What are the specific countermeasures for Libra? What is the application of Libra blockchain technology?

The "China Foreign Exchange Management Reform and Development" Seminar hosted by the China Financial Forty Forum and the Foreign Exchange Research Center of the State Administration of Foreign Exchange was held on July 9th. Vice Chairman of the Standing Committee of China Financial Forty Forum, Wudaokou Finance College of Tsinghua University Professor Xie Ping attended and delivered a speech.

Xie Ping said that if 1 billion people use Calibra wallet, its traffic portal is the popularity of blockchain technology.

One of the applications of Libra blockchain technology is the launch of the digital wallet Calibra. The Libra digital currency, along with a digital wallet called Calibra, will launch a standalone app next year. At that time, users can use Libra's digital wallet for Libra's delivery, cost and storage services. The main function of most current blockchain digital wallets is to store, not to make payments. Not comparable to WeChat wallet or Alipay wallet, the current digital currency wallet is a low frequency application. If Calibra is able to safely store assets and make it easy to make payments, then its scope of application can be large.

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The following is the full text of the speech:

Analyze the original words on Libra's white paper. Libra is a stable digital currency initiated by Facebook subsidiary Calibra, a basket of currencies as an asset reserve whose mission is to create a simple, borderless currency and financial infrastructure for billions of people. To put it simply, it is a digital currency based on a blockchain that is free to flow globally and has a stable value.

First, Libra is already a super-sovereign currency.

First, it has a basket of legal currency financial assets (mainly impossible to default on bank deposits and short-term government bonds) as a reserve pool, which is a synthetic currency unit; this can effectively prevent currency issuers from abusing distribution rights.

Second, it is a stable currency with intrinsic value, and the Libra price is linked to the weighted average exchange rate of this basket of currencies; a currency board system similar to the linked exchange rate.

Third, it is a digital cryptocurrency based on blockchain technology. The white paper says: Libra currency is based on the “Libra blockchain”. The main difference with real money is in distributed accounts with blockchain technology.

Fourth, this currency will have valuable storage, pricing, and payment functions on mobile phones in the future, which is the same as the real RMB/USD.

Fifth, Libra naturally has cross-border payment capabilities. Libra's use will be cross-border, cross-currency and cross-financial institutions, and it is a super-sovereign currency. The white paper clearly states that Libra's goal is “global currency”; “can quickly transfer money, secure security through encryption and easily and freely transfer funds across borders. Just as people in the world today can use mobile phones to send messages to friends anytime, anywhere.”

Sixth, the Libra Association is not a central bank, and there is no currency creation function of the central bank; Libra is not a credit card endorsed by sovereign credit, and has little effect on the independent monetary policy of each country.

Seventh, if there is a Libra-based commercial banking and bond market in the future, there will be a derivative currency and Libra M2, which is a hypothesis.

Eighth, strict asset mortgage and exchange. Libra's issuance rules: “manufacture” and “destroy” Libra coins according to the needs of authorized dealers. Authorized dealers are determined by the Libra Association and can trade directly with the reserve pool. If Libra's reserve pool is seen as the central bank for issuing currency, the authorized dealers are similar to commercial banks everywhere. To create a new Libra currency, the dealer must transfer the legal currency to the reserve in a 1:1 ratio. If the currency is to be used, Libra can be exchanged for local currency at any time. By working with authorized resellers, the association will automatically create new coins as demand increases and destroy them as demand shrinks. According to monetary theory, its total amount can be changed. This is the biggest difference between Libra and Bitcoin. From this point of view, Libra's value is stable. And the assets in the Libra Reserve will be held by custodians with investment-grade credit ratings across the globe to ensure asset security and dispersion. This is similar to the structure of the Central Bank Digital Currency (CBDC) that China is designing.

Second, Libra blockchain technology application

On the technical basis of Libra, I would like to remind you of two points. The first is not to underestimate Facebook's technical capabilities, and the second is not to entangle technical details. According to the original words of the white paper, the goal of the Libra blockchain is to become a solid foundation for financial services. A new blockchain can be built based on the following three requirements. One can expand to billions of accounts, which requires a very high blockchain. Transaction throughput and low latency, and an efficient and high-capacity storage system; second, high security and reliability, to ensure the security of financial and financial data; third, flexible enough to support the management and future of Libra ecosystem Innovation in the field of financial services. The Libra blockchain is designed and built from the ground up to build on existing projects and research, and combines innovative approaches and well-understood technologies.

Libra fully absorbed Fintech's results and the results of encrypted digital currency and blockchain technology over the past decade; Facebook has done three quasi-currency and payment technology results in the past, anticipating the application of 5G/6G and quantum computing, do not question Facebook's technical strength.

One of the three decisions of Libra blockchain technology is the design and use of the Move programming language. "Move" is a new programming language for implementing custom trading logic and "smart contracts" in the Libra blockchain. Libra's goal is to serve billions of people every day, so Move's design first considers security and reliability. Move is a programming language created from the experience of security contracts related to smart contracts that have occurred so far, making it easier to write code that matches the author's intent, thereby reducing unexpected vulnerabilities or security incidents. risks of. Specifically, Move is designed to prevent digital assets from being copied. It makes it possible to limit digital assets to "resource types" that have the same attributes as real assets: each resource has only one owner, the resource can only be spent once, and the creation of new resources is restricted.

The Move language also makes it easy to automatically verify that a transaction meets certain attributes, such as a payment transaction that only changes the payer and payee account balances. By prioritizing these features, Move helps keep the Libra blockchain secure.

Move will accelerate the evolution of the Libra Blockchain Agreement and any financial innovations built on it.

The second is to use the Byzantine Fault Tolerance (BFT) consensus mechanism. The consensus mechanism refers to the rules that all billing nodes in the chain follow to determine and verify the validity of the transaction. The Libra blockchain uses a BFT mechanism based on the LibraBFT consensus protocol to achieve agreement between all certifier nodes on the transactions to be executed and their execution order. This approach builds trust in the network because the design of the BFT Consensus Protocol ensures that the network is functioning properly even if some of the verifier nodes (up to one-third of the network) are corrupted or fail. This type of consensus protocol also enables a high-traffic, low-latency, and more energy-efficient consensus approach than the “workload proof” mechanism used in other blockchains.

The third is to adopt and iteratively improve the widely used blockchain data structure. In order to secure the stored transaction data, the data in the Libra blockchain is protected by the Merkel tree, a data structure that has been widely used in other blockchains to detect existing data. Any changes. Different from the previous blockchain, the blockchain is regarded as a collection of trading blocks. The Libra blockchain is a single data structure that records transaction history and status for a long time. This implementation simplifies the workload of applications accessing the blockchain, allowing them to read any data from any point in time and verifying the integrity of the data using a unified framework.

The Libra blockchain follows anonymity and allows users to hold one or more addresses that are not related to their true identity. This is a model that many users, developers, and regulators are familiar with.

One of the applications of Libra blockchain technology is the launch of the digital wallet Calibra. The Libra digital currency, along with a digital wallet called Calibra, will launch a standalone app next year. At that time, users can use Libra's digital wallet for Libra's delivery, cost and storage services. The main function of most current blockchain digital wallets is to store, not to make payments. Not comparable to WeChat wallet or Alipay wallet, the current digital currency wallet is a low frequency application. If Calibra is able to safely store assets and make it easy to make payments, then its scope of application can be large.

If 1 billion people use the Calibra wallet, its traffic portal is the popularity of blockchain technology.

Regarding Libra's comparison with existing financial infrastructure, Caixin magazine's article is particularly well-defined, including account base, payment clearing system, currency issuance model, currency credit rating, regulatory agency, user experience, usage scenarios, Anonymity, etc.

Regarding the relationship between digital stable tokens and central bank currency, stable currency has been studied. Both JP Morgan and Ethereum have studied stable currencies. The original stable currency is followed by a currency. For example, the digital currency that the central bank is studying is also M0. Complete replacement, in theory, is also a kind of stable currency, but everyone did not think of using SDR to use a basket of currencies as a stable currency, which is more stable and super-sovereign. As a result, Libra used this method.

The 28 members of the Libra Alliance are basically American companies, with more consumer-related companies, followed by Internet and payment companies, no real banks, and no Internet giants such as Microsoft and Google. By the way, Chinese companies did not participate. Our country has no say about this matter at present.

Third, supervision and compliance

Facebook is well aware of the importance of regulatory compliance for Libra and is well prepared to work towards licensing, consumer protection, data privacy protection, anti-money laundering, counter-terrorism financing, and more:

Facebook has previously negotiated with the US government, the CFTC, the Federal Reserve, etc.; Facebook already has a currency service license; Calibra e-wallet has applied for a money service provider license, is still applying for payment and related licenses; it is clear that it is not available in countries that prohibit cryptocurrency Services; most members of the association have relevant business licenses, such as Visa credit card, Paypal payment, etc.; the association is registered in Switzerland, and the law and supervision of account confidentiality are in line with Libra related business.

The governing body of the Libra Association is the Council of the Libra Association, composed of representatives of the various members of the Association. All decisions of the association will be made through the council, such as how to change the composition of a basket of reserves. Major policy or technical decisions require two-thirds of the members to vote. The voting rights of board members are proportional to the proportion of their rights (initially Libra investment tokens, which will be Libra in the future), reflecting the extent to which members (verifier nodes) contribute to the network. In order to avoid concentration of power, any founder has a maximum voting power.

Fourth, the countermeasures are:

First look at the United States. Most members of the Facebook and Libra associations are American companies, regulated by the US government, and the European Union. There is a regulatory framework for issuing stable cryptocurrencies in the US and the Eurozone, and these regulations will apply to Libra. For example, the USDC must meet at least the following compliance requirements: first, the US Treasury Department has a virtual currency operating license under FinCEN; second, it operates a state-directed currency transfer license; third, the US dollar reserve is deposited in a FDIC-protected bank. Fourth, the authenticity and adequacy of the US dollar reserve should be regularly audited and disclosed by third parties; Fifth, the provisions of KYC, AML and CFT. In particular, in terms of AML and CFT, the Financial Action Task Force (FATF) released the Virtual Assets and Virtual Service Providers: A Guide to Risk-Based Approaches (FATF, 2019) on June 21. The G7 Group plans to issue an evaluation report on Libra in July, and finally achieve joint supervision. If the United States allows Libra to operate legally under US regulation, it will have a huge impact on the global payment system, and China should have countermeasures.

First, China should actively participate in the activities of international organizations such as IMF/BIS on digital currency regulation and strive to play a role in it.

Second, we can consider allowing Chinese companies to participate in the Libra Association. They are currently waiting to see and inquire. Because Facebook is not allowed to operate in China, Libra does not cooperate with the RMB.

Third, China can combine the results of the Central Bank's Digital Money Institute, CBDC, to encourage enterprises to participate in digital currency research and application, and gradually build a digital currency ecology. It is currently being piloted and openly applied in due course. Chinese technology companies have made progress in the application of blockchain technology, such as public welfare donations, food safety and authentic traceability, evidence deposits, supply chain finance, bank draft transfers, cross-border remittances, and so on.

Fourth, for Chinese residents with Facebook accounts and foreign currency credit cards, it is almost impossible to ban them from using Libra technology. They can easily open a Calibra digital wallet, buy Libra in foreign currency, and then make various transactions. It should be clear that Libra is not an ICO, ITO or other virtual currency.

Fifth, it is currently possible to ban the exchange of RMB and Libra (selling and selling) and wait for the specific regulatory rules of Libra in the United States or G7. Can be used as a prohibition clause for anti-money laundering.

Sixth, because Libra is a stable currency, the price fluctuation is small, it does not add value itself, and the circulation can be continuously increased; therefore, it is unlikely that Libra will be used as an illegal fundraising target. But China’s illegal fundraisers may also use Librad derivatives to scam.

Seventh, the use of Libra will greatly boost hundreds of millions of people to open blockchain application apps or accounts. We want to encourage domestic commercial banks and financial institutions to use blockchain technology. In response to Libra's challenge, SWIFT announced the use of blockchain technology to transform its global payment system in the June 20th White Paper, preparing to launch a new cross-border payment service GPI (Global Payment Innovation). Goldman Sachs CEO Solomon also said on June 27 that Goldman Sachs is conducting extensive research on “token-based”. The future of the payment system must depend on the blockchain, and the global payment system is moving toward the stable currency.

The People's Bank of China should speed up the study of the blockchain in the payment system (currently research and application is to replace M0), and related technical issues such as calculation power, settlement speed, and delay will be solved. It is necessary to encourage non-state-owned technology companies to cooperate with domestic commercial banks and introduce relevant standards for financial use of blockchain technology as soon as possible. (Sina Finance)

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