Blockchain technology behind digital currency: almost indestructible

Recently, a relevant official of the People's Bank of China stated that the future prospects of mobile payments are bright, and the central bank is actively studying relevant research results and practical experience at home and abroad, striving to issue digital currency as soon as possible.

In the past year or so, digital currency technology has received more and more attention and discussion around the world. What impact will these new technologies and new concepts have on the existing financial industry and the lives of ordinary people in the future? In the "Chief Commentary" column of Caixin, OKCoin founder Xu Mingxing gave an answer.

The central bank wants to issue data currency, why now?

Why would the central bank launch digital currency at this point in time and start studying and exploring it?

First of all, in the macro environment, the global monetary system has been in the process of moving from centralization to decentralization in recent decades. The current international financial situation is complex and multifaceted, and China's financial reform has reached an urgent moment of change. Another background is the rise of Internet technology. With the use of tools such as Alipay and WeChat Wallet, it should be said that it is natural for the central bank to study and launch digital currency at this time.

Xu Mingxing, founder of OKCoin, a leading domestic bitcoin trading platform, said that since the birth of bitcoin in 2009, it has set off a great wave around the world, and of course it has also caused considerable controversy. "But in the past one or two years, entrepreneurs and technology companies around the world have begun to pay attention to bitcoin. What role can the technology behind it play in the current financial system? Can it improve efficiency and reduce costs? In this context, the central bank closely follows the trend of world science and technology to explore this technology. I think this is very meaningful." Xu Mingxing said.

Previously, relevant officials of the central bank said that if the digital currency is successfully issued, it will bring many conveniences: it can effectively reduce the high cost of issuing and circulating traditional paper currency, and improve the convenience and transparency of economic transaction activities; it can reduce illegal and criminal activities such as money laundering and tax evasion, enhance the central bank's control over money supply and circulation, better support economic and social development, and help realize inclusive finance in an all-round way; it will help to build a new financial infrastructure, further improve the payment system, improve payment and clearing efficiency, and promote economic quality improvement, efficiency enhancement, etc.

What is the difference between digital currency and Bitcoin?

The digital currency we are discussing now is actually not equivalent to Bitcoin, nor is it equivalent to legal currency, but a broader concept.

Xu Mingxing said that digital currency is a broad category and the concept has appeared many years ago. He gave examples, such as the balance in Alipay and WeChat wallets, the balance in the online bank, and QQ coins.

"I think the digital currency mentioned in the recent central bank seminar has another meaning." Xu Mingxing said that in 2014, the Federal Reserve had a project research, mainly the federal government issued digital currency with reference to Bitcoin technology. Now Chinese experts are also discussing whether Bitcoin technology can be used as a reference, which can bring many benefits to the clearing and settlement blockchain network.

Li Quan, a researcher at the Institute of Fiscal Science of the Ministry of Finance, also said that the digital currency studied by the central bank is the renminbi, but it is an electronic version of the renminbi. In the future, in the process of transactions, settlement, and various records, a large account book will actually be formed. This account book has functions such as transaction settlement, statistics and supervision, and error correction.

The "ledger" mentioned here is blockchain technology. From a financial perspective, Bitcoin is a practical application of blockchain technology, and blockchain technology is just a technology for digital currency.

The outside world's discussion on Bitcoin, digital currency and blockchain is always inseparable from the word security. In this regard, Xu Mingxing said that all technologies will have problems, MYbank will fail, and cash will be lost. The security of Bitcoin is based on passwords. If the key is kept safely, it is safe under the current scientific mechanism and principle. No one can crack the Bitcoin password, but if the password is lost, it is just like losing the password of MYbank and the USB shield.

"In fact, the blockchain technology itself has a very high security factor. There are thousands or tens of thousands of blockchains distributed on the Internet. In this sense, it cannot be destroyed and is safe. However, if the user leaks the password, there is no security at all," said Xu Mingxing.

When will the application of blockchain technology be truly realized?

"Blockchain technology has been used in many fields around the world," said Xu Mingxing. For example, in smart payment, when your car goes from parking lot A to parking lot B, you can use one card to automatically pay for the parking fee. Today, you need to apply for different cards in different parking lots. For another example, if the refrigerator runs out of milk, it can help you pay. This digital RMB can be cleared on the blockchain network, and these refrigerators can realize payments according to pre-set programs.

There have always been doubts about the actual application of blockchain technology in China. Digital currency and blockchain advocate a decentralized concept, but for example, the central bank is now discussing its issuance, and the central bank is an intermediary institution. How can an intermediary institution do a decentralized thing? That is equivalent to subverting itself, so is there a paradox in terms of concept?

In this regard, Xu Mingxing said that decentralization and centralization are actually two coexisting concepts. "In the matter of issuing digital currency, it is actually to decentralize the inefficient links, with the purpose of reducing costs and improving efficiency. If the original centralized method is efficient, then there is no need for decentralization."

Xu Mingxing said that the current domestic payment system, clearing system, and settlement system are inefficient and costly. Exploring decentralized technologies in this field can reduce the overall social cost. In terms of issuance, the sovereign currencies of various countries are currently issued. Although the authorization is done by different banks, the control is still in the hands of the central banks of various countries. There is no sign of change in this matter, so in reality, this paradox does not exist for the time being.

In fact, blockchain and digital currency have been very popular in the past two years, largely inspired by Bitcoin. "Countries have begun to discuss digital currency as an important strategy. People have found that using such technology, first, they do not lose control, and second, they can solve many social problems. Therefore, it has become a hot keyword for global capital and entrepreneurship in the past two years." Xu Mingxing finally said.