Time to Consider Getting a Digital Currency Wallet

Source: Xinhua.

China began digital yuan pilots in Shenzhen and other cities last year. As of 22 October this year, pilot scenarios numbered more than 3.5 million, with 140 million wallet-type scenarios opened and transactions of about 56 billion yuan.

The digital currency wallet has truly arrived. A domestically developed wallet with a domestic “China chip” has passed relevant testing. It unlocks by fingerprint and supports digital currency payments and receipts, balance inquiry, transaction display and loading of health codes.

Mu Changchun, head of the Digital Currency Research Institute of the People’s Bank of China, has described a future scenario: as long as two people each carry a digital yuan wallet on their phones, no network is needed; with battery power alone, touching the two phones together transfers digital yuan from one wallet to the other.

Digital currency is becoming an unstoppable trend

A digital currency wallet is a storage medium for digital currency. The digital yuan now in pilot is one concrete form: individuals and enterprises can open wallets at operating institutions designated by the central bank for exchange, storage and circulation. Wallets divide into soft wallets, meaning mobile apps and software development kits, and hard wallets, which store the keys associated with digital assets in a dedicated chip isolated from the internet for security.

“With blockchain and other digital technologies maturing, digital currency wallets emerged to store encrypted currency more privately and securely and make trading convenient. Digital currency needs to sit in a fairly secure device to keep transactions and data safe,” said Liu Biao, senior vice president of Jinbangda Co., Ltd.

“China’s digital currency shares the traceability and tamper-resistance of blockchain, but as legal tender with state credit backing, equal value and compulsory acceptance, the central bank digital currency is destined to differ from decentralised currencies like Bitcoin. Digital currency is designed on cryptographic algorithms, and combined with the high-security chip in a hard wallet it is safer than purely software-based encryption,” Liu explained.

Central banks around the world now treat digital currency development as a priority. Since 2020 the People’s Bank of China has run rounds of digital yuan pilots in Shenzhen, Suzhou, Xiong’an New Area and Chengdu, as well as Beijing Winter Olympics scenarios. Recently the central bank announced that from 1 March next year, personal payment codes on WeChat Pay and Alipay may not be used for business payments, nor static personal codes for remote non-face-to-face collection, a move to guard against theft of personal information and funds that indirectly pushed digital currency development forward.

It will not change today’s payment landscape

“Digital currency wallets are more secure and faster. Common payment methods are ultimately corporate behaviour, with hidden risks of data leakage. The digital yuan is legal tender issued by the central bank, a government behaviour, so transaction information is held by the central bank alone, which is safer,” Liu said. Common payments generally show only the amount, requiring SMS notices or an app login to check balances, while a digital currency wallet queries balances in real time. Traditional cross-border payments also face high fees and long settlement cycles; digital wallets can sharply cut both.

“In future, users will open a wallet the way they apply for a bank card. The wallet achieves one person one card, preventing accidental or fraudulent swipes. Unlike software wallets, it pays conveniently offline anywhere, easing the difficulty older people face in the digital age. The card also supports health code functions for travel under epidemic control,” Liu told Science and Technology Daily.

Will digital currency wallets change the payment ecosystem? “Not much. The biggest change is one more payment option in daily life, an upgraded one, more convenient and more secure,” Liu said.

Scenarios will keep multiplying

Digital yuan pilots now cover the Yangtze and Pearl river deltas, Beijing-Tianjin-Hebei, central, western, northeastern and northwestern regions, some offering digital yuan red envelopes to attract consumers.

In test regions such as Shanghai, Shenzhen and Chengdu, multiple consumption scenarios have formed, from wet markets to shopping malls. UnionPay Merchant Services completed several digital yuan deployments in Shanghai in October, including Longhua Temple, a Sinopec filling station and a Hongqiao community AI canteen; by October it had signed up 55,000 merchants nationwide accepting the digital yuan.

Industry insiders expect application scenarios to spread further, and third-party payment institutions to face challenges in user competition and data management. The spread of the digital yuan will bring new opportunities for wallets. “As usage scenarios extend, public payment habits mature and cross-border payment widens, I believe digital currency wallets will become a mainstream payment method in the near future,” Liu said.

Mu Changchun said the pilots run smoothly, but the acceptance environment is still under construction and all merchants need upgraded acceptance systems; diverse, intelligent and customised wallet choices together with broad use cases will improve user experience.

Related link: kinds of digital currency wallets. Think of a wallet as a locked piggy bank: anyone may deposit money to its address, which can safely be published online, but only the holder of the private key, the key to the piggy bank, can open it, and the key must never be shared.

• Full-node wallet: stores the private key plus all block data, verifying transactions locally with full decentralisation, better privacy and reliability, but it takes much disk space, needs syncing before use, is unfriendly to beginners and supports limited assets.
• Light wallet: stores only data relevant to the holder, so it is tiny and runs on computers, phones and web pages, near-decentralised, easy to use and usually supporting multiple assets.
• Custodial wallet: relies not on the blockchain network but on the provider’s own servers; simple to use with password recovery and instant settlement, but the private key sits with the platform, which you cannot stop from misbehaving, and if the platform shuts down, so do your coins.

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