing M0, that is, cash in circulation, rather than narrow money M1 and broad money M2. This depends on the judgment of China's M0, M1, M2 digital trends and potential market demand.

WeChat Pay and Alipay use digital technology to build a mobile payment and living service platform that uses trust links as a link. It breaks through the traditional payment model and has achieved 1 billion straight-line links. It ranks in the top 2 of global mobile payment platforms. WeChat Pay and Alipay dominated the retail payment market, with cash and ATM transactions significantly reduced, and bank cards became bundled account cards.

The legal digital currency in China's design can theoretically be separated from the network and from banks to perform value transfer. This is different from WeChat Pay and Alipay. But in the end, whether it can replace traditional currency forms, replace emerging electronic payment tools, and become the main currency form and main payment tool will be decided by the market: it is more convenient to use, the circulation cost is lower, and the public is willing to accept it, thereby forming an economic scale with commercial value. .

 

National Strategy for the Digital Economy

The application of blockchain technology has extended to many fields such as digital finance, the Internet of Things, intelligent manufacturing, supply chain management, and digital asset trading. How to evaluate the current status of blockchain technology and industrial development? My opinion is that the underlying technology of the blockchain is not yet mature, and the technical bottlenecks of large-scale and reliable applications need to be broken. We are in the period of great opportunities for the development of blockchain technology and industrial innovation.

First, blockchain technology is still immature and bottlenecks need to be broken.

In the underlying technology, as a technology integration innovation, the basic components of the blockchain database, P2P peer-to-peer network, and cryptographic algorithms are relatively mature, but they must further meet the new requirements for integrated applications; new mechanisms such as consensus mechanisms and smart contracts Technology needs to be improved. Gartner, a technology consulting company, believes that it will take 5-10 years for blockchain technology to mature.

At present, large-scale applications of blockchain technology have not been implemented in various countries. China's blockchain technology research and development is committed to breaking through the bottleneck of large-scale reliable applications.

The first is private computing technology. Under the blockchain consensus mechanism, how to effectively shield sensitive information, improve signature technology, secure computing technology, encryption technology, trusted execution technology, etc., to ensure data security and digital link reliability.

The second is the authenticity supervision mechanism. How to ensure the authenticity and integrity of the data before the on-chain, when the blockchain technology is used to trace the source of various assets, a closed loop is truly formed to avoid information distortion and prevent speculation.

The third is smart contract technology. How to avoid technical loopholes in smart contracts, and achieve controllable business logic corrections and contract upgrades.

The fourth is key technology. Key security is the cornerstone of blockchain trust. In the unique technical structure of the private key, how to effectively prevent the private key from being stolen or deleted maliciously, and to remedy the loss and theft of the private key.

Fifth, integration of diversified technology platforms. How to optimize the multi-dimensional parallel interaction architecture to achieve efficient links between more participants; how to improve the quality and speed of data processing to achieve ultra-large-scale, high reliability, and high security requirements.

Second, implement the national strategy for the digital economy.

General Secretary Xi Jinping has clearly pointed out recently: Blockchain should be used as an important breakthrough in independent innovation of core technology, the main attack direction should be clarified, investment should be increased, and a number of key core technologies should be overcome to accelerate the development of blockchain technology and industrial innovation. The speech of General Secretary Xi, from the height of the national strategy of the digital economy, pointed out the main attack directions, key paths and basic principles of the development of blockchain technology and industrial innovation.

The attitudes and trends of developed countries on digital finance and digital economy deserve our attention.

The United States is concerned about digital financial market norms. The focus of US regulation is to regulate digital financial markets and prevent digital financial instruments from being used in illegal areas. In 2017, the U.S. Securities and Exchange Commission included ICOs under supervision, and the U.S. Commodity Futures Trading Commission approved the Chicago Options Exchange and the Chicago Mercantile Exchange to launch Bitcoin futures trading. In 2018, the United States Securities and Exchange Commission stated that the regulatory strategy for digital currencies is to use case law enforcement rather than a systematic interpretation of securities law, and carefully, orderly, and actively clarify regulatory principles and boundaries.

Germany and France are concerned about digital sovereignty. On October 29, 2019, Germany and France announced the "Gaia-X" project with the participation of German and French core companies, which aims to build a secure and reliable data infrastructure for Europe. German Economy Minister Peter. Altmeyer said that this infrastructure will help us regain digital sovereignty and lay the foundation for a digital ecosystem. French Minister of Economy and Finance Bruno. Lemaire said the project will include data storage, data concentration and data sharing. German Chancellor Angela Merkel said that what worries me most is that most of the processing of industrial and consumer data is done by American companies, and a kind of dependency relationship is being formed. Merkel advocates taking a long-term view and digitizing the overall layout from as many European perspectives as possible.

We should implement the national strategy of the digital economy and maintain the security of the digital economy.

The first is to master autonomous and controllable technologies.

On the underlying technologies such as the blockchain consensus mechanism and smart contracts, China currently lacks independent property rights. Most of the application projects in China use the open source blockchain underlying platform for adaptive adjustment and development, and optimize from the number of concurrent users, throughput, response time, availability, security, etc., to meet business needs, to achieve identity authentication, privacy Protection, node management and other functions.

Extensive application of foreign open source programs may lead to technology dependence risks, and must comply with the jurisdiction and legal constraints of the place where the open source platform is registered, potentially hiding geopolitical risks. For example, the terms of use of the open source program GitHub clearly state that the use of GitHub must not violate export control or sanctions laws of the United States or other applicable jurisdictions.

We should vigorously support technological innovation and strive to master digital technology. Clarify digital technology and digital industry policies, grant tax and fee concessions to digital technology R & D enterprises and professionals, encourage digital technology R & D and application, national team plus private team, Chinese plus foreign capital, large, medium, small and micro. In the field, we have independent and controllable intellectual property rights and establish global competitive advantages in key areas of digital economy and digital finance.

The development of next-generation computing architecture should be intensified to ensure the fairness and correctness of mathematical algorithms, the privacy and reliability of data, the security of the entire process and the entire cycle of data, and the speed and efficiency of mathematical algorithms.

The second is to accelerate standardization and institutional innovation.

The International Organization for Standardization ISO has established a technical committee on blockchain and distributed ledgers, which is studying 11 standards, including terminology, reference architecture, privacy and personal information protection, security risks and vulnerabilities. The International Telecommunication Union ITU established a distributed ledger technology security related problem group to study 10 standards, covering security assurance, security threats, security framework and other aspects. The development of IEEE standards for the Institute of Electrical and Electronics Engineers revolves around blockchain in the areas of IoT data management, digital asset management, government department applications, and cryptocurrencies.

China's blockchain financial standardization construction and institutional construction have just begun. We should pay close attention to improving the technical standards, security specifications, and certification review systems for blockchain finance. Clarify the legal definition of assets, clarify the contractual nature and effectiveness of smart contracts, and clarify the responsible subjects and their behavioral and regulatory standards in a distributed architecture.

Based on the healthy development of digital finance, China should speed up the construction of the digital financial system and step up efforts to formulate digital financial systems such as blockchain financial supervision, digital asset market supervision, digital currency supervision, and legal digital currency issuance. Make overall plans and gradually establish a digital trust mechanism.

Digital currency will occupy a core position in the future global digital economic competition. It is necessary to step up research on the feasible path and implementation plan for the issuance of China-led global digital currency. It is necessary to further explore the feasible path of China's legal digital currency, including alternative range selection, controllable anonymous scale, offline operation technology, and so on.

Digital finance is bound to further strengthen the globalization of finance. In the construction of the global system of digital finance, China should actively participate in and strive for the right to speak. It is necessary to strengthen international regulatory coordination, promote regulatory consensus, and establish a unified international regulatory standard for digital finance.