As the core part of the national blockchain strategy, DCEP has always been the focus of heated discussions. However, the public knows little about the operating mechanism of DCEP. Our current description of DCEP is based on a few words at the central bank's high-level meeting. So what exactly will DCEP be, and what changes will it bring? Today I want to chat with you about DCEP and talk about my predictions.
Judging from the currently available information, central bank digital currency has the following four characteristics:
①Instead of M0, based on 100% reserve issuance; ②Based on 100% reserve issuance, central bank/commercial bank two-tier structure; ③Centralized management; ④Loosely coupled, using UTXO
Let's talk about it separately.
First point, replace M0.
The M0, M1, and M2 here do not refer to the Wagyu grade, but to the category of money supply. People generally divide the supply into different levels for measurement, analysis and regulation according to the size of currency liquidity. in:
The central bank's positioning of DCEP is to replace the current cash in circulation. In the future, DCEP will assume the functions of value scale, circulation means, payment means and value storage. Based on the characteristics of currency, DCEP will not pay interest and is legally repayable. (These two points will be explained in detail later)
The second point is based on 100% reserve issuance and a two-tier central bank/commercial bank structure. This two-tier issuance structure is consistent with the binary structure of traditional cash issuance. In the issuance stage, the central bank deducts commercial bank deposit reserves and issues an equivalent amount of digital currency; in the withdrawal stage, the central bank increases the equivalent amount of commercial bank deposit reserves. The role of DCEP is to gradually replace banknotes. This replacement process requires the cooperation of commercial banks. The central bank is only responsible for issuing and not interfering in operations. It is very important for the promotion of digital currency.
The third point is centralized management. The biggest difference between DCEP and the existing digital currencies such as Bitcoin and Ethereum in the market should be that it adopts centralized management. As the issuer of DCEP, the central bank will be the only manager of the DCEP ledger, and DCEP will only disclose data to the central bank. This feature can be used to achieve the controllable anonymity of DCEP, and commercial banks and merchants cannot track the transaction history and usage of digital currency.
The fourth point, loose coupling and the use of UTXO are some existing applications of blockchain digital currency.
Loose coupling means that DCEP does not have high requirements for information transmission and account information in the transaction process, and can support point-to-point dual offline transactions, that is, transactions can be completed without confirmation from the bank settlement center.
For example, A climbs Huashan Mountain and is very thirsty after climbing to the top of the mountain. He wants to ask B to buy a bottle of mineral water from the stall, but there is no signal on the mountain. A and B took out their mobile phones equipped with DCEP, and they completed the transfer of 5 yuan through point-to-point Bluetooth communication. This transfer has not been confirmed by the DCEP settlement center, but the transaction information of A’s payment of 5 yuan to B has been recorded in the wallets of A and B respectively, and the available amount of 5 yuan has been reduced in A’s DCEP offline wallet. The DCEP offline wallet has increased the available amount of 5 yuan. When A or B's wallet is connected to the Internet, the DCEP settlement center will receive the asynchronous data of the transaction and confirm the transaction.
A situation like the above picture will become history with DCEP.
UTXO (unspent transaction output) is translated into Chinese as unspent transaction output. It is a core concept in Bitcoin transaction and verification design, and it is also the most subversive part of Bitcoin design.
Bitcoin’s accounting method for transaction data is different from the traditional one. The traditional mode records the increase or decrease of the account amount. For example, if A transfers 5 yuan to B, the record is that A’s account is reduced by 5 yuan, and B’s account is increased by 5 yuan. The currency records the entire transaction process of transferring 5 yuan from A to B. One is account-based and the other is process-based. The advantage of process-based bookkeeping is that transactions form a set of chain structures, and all legal Bitcoin transactions can be traced back to the output of one or more transactions. The source of these chains is mining rewards, and the end is Current unspent transaction outputs (account balance).
Utilizing the characteristics of UTXO, the central bank will be able to easily monitor the flow of funds and conduct anti-money laundering, anti-terrorist financing and anti-tax evasion supervision.
Some friends may say that no one uses cash at all now, and the aunts who set up stalls in the vegetable market support payment by scanning codes. Is the central bank’s digital currency a late-night event? Judging from the currently known characteristics of DCEP, it seems that it is really not attractive to ordinary people: Alipay and WeChat have covered most of the application scenarios, and the situation of point-to-point transfers in places with no signal is rarely encountered in a year. Second, and Alipay WeChat also has financial management functions, and Alipay can also water the ant forest...
If DCEP wants to rely on the business level of commercial banks or UnionPay to compete with Alipay and WeChat, it is obviously unlikely to win. Is it possible that the emergence of DCEP is not to compete with Alipay and WeChat?
The core appeal of the central bank’s launch of DCEP is that, in my opinion, one is to reduce the cost of coinage (reform-through-labor prisoners at the mint seem to be unemployed), the other is to strengthen the supervision of financial crimes, and the third is to regain the actual control of M0.
Alipay and WeChat are currently operating well, but for a big country like ours, if the circulation of M0 is controlled by a third-party organization, there will be risks in both monetary policy formulation and supervision. In addition, strictly speaking, the money deposited by users in Alipay is circulated. This part of the money performs the function of M0 on a daily basis, but in essence it belongs to M1 (current deposit).
One solution is to forcibly take over WeChat and Alipay. There have been such rumors before. The problem is that the current shareholding structures of Alibaba and Tencent are complex, with a high proportion of foreign capital. As a free and open market, China can directly nationalize Alipay and WeChat. It is possible.. but it will be a bit embarrassing.
The emergence of DCEP can solve this problem without affecting the interests of Alibaba and Tencent. For third-party payments, all they have to do is technically support DCEP wallets and (forcibly) convert the user's balance into DCEP.
