Kiffmeister’s FinTech Daily Digest (08/03/2020)

Darrell Duffie explains the meaning of an interoperable payment system and why interoperability is crucial for efficiency. He reviews some alternative approaches to interoperability, including central bank digital currencies (CBDCs), hybrid CBDCs, and two-ledger upgrades of bankbased payment systems. 
China’s State Council Information Office, prompted by the Peoples’s Bank of China (PBOC), is reportedly looking at whether to launch an anti-trust probe into Alipay and WeChat Pay, The State Council’s antitrust committee has been gathering information on them for more than a month. But authorities have been keen to whittle back their dominance. Also, in an effort to encourage smaller players to enter the market, the PBOC said last year that it planned to standardize the interoperability of QR code payments. The United States is also planning to take action “with respect to a broad array of national security risks” posed by other Chinese instant messaging platforms like WeChat.  
The BIS Innovation Hub (BISIH) and the Hong Kong Monetary Authority (HKMA) have launched a TechChallenge designed to showcase the potential for new innovative technologies to resolve problems in trade finance (TradeTech). It is supported by the Asian Development Bank, the International Chamber of Commerce, the International Institute of Finance, the People’s Bank of China and the Wolfsberg Group.The BISIH has published three problem statements and invites private firms to develop technology solutions: (i) connecting digital islands and increasing network size and effects, (ii) trade finance inclusion for SMEs, and (iii) TradeTech for emerging markets. 
While quantum machines are still a long way from being able to break modern encryption, US National Institute of Standards and Technology (NIST) launched a competition in 2016 to develop new standards for cryptography that will be more quantum-proof. The winners are set to be announced in 2022, but last week the organization announced that it had narrowed the initial field of 69 contenders down to just 15. And so far a single approach to “post-quantum cryptography” accounts for the majority of the finalists: lattice-based cryptography. Lattice-based cryptography instead uses enormous grids with billions of individual points across thousands of dimensions. Breaking the code means getting from one specific point to another—which is essentially impossible unless you know the route. NIST thinks is that lattice problems are really hard, but they seem quite efficient in terms of time to generate keys, time to construct signatures, and also efficient in terms of memory.