Decoding China's Digital Currency: How to Recover If "Lost"?
TechFlow Selected TechFlow Selected
Decoding China's Digital Currency: How to Recover If "Lost"?
The central bank digital currency (DC/EP) is being piloted in closed trials in Shenzhen, Suzhou, Xiong'an, Chengdu, and future Winter Olympics scenarios.
Navigating Web3 tides with focused insightsAccording to a梳理 by reporters from the 21st Century Business Herald based on data from the China National Intellectual Property Administration database, there are currently 694 intellectual property filings related to digital currency. Among them, institutions within the "central bank system" have filed the most applications—84 in total—while Alipay has filed five.
Currency has always been a symbol of sovereignty. How should central bank digital currency (DC/EP), designed as a substitute for physical cash (M0), be "minted"?
On April 17, the People's Bank of China (PBOC) Digital Currency Research Institute responded to online rumors regarding testing progress, stating that work on the digital RMB is advancing steadily. Under the principles of a two-tier operational structure, M0 substitution, and controllable anonymity, the core framework—including top-level design, standard setting, functional development, and joint debugging tests—has been largely completed.
At this stage, pilot tests for the central bank digital currency (DC/EP) are being conducted internally in closed environments in Shenzhen, Suzhou, Xiongan, Chengdu, and future Winter Olympics scenarios.
On April 17, the 21st Century Business Herald reported that DC/EP is led by the central bank, with various commercial banks conducting internal tests on application scenarios. Some banks have already used it among employees for payments such as party membership dues, while cities like Suzhou plan to distribute transportation subsidies in digital currency form. Institutions involved in the current DC/EP pilots include the four major state-owned banks (ICBC, ABC, BOC, CCB), three telecom operators, and internet giants Alibaba and Tencent.
However, these details alone do not fully reveal what the future digital currency will look like. Patent application documents from institutions involved in the research and testing of the PBOC’s digital currency—such as the Digital Currency Research Institute and Alipay—offer a window into its potential architecture.
Multiple Central Banks Begin Testing
Central banks around the world are actively promoting digital currencies.
On February 21, Sweden's central bank announced it had become the first globally to begin testing its central bank digital currency, the e-krona. The bank previously stated that one of its key missions is to promote secure and efficient payment systems. If most households and companies cease using cash as a means of payment in the future, fulfilling this mission could become more difficult. Therefore, the central bank must consider what role it should play in an increasingly digital world.
On April 6, South Korea's central bank announced plans to complete CBDC design, technical reviews, business process analysis, and consultations by December 2020. If preparations are sufficient, limited pilot testing may take place between January and December of next year.
The Bank of France also issued a call for proposals for CBDC experimental applications, announcing it would select up to ten projects by July 10, 2020, for further experimentation.
According to a summary by CICC, several countries—including France and South Korea—have now publicly disclosed their CBDC testing plans or frameworks.
Earlier in January, the IMF explicitly listed digital currency as one of its top priorities for 2020. The Bank for International Settlements (BIS), together with the central banks of Canada, the UK, Japan, the Eurozone, Sweden, and Switzerland, formed a working group to jointly develop use cases for CBDCs. In February, Federal Reserve Chair Jerome Powell announced the Fed was studying CBDCs but had not yet decided whether to issue a digital dollar.
However, central banks differ significantly in their understanding, objectives, and technical approaches toward digital currencies.
For example, unlike China’s DC/EP and the UK’s proposed CBDC, Sweden’s e-krona is built on blockchain technology. Its purpose is to serve as a complement to cash and does not support "dual offline" transactions. However, similar to China’s model, it adopts a two-tier architecture, whereas the UK proposes a single-tier structure aimed at enabling a competitive payments ecosystem.
Digital Currency Through Patents
Regardless of how the final version of digital currency appears, consumers may experience little difference between using mobile payment "e-wallets" like Alipay or WeChat Pay and using actual "digital currency." Yet, the underlying concepts are fundamentally different.
"Mobile payment methods are essentially just payment tools—an informatization of existing legal tender—and cannot strictly be considered digital currency," Alipay stated in a patent published on February 28.
In addition to the four major state-owned banks, companies such as Alibaba and Tencent are also participating in the development and testing of digital currency. Reporters from the 21st Century Business Herald found, based on data from the CNIPA database, that there are currently 694 intellectual property filings related to digital currency. Among these, institutions linked to the central bank have filed the most—84 applications—while Alipay has filed five.
Before the official launch of digital currency, patents filed by central bank-affiliated institutions, the big four banks, and tech firms like Alibaba and Tencent represent the closest available glimpse into the true nature of the upcoming digital currency.
Regarding what constitutes digital currency, the PBOC Digital Currency Research Institute described in one patent that a digital currency wallet represents a completely new design—distinct from both account-based wallets and decentralized token wallets like Bitcoin, which lack intrinsic value or institutional backing. Instead, it is a truly digital embodiment capable of replacing physical cash, supporting payments, and meeting broader financial and commercial needs.
Existing solutions such as conventional payment platforms or Bitcoin cannot be regarded as genuine "digital currency."
The Research Institute noted in its patent documentation that current digital currency technologies face limitations—for instance, they fail to support authentic centrally-issued digital currencies due to the absence of system interaction and access mechanisms. Private quasi-digital currency wallets like those based on Bitcoin offer only limited functionality, suffer from security weaknesses, and operate exclusively within closed blockchain networks, making them unsuitable for integration into mainstream financial services and transaction environments.
Alipay, in its own patent, explained the issuance mechanism of digital currency. It stated that digital currency is typically issued or authorized by a central bank, supported by cryptographic technology, and represented as encrypted digital strings denoting specific monetary values. Unlike traditional mobile payments, digital currency itself *is* legal tender and does not necessarily need to be tied to electronic accounts—meaning it goes beyond being merely a payment tool.
Alipay added that under the current issuance framework, digital currency generally follows a two-tier distribution system—from the central bank to operating institutions. These operating institutions—typically commercial banks or third-party payment providers—are authorized entities eligible to issue digital currency. They apply to the central bank for issuance quotas and then "issue" digital currency via front-end encryption machines deployed by the central bank at their premises. Afterward, they provide exchange services to ordinary users. The issuance quota is usually determined by the amount of reserves the operating institution holds with the central bank.
What Is the Carrier?
The carrier of digital currency (DC/EP) is the digital currency wallet.
Mu Changchun, director of the PBOC Digital Currency Research Institute, previously explained in a public online lecture that digital currency is a direct replacement for paper money, sharing identical functions and attributes—only in digital form. "As long as you and I both have DC/EP digital wallets on our phones, we don’t even need network connectivity. As long as our phones have power, touching two devices together allows one person to transfer digital currency directly to another."
He emphasized that DC/EP would not undermine the position of Alipay or WeChat Pay. Currently, both platforms facilitate payments using RMB deposits held in commercial banks. Once digital RMB is introduced, the underlying deposit shifts from commercial bank money to central bank money. While the payment instrument changes and functionality expands, the channels and usage scenarios remain unchanged.
For users, opening a digital currency account involves selecting an operating institution, after which the institution's wallet service manages and controls the account. Moreover, digital currency wallets may come in “tiers,” with varying transaction limits depending on the level.
Alipay noted in its patent documentation that users typically start with the lowest-tier digital currency wallet. To upgrade to higher-tier wallets with greater functionality and limits, users must progressively upgrade from the base level.
How Will It Be Regulated?
Once digital currency (DC/EP) is launched, how will it be regulated?
The PBOC Digital Currency Research Institute stated in its patent documentation that since digital currency is essentially dematerialized digital information, it must possess anti-counterfeiting, tamper-proof, and non-replicable characteristics to ensure security during circulation.
To this end, a verification method and system for digital currency can prevent malicious tampering during generation and circulation, thereby enhancing overall security.
After digital currency is issued by the central bank, how can over-issuance by intermediary institutions be prevented within the two-tier system? The Research Institute designed a digital currency issuance system for this purpose. For example, before issuing digital currency, an institution must first send a currency generation request to a central management system (e.g., the central bank). Only when the request meets validation criteria will a corresponding quota certificate be issued.
What If Digital Currency Is "Lost"? Can It Be Recovered?
The PBOC Digital Currency Research Institute pointed out in its patent that existing cryptocurrencies like Bitcoin and Ethereum do not involve actual movement of currency during transactions—only a series of transaction records. In other words, their circulation relies on transaction history rather than the currency object itself, failing to meet practical requirements for real-world monetary circulation. Additionally, because current cryptocurrencies operate anonymously, lost funds are nearly impossible to recover, rendering them inadequate for real-world applications and proper oversight.
To address this, technical solutions can enable circulation between user clients through methods such as generating new digital currency units and retiring old ones.
Companies like Alipay focus more on regulatory safety at the user end. Their patent states that if a user engages in illegal or违规 activities in economic transactions, certain restrictions should be imposed on their account. In the future, regulators could implement control measures directly by sending restriction instructions to the wallet service provider, without needing prior coordination with operating institutions. This ensures timely enforcement and eliminates any window for targets to evade penalties.
Join TechFlow official community to stay tuned
Telegram:https://t.me/TechFlowDaily
X (Twitter):https://x.com/TechFlowPost
X (Twitter) EN:https://x.com/BlockFlow_News
