Slowly, the Chinese state has been building up the e-CNY or the digital yuan to where it has some real-world capacity now. During the Winter Olympics, the Chinese state aims to evangelize the digital yuan to a broader international audience, trying to get the government-controlled payment rail into the hands of international visitors for a soft pilot of what is a long-standing Party goal: to more broadly internationalize the Yuan.
Visitors to the Winter Olympics will be allowed to access the digital yuan with their passports, even if they don’t have any domestic Chinese banking accounts.
Yet concerns remain for the digital yuan. Foremost is that it is still in pilot mode and hasn’t in fact been stress-tested at scale yet. Bitcoin has passed many times more in daily transaction value than the total trial amount passed through the e-CNY ($9.7bn in USD value over the course of 12 trials as of November 2021). Now, to be clear, daily on-chain transaction value can be murky: transfers between stakeholders can be to the same nominal owners — yet it speaks to the pilot nature of China’s e-CNY and how far it should go to be anywhere near “production-ready”.
Bitcoin, ethereum and plenty of smaller cryptocurrencies have been subjected to a plethora of attacks: early in its history, one particular attack led ethereum to split and almost destroyed the whole project. These different attacks, from individual phishing attacks on holders to exchange hacks, have tested the chain at various levels — yet the foundational thesis that a host of decentralized providers could come together to unlock economic value solely through a well-tuned set of incentives has lasted through more than a decade of testing.
There have been strong incentives placed for many to attack the system — Satoshi’s cache of initial wallets for example, are available for those looking through a block explorer to what could essentially be a multi-billion dollar fortune. Yet, nobody has signed for or moved that amount — in what has amounted to now a multi-billion dollar bounty for any bitcoin attacker.
It’s hard to imagine that the Chinese e-yuan will be able to inspire the level of enthusiasm, open-source collaboration, and the complete suite of security focus that ten plus years of bitcoin in the wild has provided. The “trial” phase of the digital yuan is still very much relevant, no matter what efforts are made for visitors to integrate with it.
Secondly, the state’s imprimatur has very little relevance in a world where essential data and systems are attacked by state-level or even private entities all the time. In the case of the Chinese state, encryption law that allows for backdoors in order for state surveillance has led to an atrophy of commercial encryption — and points to another central issue for the digital yuan: the level and need for central control diluting even further the standards under which digital payments are conducted.
One can only hope that the same agencies responsible for ensuring that Chinese state media doesn’t adopt HTTPs connections and secure connections by default and which consider “locally” produced to be analogous to “secure” aren’t also responsible for the cryptography research required for the “dual mandate” of the digital yuan: placating the central government’s need for control with the user’s needs for privacy, autonomy, and trust in no backdoors.
With the Chinese state clearly broadcasting the level of control it has on the digital yuan, and flipping payments control from Chinese companies that had rejected (some) government inquiries for data and whose leadership has questioned the central state such as Alibaba and Alipay’s founder Jack Ma, the digital yuan has also been lauded by state figures for its ability to create individual blocks and censorship.
Its ability to maintain privacy and encryption aside, and its lack of “production” experience — this should be centrally concerning even for casual users. After all, the Chinese state has proven more and more unpredictable when it comes to imprisoning nationals of other states for somewhat arbitrary purposes: and it has used mass surveillance, largely through recording of biometrics, malware and other devices to spy on regions and diasporas across the world. That the same entity has designed this system with control in mind should leave anybody concerned that use may be weaponized.
Thirdly, in terms of environmental impact: the Chinese state should answer the same critiques of energy efficiency that have been tossed at proof-of-work blockchains or proof-of-stake. There have been indications that the Chinese state is looking to implement “blockchain” strategies for everything from tracking carbon emissions to being a cornerstone of new innovation and technologies.
What are the consensus algorithms, setup, KW/hr measures? There is no objective analysis of these energy efficiency standards that should escape use cases just because they have state backing — if anything it is ever the more reason to be suspicious, with a state that has long priced carbon lower in its carbon trading scheme (close to $50 USD per ton), and which has simultaneously promised long-term emissions cuts while delivering increases in coal power. This system of power generation, or at least some portion, will go towards an extension of the state’s monetary authority rather than a differentiated, secured product with known international demand. Analysis of environmental efficiency should be heightened here to match some of the standard analyses long done on both proof-of-work and proof-of-stake standards.
Finally, the People’s Bank of China, the issuer of the e-CNY cannot be considered as nominally independent as other central banks — its alignment with political objectives ensured by its reporting structure to the State Council as well as “Party discipline”. If this is a form of theater to partially disguise who really controls economic and political goals, it could well be a very expensive one technologically speaking — and in energy cost. The international audience the e-CNY is aimed at — and the Chinese people (68% of whom expressed some concern for their digital privacy in one study) deserve much better.
The Chinese state wants to assure individuals using its digital yuan that it is finally a “reliable” way of transacting digitally in a digital manner. Yet it falls short of the true ecosystem of wallets, education, and production-ready experience that digital cryptocurrencies have long had, needs to be audited from an energy efficiency and centralization/decentralization of power aspect — and though the Chinese state has endorsed this new central bank digital currency, it suffers from many of the problems any central bank digital currency would have — and adds some deep, specific concerns around encryption, user privacy and user autonomy to boot.