Payment Giant Alipay Undertakes Crucial Work for China’s CBDC
Chinese payment giant Alipay has published 5 patents related to CBDC (central bank digital currency) from February 21 to March 17. Alipay, a third-party payment company, will undertake four crucial functions of China’s CBDC.
Assuming the function of delivery and transaction bookkeeping
On February 21, Alipay’s patent application, “Implementation and Electronic Equipment of CBDC transaction”, was first published.
As China’s CBDC, aka DC/EP adopts a ‘two-layer structure’, which requires operating agencies to conduct the secondary issuance. The patent revealed that Alipay is likely to participate in the second issuance, which shares an equal position with commercial banks. The revealed information shows that commercial banks will not monopolize the secondary issuance of DC/EP.
The patent also provides the measure for agencies to obtain DC/EP: “the amount of DC/EP usually depends on the amount of reserves paid by the agencies in the central bank.
The most important invention of the patent is the way DC/EP can be traced. Different from the cryptocurrency built on the blockchain, DC/EP does not rely on the blockchain, but it has the traceability function of the blockchain.
The operation organizations with DC/EP issuing rights can be interconnected through the equipment deployed by the central bank. In addition, the central bank also deploys the front-end encryptor in each operating agency.
The nodes of cryptocurrency access based on blockchain are public or semi-public, while China’s central bank has developed encryption equipment specifically for the operators of DC/EP.
Assisting in handling illegal accounts
On February 25, Alipay released a patent for account management: “A Digital Currency Account Control Method and Device”.
One of the characteristics of CBDC is ‘through supervision’. Now if regulators want to restrict illegal transactions, we need to go through the bank’s currency operating agency when illegal activities have occurred and it’s very difficult to recover the transferred fund.
The patent deploys the account restriction rules agreed by each supervisor and the operation organization on the wallet service end of the operation organization. If a supervisor finds that the target account is suspected of violating laws or regulations in economic activities.
This regulatory approach is very close to smart contracts. It can be imagined that when the individual account is swindled, the relevant digital currency of the swindler will be frozen immediately after reporting the case to the supervisor.
Supporting the digital wallet
On February 28, Alipay published the patent of “Digital Wallet’s Method and Electronic Device”, which is quite different from the current electronic wallet design.
According to the patent, there are many types of digital wallets. Different types of digital currency wallets provide different services, and the user ID is carried in the opening request.
The form of CBDC like paper money, Alipay supports anonymous transactions
On March 17, Alipay announced the patent named “An Anonymous Trading Method and System Based on Digital Currency”.
Alipay adopts a temporary password to realize anonymous transactions. The specific methods are as follows:
First, the payer wallet client obtains the temporary password of the payee. The temporary password, also known as the dynamic token is a kind of digital string that is temporarily valid and dynamically updated. OTP (one-time-password) technology can be used to make the wallet server and the wallet client update their local stored temporary passwords synchronously based on the agreed algorithm.
In other words, the wallet client can store the temporary password locally, and update the temporary password synchronously with the wallet server.
It can also enable the wallet client to request a temporary password from the wallet client when needed. After receiving the request from the wallet client, the wallet client updates the temporary password stored locally and sends the updated temporary password to the wallet client.
With non-real-name-authentication, users create anonymous wallets by providing general identification data that can match the user’s identity, such as mobile phone number, email address. As this kind of wallet does not provide strong real-name information, it can absolutely hide the real name information of the participating roles in each business scenario.