Friday 24 September 2021

Innovations Required to deal With Virtual Currency Challenge

On September 24, Wen Xinxiang, an official from China's central bank, the People's Bank of China (PBC), delivered a speech at the 10th China Payment and Settlement Forum. Wen said at the meeting that the challenge of virtual currency is huge. The traditional financial system is facing the "reinvented" virtual currency and its related "dark web" world. At present, it mainly focuses on the link between "virtual currency" and the traditional financial system, and adopts measures such as "Payment Break" to monitor and intervene. To prevent, punish and punish also requires legal basis and innovative application of technological means.

Virtual Currency Challenge

Virtual Currency Challenge

Wen pointed out that in recent years, the rapid development of virtual currencies represented by Bitcoin has attracted widespread attention from regulatory agencies in various countries. As of now, the total market value of Bitcoin has reached approximately US$800 billion, and the overall market value of stable coins has exceeded US$120 billion. Generally speaking, virtual currencies can be roughly divided into two types. One is represented by Bitcoin, and the attributes of virtual assets are more prominent, which to a certain extent become a "reservoir" of excess liquidity; the other is based on TEDA coins. The stable currency represented is more of a payment tool. From the perspective of infrastructure, the blockchain is equivalent to a virtual currency payment system and a virtual currency transaction database; a virtual currency exchange is equivalent to a central counterparty, which partially assumes the functions of a market maker.

The challenge posed by virtual currencies are huge

Wen pointed out that virtual currency poses three main challenges to the payment system. The first is to break away from the established payment system and transfer funds between internal accounts of its own closed circle, which is separated from the account system of commercial banks and payment institutions, and is only connected when exchanged for legal currency. The second is to divert the payment business of banks and payment institutions and weaken the status of clearing organizations. The third is being used for illegal activities. The anonymity of virtual currency makes it easier to become a trading tool for illegal and criminal activities. In this regard, the United States has suffered greatly. For example, hackers attacked oil pipeline companies to blackmail ransoms and demand payment in virtual currency.

Using virtual currency to transfer illegal funds across borders is a typical scenario. In the first half of this year, Henan Province detected a case involving the use of virtual currency to transfer gambling funds across borders, involving a total of 5.1 billion yuan. Maintaining such a huge amount of capital chain requires a deep trust mechanism. For this reason, the PBC conducted a special field investigation and found that the case used virtual currency as a medium to transfer huge amounts of gambling funds overseas, which has "separation of money" and "money before money". With the characteristics of "coin", a rather complicated capital link has been designed through multiple participants and multiple capital flows. Among them, there are gangs that specialize in the role of a central counterparty (CCP) to connect gambling platforms and the currency circle; there are criminal gangs and the currency circle that provide a mechanism for RMB and virtual currencies to deal with coins, and internally form a "big-retail" double Layer structure. The characteristics of virtual currency's coin dealing mechanism, transaction trust mechanism, and double-layer structure of the currency circle are very typical in this case, and it is worthy of in-depth study.

Responses to Virtual Currency Challenges

The financial system can rely on traditional methods such as law and supervision to increase anti-monopoly efforts and strengthen personal privacy and information protection when responding to the entry of large financial technology platform companies into the financial industry. However, in the face of the "renewed" virtual currency and its related "dark web" world, the current focus is mainly on the link between the "virtual currency" and the traditional financial system, and measures such as "discontinued payment" are adopted to monitor, intervene, and prevent , Punishment, also requires legal basis and innovative application of technical means.

According to Wen, the world's major economies have different attitudes towards virtual currency regulation. China is among the countries that paid early attention to the risks of virtual currencies and took effective measures. The PBC, in conjunction with multiple departments, issued documents in 2013 and 2017, clarifying that virtual currency is a virtual commodity. Financial institutions are not allowed to carry out virtual currency-related business, and any organization or individual is not allowed to illegally engage in token issuance and financing activities. The hype of virtual currency transactions has gained Containment and effectively block risk transmission.

Wen also pointed out that China has established a multi-level, wide-coverage modern payment system compatible with economic development, which strongly supports the vigorous development of the digital economy. At the same time, the efficient and convenient payment system has also been used by criminals to quickly transfer illegal funds, and there are still some urgent problems in the governance of the "fund chain". One is the shift from illegal fund transfer to illegal monetization, and it is difficult to track down stolen money through virtual currency transfer in the existing payment system. The second is that illegal funds are hidden in ordinary people's funds transfer transactions. The criminals used high profits as bait to attract a large number of people to issue real-name bank cards for rent and sale, and use their account numbers and collection codes to transfer the funds involved in the case on the running sub-platform. Third, the legal level of the payment and settlement system is low. Effective measures such as the control of suspicious transactions and the punishment of those who buy and sell accounts are still lacking basis. Fourth, the risk awareness of some market institutions still needs to be improved, and the accuracy and effectiveness of risk control are insufficient. Fifth, the level of joint prevention and control is still insufficient. Cross-institution, cross-market and cross-department risk monitoring and interception mechanisms still need to be strengthened.

He said that the PBC will adhere to systematic governance and regulation at source, consolidate the main responsibility of risk prevention and control of various institutions, strengthen the protection of personal information and privacy, strengthen the application of big data and technological means, and build a normalized crackdown governance system for joint prevention and control of the industry. Extensive publicity and education, improve the legal awareness of the entire society in the use of bank cards and other payment tools in accordance with the law, and create a good situation of mass prevention and governance of the "funding chain" of cybercrime.

No comments:

Post a Comment

Cryptocurrency "Mining Boom" Is Over?

Recently, the price of graphics cards on the market has plunged in a large area, ending the more than two-year price hike mode. What is the ...