The Digital Yuan and China’s Smart Prisons

Pilot zones will be located in Beijing, Shanghai, Guangzhou and Chengdu, the provinces of Guangdong and Sichuan, that is, the most developed regions of the country, the publication notes. DSnews.ua. The project will include 164 organizations, including medical and educational institutions, engineering and energy companies, banks.

They will implement projects in manufacturing, energy, tax and legal services, trade, education, healthcare, and use blockchain for domestic and international financial transactions.

For the functioning of the technology in China, a cyberspace administration and an industry regulator have been created. According to the official statement, the use of blockchain, provided a reliable system, should help in streamlining business processes, promoting data exchange, reducing transaction costs, and increasing the efficiency of cooperation.

At this stage, it looks more like a political move: China wants to be the undisputed leader in the digitalization of the economy and technology. But in addition to maintaining its image in the struggle for economic and technological leadership, other tasks can be solved. For example, raising the standard of living and controllability of socio-economic processes.

What is the benefit?

Blockchain is a technology built according to the laws of computer science, and has found application in areas such as financial transactions, user identification, and the creation of cybersecurity systems. The blockchain stores information about each transaction made, and it cannot be faked or distorted in any way – this is the main advantage of the technology.

Another important feature of the technology is that the data does not belong to any particular owner, such as an authority. The decentralized design allows you to make them transparent and secure from hacking. Especially it helps against abuse, corruption, unauthorized access.

In economic activity, data accounting is important, and the blockchain network allows you to have instant access to information. You can track orders, payments, accounts, products, and more. This is especially important for the operation of supply chains. Blockchain reduces risks and costs for all stakeholders.

Transactions can be accelerated by an automatic set of rules, the so-called smart contract, which is stored on the blockchain network. It determines the conditions for the transfer of bonds, the payment of insurance, etc.

Since the blockchain is actually a way to encrypt and transfer data, it is used to transfer cryptocurrencies. Tokens are also distributed in the blockchain – a unit of account for some asset that replaces securities in the digital world. In general, the blockchain is changing the payment infrastructure: it reduces costs, speeds up transactions, and expands access to financial services.

According to a study by the consulting company PricewaterhouseCoopers (PwC)published in October 2020, the global economy will receive an additional $1.76 trillion by 2030 through the use of blockchain, which is 1.4% of global GDP, with Asian countries benefiting the most from the technology.

China will receive the most — $440 billion. Along with India and Japan, it will become the driver of blockchain development in Asia. The United States will receive slightly less – $407 billion. Germany can count on $95 billion, Japan – $72, India – $62, France – $58.5 billion.

PwC identifies five main areas for using blockchain. For each of them, the company calculated the benefits that its application will bring. Supply chain tracking is the largest economic impact, generating $962 billion. Then comes payments and financial services, which could grow by $433 billion due to blockchain, identity management by $224 billion, contracts and dispute resolution by $73 billion. , the sphere of attracting clients – by $ 54 billion. The largest beneficiaries, according to PwC, should be the public administration sector, education and medicine.

“This is an open code, and you can always track any operation,” says Alexander Teplyuk, head of the board of the I-Valley international creative center. – You can track the transaction from the first point to the last. The code is almost impossible to crack. There was only one situation at all, and what was reported was a global failure when a parallel chain was created. The openness of the code is the advantage of the blockchain. This removes the possibility of corruption schemes. No one will be able to carry out these schemes when you see the customer, recipient, product chain and finance. It will all be visible at a glance.”

Another advantage is the ability to expand business activity during various kinds of restrictions. “Business life with the help of telecommunications is reaching a new level. During the pandemic, China has significantly increased the share of remote negotiations, remote business transactions in real time,” notes international expert Vladimir Volya.

On the other hand, according to PwC calculations, $40-50 billion a year as a result of the introduction of blockchain for the Chinese economy, which today is $14-15 trillion, is not that much money. Therefore, there are also less obvious benefits.

With blockchain – into the new five-year period

China has been developing and implementing blockchain for several years. This technology is mentioned in the national plan of the PRC for 5 years, which was approved in March 2021. Blockchain is also recorded in other strategic documents as a tool for “technological innovation and industrial transformation.”

However, at the beginning of the five-year plan, they decided to try the technology not in industry, but in the penitentiary system. At the end of 2021, a blockchain-based smart system was approved to fight bribes and other abuses in Chinese prisons. First of all, it is designed to prevent unreasonable mitigation of sentences in the event of release on parole. In this case, the digital chain connects the prison with the prosecutor’s office and the court.

A pilot project with 15 territories and 164 organizations, which was announced at the end of January, involves expanding the use of technology to people’s livelihoods, business sphere and interaction with the state. This echoes the introduction of so-called “smart cities” that has been going on in China since 2016. In particular, the CityID blockchain system allows the exchange of data between cities. Now China intends to create two hundred such cities. This digital project has both its advantages and disadvantages.

“The emergence of smart cities will be a clear sign of China’s technological leadership,” Volya says. – This project allows you to optimize the life of cities, their costs, enter a lot of data about residents, thereby rationally using energy and other resources necessary for life. There are many amenities, but databases are being formed about everything, and in fact one can say that this system can be used as a way to control the inhabitants of the city. On the one hand, we see convenience for people, and on the other hand, the risks of technological control over people’s lives, their movements, and what they do are increasing. So you can get some technological supervised territory. This is not to say that this may turn out to be a prison, but, nevertheless, these risks are there regardless of whether this project is being implemented in China or somewhere else.

digital yuan

Blockchain is interconnected with mining and cryptocurrencies, where, roughly speaking, it plays the role of a ledger. In China, since September 2021, all cryptocurrency transactions and mining throughout the country have been outlawed. At the same time, since 2019, work has been underway to introduce an official digital currency – the digital yuan. It is designed for incoming and outgoing payments, including offline. This is where blockchain technology will come in handy more than ever.

The digital yuan has been tested since the spring of 2021. In August, banks used it for the first time when concluding transactions on the national commodity exchange. In December, it was allowed to be used for tax payments as an experiment. By the end of the year, the total amount of financial transactions amounted to 87.57 billion yuan ($13.77 billion).

A new stage in the introduction of the digital currency of the Chinese central bank should be the Winter Olympic Games, which will start on February 4. The government has approved the use of the digital yuan at all Games venues. Beijing hopes that the use of the digital yuan at the main sporting event of the year should show the world the country’s latest achievements in the field of financial technologies. However, quarantine restrictions can reduce the effect: athletes and spectators are fenced off from the rest of the city due to fears of new outbreaks of COVID-19, and quotas have been introduced for visitors to the Olympic Games themselves.

It is clear why the fight against cryptocurrencies has intensified since last year in the Celestial Empire. It can be said that China is simply clearing space for the digital yuan.

However, there is an opinion that Beijing may reconsider such a policy and attitude towards cryptocurrencies. “There is a lot of information that contradicts the fact that the Chinese economy is flourishing at the same pace as it was before,” says Valery Klochok, an economic expert at the Growford Institute. “There are really big problems. Large companies, especially the construction business, begin to collapse due to a very large debt. Today, China’s external debt is $2.4 trillion.

The expert notes that the number of people who have various kinds of cryptocurrencies in their assets is very large. According to some studies, millions of people around the world own cryptocurrencies. Only in Ukraine there are such in 2020. counted 5.5 million people (although we think this number is too high). Therefore, a Chinese initiative such as blockchain in business, social and government spheres can revive the use of these resources.

“This is about the possibility of developing a business with completely different tools,” says Valery Klochok. — With the help of cryptocurrency and blockchain mining, various projects can be implemented. If you have a technology that is actively working, and at that time the cryptocurrency is legalized, the sales market will instantly increase.”

China takes the lead

It is important that the cost of organizing a blockchain does not turn out to be higher than its economic effect. This technology requires computer power and electricity to operate.

Oleksandr Teplyuk notes that the blockchain requires large resource costs in terms of technological capacities, but it is not clear how the Chinese will solve this problem. “Perhaps they have interesting developments, and if this is implemented, then China will become the first country to implement blockchain technology in more than just a cryptocurrency,” the expert believes.

The technical side of this project can both increase the cost of computer components, and lead to technological progress, because more and more powerful computers will be required. “Computer components, especially video cards, may rise in price. They have already skyrocketed in price five times in two years,” says Alexander Teplyuk.

“China is developing blockchain, quantum computers, 6G technology and the like. All this is a demonstration of the scientific and technological potential of China,” says Vladimir Volya. But will it be enough to implement all the ambitious projects of electricity, which is still relatively cheap in the country – for business, 1 kWh is one and a half times cheaper than the world average ($0.099). It is also known that China is the global leader in the production of electricity, generating 26-29% of the world’s electricity. Last year, the volume of generated electricity in the country amounted to 7624 TWh. And according to scientists at the University of Cambridge, the total global consumption of electricity for mining per year is only 120 TWh. But, on the other hand, in crisis situations, such as last autumn, power outages may begin in the country. So the risks remain.

So, blockchain allows China to introduce its digital currency, increase the sales market, reduce corruption through transparency of operations, insure supply chains, rationalize resource spending, and even more effectively monitor people.

Author: Alexey Gavrilenko; business capital