What exactly is the digital currency that the central bank is developing?

Central Bank Digital Currency System (Photo source: China Finance) Central Bank Digital Currency Private Cloud: The underlying infrastructure used to support the operation of the Central Bank Digital Currency. Digital Currency: An encrypted digital string representing a specific amount of money issued and guaranteed and signed by the Central Bank. Digital Currency Issuance Library: The database of the Central Bank Digital Currency Issuance Fund stored by the People's Bank of China on the Central Bank Digital Currency Private Cloud. Digital Currency Commercial Bank Library: The database of the Central Bank Digital Currency stored by commercial banks, which can be stored locally or on the Central Bank Digital Currency Private Cloud. Digital Currency Digital Wallet: Refers to the client for individuals or unit users using the Central Bank Digital Currency in the circulation market. This wallet can be based on hardware or software. Certification Center: The Central Bank centrally manages the identity information of the Central Bank Digital Currency institutions and users. Registration Center: Records the Central Bank Digital Currency and the corresponding user identity, completes the ownership registration; records the flow, completes the registration of the entire process of the Central Bank Digital Currency generation, circulation, counting and verification, and extinction. Big Data Analysis Center: Anti-money laundering, payment behavior analysis, regulatory control indicator analysis, etc.

Digital currency is coming ?! Recently, Yao Qian, head of the preparatory group of the Central Bank's Digital Currency Research Institute and deputy director of the Science and Technology Department, publicly stated that the prototype plan for the Central Bank to issue legal digital currency has completed two rounds of revisions. Yao Qian said that the purpose of the digital currency issued by the Central Bank is to replace physical cash, reduce the cost of issuing and circulating traditional paper currency, and improve the convenience and transparency of economic transaction activities. As for when China's legal digital currency can be launched, there is no timetable. So, what exactly is this digital currency that sounds like it contains technological content? What is the difference between it and virtual currency? How will digital currency be issued and circulated?

Xin Kuaibao reporter Xu Liyun and intern Weng Rongtao

What exactly is digital currency ?

Digital currency is different from virtual currency . It is neither Bitcoin nor Q Coin.

For many people , the concept of digital currency is vague, and it is easy to confuse digital currency with electronic currency and virtual currency. In fact, from a broad sense, digital currency covers a wide range of aspects, including electronic currency, virtual currency and legal digital currency.

OKCoin Vice President Duan Xinxing told the New Express reporter that electronic currency is the electronic form of legal tender, including our common bank cards, online banking, electronic cash, etc., as well as third-party payment that has developed in recent years, such as Alipay and Tenpay. "No matter what form these electronic currencies take or which institutions they circulate through, their original source is the legal tender issued by the central bank."

He said that like electronic money, virtual money is also intangible, and the most important difference between the two is the issuer. Virtual money is the electronic form of illegal money, and its initial issuer is not the central bank. For example, Tencent Q coins and other game coins, this type of virtual currency is mainly limited to circulation in a specific virtual environment; another example is Bitcoin, which uses blockchain technology to better solve the problems of decentralization and trustlessness, achieve global circulation, and is sought after worldwide.

In other words , virtual currency can only circulate in a closed manner on the Internet, while digital currency can be used for real goods and service transactions. However, only digital currency issued by the state is legal digital currency, and Bitcoin is not a legal digital currency.

As for legal digital currency , there is no unified definition internationally. Yao Qian, deputy director of the Technology Department of the Central Bank and head of the preparatory group of the Digital Currency Research Institute, believes that the digital currency that the Central Bank is studying and issuing refers to the digital RMB. Judging from the plans of various countries, it belongs to legal encrypted digital currency. It is a currency itself, not just a payment tool. Correspondingly, virtual currency is also called non-legal digital currency.

How to implement digital currency ?

The central bank is responsible for issuance and verification monitoring , while commercial banks are responsible for circulation services.

As a legal digital currency, it must be guaranteed by national sovereignty . Yao Qian said that the initial consideration in the design of China's digital currency is that it will be led by the central bank, while maintaining the issuance of physical cash, and issuing digital currency based on encryption algorithms. A part of the circulating cash (M0) will be composed of digital currency. In order to fully guarantee the security of digital currency, the issuer can use a security chip as a carrier to protect the security of the key and algorithm operation process.

"The issuance and withdrawal of the central bank's digital currency is based on the dual system of the central bank and commercial banks," he said. "The central bank will be responsible for the issuance and verification monitoring of the digital currency. After commercial banks apply for digital currency from the central bank, they will directly face the society and be responsible for providing digital currency circulation services and application ecosystem construction services."

But how does the digital currency system work , and what does it include? Yao Qian explained that in the central bank's digital currency system, there are the central bank's digital currency issuance library, the commercial bank's digital currency bank library, and the digital wallet of the user end (such as a mobile phone). The relationship between these three is as follows: according to the total amount of digital currency issued, the central bank uniformly generates digital currency (that is, produces digital currency funds) and stores it in the central bank's issuance library; then, according to the commercial bank's digital currency demand application, the digital currency is sent to the corresponding commercial bank's digital currency database, that is, the digital currency goes from the issuance library to the bank library.

When a user applies to withdraw digital currency , it is actually equivalent to our current behavior of withdrawing money. Then the digital currency goes from the bank vault to the circulation link and enters the user's client storage medium (such as a mobile phone), that is, from the bank vault to the user's digital wallet; in the circulation link, the digital currency is actually transferred between the two users' respective digital wallets to complete the payment. For example, Xiao Zhang directly opens his own digital wallet to complete the transfer to Xiao Wang's digital wallet.

Questions and Answers

1. What is the difference between digital currency and the Alipay, WeChat Pay or mobile banking we commonly use?

Alipay, WeChat Pay and mobile banking are actually electronic currencies , not digital currencies. These are payment methods based on electronic accounts. In essence, they are just an information process of existing legal tender, and are not digital currencies in the strict sense.

2. What is the difference between digital currency, Q coins and Bitcoin?

Q coins and Bitcoin are both virtual currencies. The most fundamental difference between them and digital currencies is the difference in the issuer. Virtual currencies are electronic versions of illegal currencies. The issuer is not the central bank, and they can only circulate in a specific virtual environment, such as Tencent Q coins and other game coins. Digital currencies can be used for real goods and services transactions, but only digital currencies issued by the state are legal digital currencies, and Bitcoin is not a legal digital currency.

3. If digital currency is implemented, will third-party payment platforms such as Alipay still exist?

Third-party payment is also evolving from a single payment channel and payment gateway model to a higher value-added account model such as transaction guarantee, balance management , QR code payment, T+0 business, etc. The emergence of legal digital currency may make peer-to-peer payment possible, which will reduce the dependence on third-party payment institutions as payment transfer institutions and payment channels to a certain extent, but I believe that third-party payment institutions can still find their new positioning and value in the new ecology and will not disappear completely. Of course, it ultimately depends on the final implementation plan of digital currency.