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The security and development of digital currency



The Bitcoin system based on blockchain technology has triggered an upsurge of blockchain and encrypted digital currency innovation with its open source characteristics and community-based operating mechanism. The successive emergence of blockchain and digital currency has aroused people's vision and exploration of the development of the future Internet from the information Internet to the value Internet. The digital economy has also been endowed with new connotations on the basis of the Internet, especially the technical support of value and trust brought by blockchain technology, which may bring about changes in human production and life. In 2020, my country's digital renminbi will begin pilot applications in Shenzhen, Chengdu, Suzhou, Xiong'an New District and future Winter Olympics venues. This article discusses the security and development of blockchain and digital currency. 1. The meaning and impact of digital currency The large-scale application of the Internet has led to the facilitation of payment and settlement, which is usually called electronic payment or mobile payment, and later collectively referred to as online payment. Online payment refers to the behavior of transferring monetary funds between payees and payers relying on public networks or private networks, including currency exchange, Internet payment, mobile phone payment, landline phone payment, digital TV payment, etc. Due to the convenience and universality of the mobile Internet, Tencent and Alibaba, with their monopoly positions in third-party payment services in my country, have a penetration rate of over 90% of WeChat Pay and Alipay, and have also made great contributions to cashless payment. However, the advent of Bitcoin has triggered the technological innovation of encrypted digital currency, which also impacts and drives the financial technology innovation of traditional financial institutions and central banks. Digital currency is an important part of the financial technology (FinTech) field. As a specific application of financial technology, digital currency has developed rapidly since its birth. The issuance of digital currency will not only have a direct impact on the domestic financial and monetary system, but may also have a significant impact on the global financial system and the global currency ecosystem. Generally speaking, digital currency is a virtual currency designed based on information network and cryptographic algorithms. At present, digital currencies are divided according to the six dimensions of whether they are issued by the central bank, whether they are legal tender, whether they are supported by the central bank, whether they are linked to legal tender, whether they support point-to-point transmission, and whether they are programmable. There are four main types of digital currencies. Digital currencies, namely central bank digital currency (CBDC), synthetic central bank digital currency (sCBDC), stable coins (Stablecoins) and encrypted assets. A central bank digital currency is a digital representation of a sovereign currency that is issued by a regional financial regulator and appears on the liability side of the central bank's balance sheet. Synthetic central bank digital currency is a legal currency issued by the central bank, but it will not itself form a claim against the central bank. Stablecoins are encrypted assets linked to legal tender, and encrypted assets are generally privately issued tokens, which are digital representations of value, but are not denominated in legal tender. It should be noted that the classification of digital currency may also change in the future. Russian blockchain technology experts: Russia is reviewing four digital currency bills: At the second blockchain new financial summit forum, Artem Koltsov, head of the Russian Duma digital economy and blockchain technology expert group, said that the Russian government is Study how to tax mining and take it as an important future policy. The taxation objects of future mining include the number of coins mined or the number of coins traded by miners. He also mentioned that Russia currently has four digital currency bills under review, of which three proposals have completed the first hearing stage, and a draft law on "digital financial assets" has been issued, which defines mining, cryptocurrency, token Currencies, smart contracts, etc., he said that Russia is looking forward to the draft being passed by the president soon. [2018/6/6] Digital currency is generally a form of currency recognized by law, or a form of currency that is not prohibited by law and recognized by the public. It can be used to purchase goods or services like traditional currencies, and at the same time supports the fulfillment of Relevant financial obligations may also undertake the innovation of value exchange in the digital economy, showing characteristics that traditional currencies do not have. For example, based on the programmable nature of blockchain, encrypted digital currency can embed contracts in the form of computer programs to support automatic execution. At present, decentralized finance or distributed finance (DeFi) applications based on smart contracts show many characteristics of financial innovation, which are unprecedented in the financial field. Digital currency security generally has two meanings: one is the security of digital currency itself, which is mainly reflected in the security technologies that must be adopted to realize the form and characteristics of digital currency, including passwords, security chips, system security, network security, and data security technologies. etc.; the other is the security of the monetary system or financial system brought about by digital currency, including laws, regulations, compliance, risk control, etc., such as user real-name/anti-money laundering/anti-terrorist financing (KYC /AML/CFT), etc. In 2016, Wang Yonghong summarized the main characteristics of digital currency in the article "Digital Currency Technology Implementation Framework", including negotiability, storability, offline transaction, controllable anonymity, unforgeability, and non-repeatable transaction. , non-repudiation, a more comprehensive description of the digital currency and its security requirements, and it is also all the characteristics of the current digital renminbi. Among them, except for offline transaction, all other features are also applicable to encrypted digital currency based on blockchain. Digital currency security includes safeguard measures and technical means for these characteristics, so I won’t go into details here. Veteran headphone manufacturer Monster is developing a new digital currency: According to CryptoDaily, the former Beats headphone manufacturer Monster said it is currently developing a new digital currency, Monster Money Token, and plans to raise $300 million by selling it. Based on the global e-commerce operating system to compete with Amazon. According to data from the US Securities and Exchange Commission, Monster continued to lose money, with a net loss of US$26.7 million in 2017 and a loss of US$19.6 million in the first quarter of 2018. The CryptoDaily article commented that Monster may be trying to bring the company back to life. [2018/5/31] 2. The development of central bank digital currency Encrypted digital currency has brought a strong momentum of global central digital currency research. According to the 2019 Bank for International Settlements survey of 66 central bank digital currencies, nearly 80% have already carried out the feasibility analysis of CBDC issuance, and 10% are close to the issuance stage. At present, the status of CBDC issuance in some foreign countries is shown in the table below. As can be seen from the above table, in recent years, countries have begun to deploy CBDC-related research activities, not limited to European and American countries with developed financial industries. Currently, the renminbi accounts for about 2% of the global foreign exchange reserves, the euro accounts for about 20%, and the U.S. dollar accounts for more than 60%, which shows that the currency system dominated by the U.S. dollar is still the norm. With the implementation of the "Belt and Road" initiative, the number of countries and populations that use RMB will continue to increase. The launch of the digital currency of the People's Bank of China can further improve the convenience of RMB use, but there are still corresponding risks that need to be paid attention to. In the field of CBDC, China is the first country to start related businesses. As early as 2017, China carried out research and experiments on the Chinese version of CBDC. Later, the project was named as the Central Digital Currency Electronic Payment (Digital Currency Electronic Payment, DC/EP), referred to as digital RMB (e-CNY), and in 2020 On August 14, the pilot issuance began in the Beijing-Tianjin-Hebei region, the Yangtze River Delta, and the Guangdong-Hong Kong-Macao Greater Bay Area. At present, the design goal of e-CNY is to serve as a substitute for RMB cash, that is, M0, and it has not directly adopted the underlying technology of the blockchain and its "programmable" features, but it can effectively Reducing the dependence of transaction links on accounts is conducive to the circulation and internationalization of RMB. At the same time, it can collect all links of currency flow in real time, which is conducive to the realization of currency supervision. Spanish financial regulators have clarified that regulated funds can invest in digital currencies: According to, the Spanish National Securities Market Commission (CNMV - Comisión Nacional del Mercado de Valores) recently clarified its position on direct investment in digital currencies by its registered funds. According to the committee, such funds have legal status under Law 22/2014. Law No. 22/2014 applies to closed-end collective investment entities (EICC), closed-end investment funds (FICC) and closed-end investment companies (SICC), etc. [2018/5/22] CBDC is a current international research hotspot. First of all, CBDC can enhance the market competitiveness of the country's payment system and effectively resist the monopoly of traditional payment systems; secondly, CBDC can reduce the cost of issuing physical currency and provide inclusive financial services for some remote areas with underdeveloped financial systems; it can strengthen policy regulation of the economy. The sensitivity of the market is conducive to the rapid transmission and effectiveness of monetary policy; it can also reduce or prevent private currency issuance, avoid financial risks induced by these currencies, and achieve effective supervision of the currency market; help enhance the attractiveness of currency payments and reduce dollarization; CBDC can play a certain role in areas or groups that are not easily involved in financial incentives. It should be noted that the issuance of CBDC also faces some risks. First, CBDC may change the exchange rate transmission channel and affect the transmission of monetary policy. After the introduction of CBDC, it may change the basic money demand composition in an unpredictable way, change the currency composition elements, and affect the elasticity of money market demand to interest rate changes. CBDC may also accelerate the pace of monetary management policies to respond to exchange rate changes in global markets, which in turn will trigger stronger and more unpredictable currency market exchange rate movements. Second, CBDC may affect financial stability in the process of competing with bank deposits. When introducing CBDC, it is necessary to consider whether it is an accessory interest attribute. If there is no interest, CBDC is undoubtedly the closest to the role of cash, but it may affect its promotion; and if it is necessary to pay interest for users holding CBDC, this will definitely be different from bank deposits. form a competitive relationship. Third, CBDC may also have an important impact on the central bank's balance sheet. If the central bank disintermediates the issuance of CBDC, then the central bank can re-lend the funds originally diverted from the banks back to these banks, increasing the market currency issuance, which may induce inflation, which will deviate from the original intention of the central bank to issue CBDC. If the central bank issues digital currency only for physical cash, although the disturbance to the normal monetary order of the market may be minimal and the size of the central bank's balance sheet remains unchanged, it may also weaken the influence of CBDC. Fourth, a poorly designed CBDC could trigger a severe economic crisis and even accelerate bank runs. When individual banks are insolvent, signs of a run can easily spread to the entire banking system in a very short period of time. Although CBDC can allow the central bank to inject capital into troubled banks as soon as possible to alleviate the corresponding financial risks, there are still corresponding risks. possible. Finally, in countries with unstable inflation and currency exchange rates, citizens may increase their holdings of CBDC in other countries, which may accelerate currency substitution, and the most typical one may be to promote the dollarization of national currencies. John McAfee Twitter is suspected of selling digital currency advertisements for $105,000: John McAfee is suspected of selling digital currency promotion services at a price of $105,000 per tweet, and his Twitter currently has more than 810,000 followers. McAfee has yet to specify whether the tweets were digital currency advertisements, or whether he was paid for them. [2018/4/1] From the above analysis, it can be seen that when the country issues CBDC, it needs to conduct a comprehensive analysis as a risk control in advance. These considerations include review of laws and regulations, effective cooperation of stakeholder groups, technical infrastructure support, talent team and professional knowledge reserve, etc. Issuing CBDC is a comprehensive project, which has exceeded the role and function of the traditional central bank, and it needs to be considered comprehensively. 3. Blockchain-based digital currency Although China's DC/EP, as a member of the CBDC, has not adopted the technical foundation based on the blockchain, the blockchain distributed ledger technology is still the mainstream technical route considered by the international CBDC, but most Most countries have not yet launched pilot projects, and some early pilot projects have not achieved substantial success (such as RSCoin of the Bank of England, Jasper of the Bank of Canada, etc.). Blockchain is used in digital currency practices other than CBDC, mainly including digital assets and stable coins. In January 2009, the Bitcoin system was released in the form of open source software and produced a founding block, and then adopted an open source and community governance model to run slowly. Today, the total market capitalization of Bitcoin has exceeded one trillion dollars. As an experiment, Bitcoin proves one thing: a digital currency can be issued and utilized without the control of a central authority, breaking the traditional concept and system of currency. According to traditional currency concepts and theories, Bitcoin is not a currency at all. To be precise, Bitcoin is a digital asset. However, according to the new economic theory, the innovation of Bitcoin has brought new challenges and opportunities. After the launch of Bitcoin, because of its open source and open innovative development model, it has stimulated tens of millions of encrypted digital currency innovations. Illegal fundraising scams in the name of "issued coins" are rampant. There are also some individuals and organizations who take advantage of the lack of supervision of encrypted digital currency to carry out illegal, illegal and even criminal activities such as money laundering and illegal cross-border transactions. It can be seen that the innovation of Bitcoin can be considered as the most controversial information technology innovation. It has closely linked finance and technology from the very beginning, so that nearly 200 countries and regions around the world have expressed interest in Bitcoin and subsequent encryption. Digital currency has adopted different legal and regulatory policies including legality, restriction, and prohibition.


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