The People’s Bank of China report on blockchain technology and its upcoming CBDC

Obviously, the People’s Bank of China is considering using blockchain technology to power digital RMB CBDC. This coin, also known as digital renminbi or digital renminbi, has been in beta testing for some time. However, Di Gang, deputy director of the Digital Currency Research Institute of the People’s Bank of China, recently published an extensive report on blockchain technology. On December 5, at the 18th International Finance Forum (IFF) Global Annual Meeting, a Chinese reporter Colin Wu translated the main points For our analysis.

Related Reading | How will Samsung help the Bank of Korea develop CBDC

Before we do this, let us think about it. Their CBDC is a completely centralized business. Why does the People’s Bank of China use blockchain? In other words, if China’s CBDC goal is not decentralization or censorship resistance, why does it need a blockchain? The efficiency of a centralized database is several orders of magnitude higher than that of a blockchain. It does not require mining to verify transactions, nor does it require PoW or PoS to reach consensus. Let’s delve into the report and see if we can find the answers to these questions.

How does the People’s Bank of China view blockchain technology?

The report starts with statistics and survey results:

“According to Di Gang, in 2021, relevant consulting agencies conducted blockchain research in ten countries including the United States, the United Kingdom, Singapore, Germany, China, and Japan. 81% of the interviewed institutions believe that blockchain technology has a wide range of Scalability is being adopted by the mainstream. Financial institutions agree as high as 84%. All global financial institutions surveyed regard blockchain as a top priority strategic priority.”

Note that they are talking about beliefs and making blockchain a priority, not the actual use of traditional financial institutions. The report did continue to say that “a research institution in September 2021, a study on the use of blockchain by global TOP 100 listed institutions showed that 81 institutions are using blockchain technology”, but did not give the source. Where are those projects? Are they still in development?

Then, Di Gang claimed:

“There are more and more achievements in the implementation of blockchain, and more and more value advantages are exerted; on the other hand, blockchain technology has been used in cross-border payment, supply chain finance, agricultural finance, trade finance, inclusive finance, and social cities. , “Sannong”, people’s livelihood and other fields have been implemented.”

Are these crypto projects, government-related projects or traditional financial projects? The report did not specify, so we cannot know their characteristics. Later, Zhai Gang said, “Some large international financial institutions are also actively expanding blockchain application scenarios, including trade finance, information sharing, foreign exchange transactions, equity transactions, etc.” Why do these institutions need blockchain to do all this?

Does digital renminbi or digital renminbi need blockchain?

Obviously, it is true. The Numerical Research Institute is already implementing:

“First of all, a unified distributed ledger is constructed in the digital RMB system based on blockchain technology. The central bank, as a trusted institution, uploads transaction data to the chain to ensure the authenticity and reliability of the data, and the operating institution can conduct cross-border transactions. Institutional reconciliation, collective maintenance of ledger, multi-point backup, etc. ”

The Institute hopes to build a “trade finance blockchain platform with the goal of information penetration, trust transferability, and credit sharing, and to complete the construction of a blockchain-based trade finance ecosystem.”

Relationship betwwen the US Dollar and the Chinese Yuan via FXCM | Source: USD/CNH on TradingView.com

The technical challenges of blockchain technology

The People’s Bank of China has discovered the following difficulties in blockchain technology:

  • Performance and scalability issues.
  • Privacy protection is not enough. “There is still a need for innovation at the theoretical level, as well as innovation in engineering technology,” Di Gang said.
  • It needs to “further strengthen security technology innovation.”
  • “In terms of regulatory review, Zhai Gang believes that there are still many nodes in the blockchain that are anonymous and dense, making it difficult to monitor through decentralization.”
  • There is technical friction between blockchain technology and traditional technology.
  • Someone needs to establish a system of interoperability standards.

Therefore, basically the same problems that every encryption company has discovered plus a “regulatory audit” are “difficult to supervise through decentralization.” Can it be said that this is the real content of this report?

Related Reading | The Central Bank of France tests blockchain-backed CBDC for the debt market

The People’s Bank of China will release CBDC for the Winter Olympics

Obviously, the People’s Bank of China’s plan to further test the digital renminbi during the Winter Olympics is still in progress. Di Gang said:

“The digital renminbi will be piloted at the end of 2019 and is currently being piloted in 10 regions and the 2022 Beijing Winter Olympics. In July this year, the People’s Bank of China released the “China Digital RMB R&D Progress White Paper” as a digital renminbi R&D pilot and Winter Olympics. An important part of the preparatory work, the digital RMB Beijing Winter Olympics scene pilot is also steadily progressing in an orderly manner. “

This is China’s current position on blockchain technology and its CBDC.

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