Alipay Patents Reveal More Details About China's Forthcoming CBDC

In the past month, Chinese payments platform Alipay has disclosed a number of patents relating to and revealing more details of China’s planned central bank digital currency (CBDC), the digital yuan.

According to a report in local media outlet Interchain Pulse on March 23, Alipay is set to play an integral part in the major functions of the currency when it is launched.

Alipay to be a secondary issuer of China’s CBDC

The first patent, published Feb. 21, revealed that Alipay is likely to be involved as a third-party operating agent in secondary issuance of the currency. This would put Alipay on an equal footing with commercial banks, who will not have a secondary monopoly on digital currency.

However, the most important revelation is of how the digital currency can be traced, needing the functionality of a blockchain-based currency, despite not relying on blockchain technology itself.

Transactions will be split into execution instructions corresponding to each party, along with an execution priority for each instruction. Instructions are then sorted and executed in order. By following the sorted execution instruction list back, transactions can be traced back for the entire life cycle of the CBDC.

A related patent, published Feb. 28, details front-end encryption machines, deployed by the central bank with secondary issuers of the currency. These would monitor secondary issuance and transactions, and be roughly analogous to a node for a blockchain.

Accounts suspected of illegal activity can be restricted

On Feb. 25, Alipay published a patent detailing “a method and device for controlling digital currency accounts.”

The regulator will provide a control device installed at the operating agency, with which supervisors can restrict suspected accounts within predefined rules. This will allow the supervisors to circumvent the need to go through the operator, allowing immediate restriction.

Restrictions that can be applied include blocking one or more account operating authorities, prohibiting currency flows into and/or out of the target account, and freezing all funds held in the account.

Wallet functionality will depend on behavior and personal data

Another Alipay patent published on Feb. 28, states that there will be several different types of digital currency wallet, each providing different services, and specifies a method to identify which type a user has.

It suggests that this can be ascertained based on two results, depending on the user’s behavioral data and provided identity data.

In the patent, behavioral data is specified as the frequency of use, amount and venue of transactions. As Cointelegraph reported, Chinese citizens’ behavior is already monitored outside of CBDC use in everyday life, creating a “social score” allowing certain privileges and freedoms. It is currently unclear whether this behavior will also feed into the user’s wallet type.

Identity information listed ranges from ID cards, bank cards and mobile phone numbers to biometric data such as fingerprints, bite marks and DNA.

China’s CBDC could support “anonymous” transactions

If the previous patents suggest a heavy-handed overview, monitoring and control of the whole CBDC ecosystem, a patent Alipay published March 17 states that it will support anonymous transactions.

However, its method for doing so involves setting up “anonymous” wallets, which still require general information like a mobile phone number and email address.

While this may provide a quasi-anonymous transaction method, it is unlikely that these are completely untraceable.

Interestingly, the currency does not just deal in figures like current electronic transactions, but is the digitization of specific banknotes. So for example, a wallet would not just have a balance of 250 yuan, but would hold one note of 100 yuan, and 3 notes of 50 yuan.