Comment on the impact of the central bank's digital currency ecosystem issuance on traditional financial institutions

Recently, the central bank's digital currency has been internally tested in several cities, which has aroused market enthusiasm. As an important change in the currency carrier, the social changes it brings about will also have tremendous energy and bring about the development of more industries. This is also the consensus in the market.

In addition, with the further development of blockchain technology, countries around the world have begun to develop their own central bank digital currencies, including Europe, which is currently actively preparing. Central bank digital currencies are not only a change in China, but also followed by other countries in the world. It is like the invention of the steam engine. For a time, craftsmen in various European countries were replaced one after another, and the rumbling sound resounded throughout Europe, and a new colonial model was opened. The rise of central bank digital currencies around the world is also a new round of "steam revolution."

Unlike the value carried by Bitcoin in the free trading market, the central bank's digital currency is legal tender and has no functional difference from ordinary paper currency, but it has been favored by the country. In fact, the main reason is the blockchain technology used by the central bank's digital currency. Blockchain technology enables the central bank's digital currency to be used in more application scenarios, which is what we often call ecological construction.

The traditional currency ecosystem mainly includes payment, lending, coin storage and financial management, currency exchange and other major application scenarios. For example, payment is one of the most commonly used functions. Using currency to purchase goods happens every day in our lives, including most physical goods and virtual goods, etc. Lending is the foundation of modern finance, and currency exchange is a necessary tool for global trade. In fact, traditional currency has basically no more uses at present.

The digital currency based on blockchain is another scenario. First of all, the digital currency of blockchain can be backward compatible with traditional currency, and it also has payment, lending, financial management and exchange functions. Of course, the manifestation of these functions is different from that of traditional currency. For example, lending, in general, traditional banks are carried out in third-party institutions. The credit of the institution needs to be rated by a special credit rating company, and then the credit system is maintained in this way. This is artificial, so there is a certain amount of room for operation under the careful system, and it is also easy to have fraud and other phenomena.

However, this is not the case with digital currency. Digital currency is generated based on code. Once the code is deployed on the blockchain, it is basically difficult to change at will. Because once it is changed, someone will find out, and then the funds will be lost accordingly. There is also an on-chain governance method to continuously improve the code, that is, people holding governance tokens can vote accordingly, and then new improvement measures can be implemented. At the same time, the ledger of digital currency can be checked and traced, which is a very fair thing.

In addition, for digital currencies on the blockchain, most scenarios can be deployed using code, such as decentralized lending, wealth management products, decentralized insurance products, etc. This will replace traditional financial institutions to a certain extent and can be quickly applied. In other words, a piece of code on the blockchain can replace various functions of traditional banks, insurance, commercial companies, and credit rating companies in the future, which will bring tremendous pressure to the business of the above companies.

As for the birth of the central bank's digital currency, we must see that although it is actively embracing blockchain technology, it is actually providing protection for traditional financial institutions such as banks and insurance companies, so that banks, insurance companies, and securities companies will not be defeated by the wave of blockchain.

In other words, in the future, the currency deposit business may only be monitored by banks in a standardized manner, and most unlicensed companies will not be able to enter this field. The same is true for other industries. Banks were originally meant to be replaced, but now banks can still occupy their own place through the national administrative layout, making themselves impossible to be replaced.

The scenarios for the central bank's digital currency are actually quite rich. Emerging businesses after traditional businesses will also be born in the market. For example, various types of transaction information will be made public, which will lead to the birth of data centers on the chain and continuous analysis of the flow of data.

In this way, in the future, central bank digital currency ecosystem builders who hold regulatory licenses will provide a large number of ecological applications for it. Of course, although corresponding improvements have not yet been made, it is certainly impossible for anyone to write DEFI applications based on central bank digital currency in the future, because this part will ultimately still need to be controlled by large enterprises.

In fact, to put it bluntly, the central bank's digital currency is actually intended to improve the business of existing financial enterprises, rather than cultivate new killers to overthrow the original system.

For example, in the existing WeChat and Alipay, we all know that the money in WeChat will not be directly transferred to Alipay, and vice versa. However, if the central bank's digital currency is born, then the corresponding WeChat wallet is actually the central bank's digital currency wallet, and the same is true for Alipay. Therefore, in theory, this realizes the direct transfer of money from WeChat accounts to Alipay, which also greatly improves efficiency.

At the same time, it means that the central bank's digital currency will complete the grand unification of the existing monetary channels, that is, it can form mutual conversions, rather than each enterprise creating its own ecological island. In this way, banks will re-enter the field of monetary payment, rather than being occupied by Alipay or WeChat. In the end, the power of payment is still in the hands of banks or related institutions. The concentration of power in the new track is actually an efficient means. If new killers are cultivated, it will easily cause turmoil in some existing systems, which is definitely not conducive to social stability.

This is different from the current cryptocurrency world. The existing cryptocurrency world is basically a field of brutal competition and fighting. All project parties are racking their brains to find ways to get their projects into the top ten, because the ultimate benefits belong to the project parties and institutional investors who hold a large number of tokens. They are motivated to compete. The central bank's digital currency currently has no clear beneficiaries. The main reason is that its current function is to replace paper currency. Only in the future will it gradually consider the ecological construction of smart contracts and related applications, because this matter cannot be completed quickly, otherwise it will easily cause regulatory out-of-control.

The intelligent ecosystem generated by the central bank's digital currency will greatly improve social efficiency and capital liquidity in the future, and will be able to operate safely and in accordance with regulations. There are already many unicorn companies in this field, but we also need to pay attention to the relevant entry barriers in the future. This is the key to the development of the central bank's digital currency. Although the future has come, at least a ticket (relevant qualifications) is required to enter, otherwise the ship of the times can only leave you and me.