The company behind China’s Blockchain Services Network revealed two projects to build infrastructure for central bank digital currencies (CBDCs) and stablecoins, promising a BSN payments layer, and a public chain in which “gas fees” can be paid without buying cryptocurrency. He Yifan, CEO of Red Date Tech, spoke at a TechNode-sponsored webinar recorded Dec. 21.
The payments network, a blockchain-based enterprise payments platform that will support CBDCs and stablecoins, is a BSN project and expected to launch in the first half of 2021. Stablecoins are cryptocurrencies pegged to traditional currencies, such as the dollar-linked Tether (USDT).
The public chain is at an early stage. He said that it would be a standalone chain but BSN-compatible.
Why it matters: Both projects will make it easier to use blockchain without buying cryptocurrencies, something He argues will make the technology appear less risky to large businesses. Separating blockchain from these state-free currencies will likely reassure accountants and annoy purists.
CBDC payments network
Red Date is already working on the network’s technical design with another tech company, He said. They are also in talks with eight large international banks and tech companies to work together on the network, he added.
- The network will provide all the backend support needed to process CBDC and stablecoin transactions globally, He said. Companies will be able to use wallets built on the network or plug in their own applications to send and receive funds.
- Initially, the network will be added as a layer on the BSN, but will eventually “become a standalone network to process all CBDC and stablecoin payments globally,” He told TechNode in a separate interview through WeChat.
- The network will be “ready for” the digital yuan when it launches, but can only offer interoperability once the People’s Bank of China opens up the digital currency’s application programming interface, he said.
The CBDC-fueled public chain
Red Date’s public chain project would be one of the first, if not the first, to allow “gas fees,” paid for smart contracts and other computational services, to be paid in state-backed or pegged currencies.
What are ‘gas fees’?: Blockchains can do a lot more than support virtual money. They can also offer neutral and verifiable ways to perform computations, such as Ethereum’s automatically executed “smart contracts.”
- But users have to pay for the computing involved. In public chains, they put in money called a “gas fee,” usually denominated in a “native” cryptocurrency associated with the chain. For the Ethereum chain, this is Ether.
- He told TechNode that many traditional businesses are reluctant to use public chains because they receive income in fiat money, but have to pay gas fees in crypto. “They can’t control the cost, it could triple next year.”
- “Public chains with crypto will never serve real-life business and enterprise applications,” He said over WeChat.
Back to fiat: Red Date’s public chain would instead allow businesses to pay gas fees denominated in a traditional fiat currency, using a state-backed CBDC or stablecoin to make the payment.
- The lack of a native currency means the structure and consensus algorithm of the chain will be entirely different to other public chains, He said.
- Public chains like Ethereum create new virtual coins to reward “validators” for powering the system’s computation. In Red Date’s public chain, the different node operators will instead split the income from the gas fees, He said.
- Some purists argue that native currencies are essential to public chains. Red Date’s project might not sit well with them.
- “A public chain without a token is not a public chain,” Chris Ba, head of business development in Asia at Solana, a public chain project, said during the Dec. 21 webinar. He was not commenting on Red Date’s project.
- Gas fee prices will be voted on through a consensus algorithm, he said.
- The CBDC chain is Red Date’s own project, but it will also be integrated with the BSN, He said.
CBDCs bonanza: Red Date promises that its payment tools will support multiple CDBCs. While only two exist today, more are expected to be available soon. Central banks have been researching digital currencies for years, but in 2020 the technology started to become real. The Bahamas and Cambodia launched their CBDCs in October.
- China is still trialing its own digital yuan. It has conducted two public trials in Shenzhen and Suzhou.
- Japan and Korea will start testing their own digital currencies in 2021, their central banks announced in the last few months.
Blockchain Services Network (BSN)
What: A platform for blockchain development, bringing together cloud services and different chain protocols on city nodes.
Why: To reduce the cost of blockchain application design and deployment while powering communication between chains. It will be made available around the world through local cloud providers, ultimately creating a global internet of blockchains.
Who: It is part of the government’s Global Blockchain Strategy unveiled by Chinese President Xi Jinping in November 2019, spearheaded by the China State Information Center, China Mobile, China Union Pay, and Red Date Technology.