Editor's Note: This article comes fromGu Yanxi, published with permission.

Editor's Note: This article comes from

Gu Yanxi

, published with permission.

Recently, a spokesman for Japan’s Mizuho Bank said that the bank’s J-Coin, a stablecoin pegged 1:1 to the Japanese yen, is neither an encrypted digital asset (crypto) nor has anything to do with the blockchain. This can't help but make people very puzzled. What kind of underlying technology is the stablecoin issued by Mizuho Bank based on?

The payment process based on bank cards is actually an accounting mode. There is a bank clearing agency between the banks of both parties to the transaction to ensure the smooth completion of the payment. That is, the clearinghouse guarantees that the payer's bank account has sufficient balance to make the payment. When paying, the clearing agency first writes down the account, and then the relevant banks conduct cash settlement with each other based on the accounting of the clearing agency. The system of the clearing organization is a centralized computing model.

The payment process based on Bitcoin is the process of payment and settlement. That is to say, when the payment occurs, Bitcoin is also transferred in real time in the accounts of both parties to the transaction. The underlying technology supporting this process is blockchain technology, also known as distributed accounting technology.

There are usually two ways to issue stablecoins in the current market. One is token based, and the other is account based. Corresponding to the form of currency, the stable currency issued by the first method is usually a commodity currency, and the stable currency issued by the second method is usually a credit currency. Corresponding to the issuer of the currency, the first method is usually adopted by competitive institutions in the market, and the second method is usually adopted by various central banks. In the future world of digital assets, I think two types of digital stablecoins will coexist.

At present, the mainstream stablecoin issuance methods in the US market are all based on fiat currency mortgages, adopting the Ethereum ERC20 standard, and issuing them in a token-based manner. This is true for GUSD, USDC, and TUSD. However, Mizuho Bank’s stablecoin is not based on encrypted digital assets, that is to say, it is not based on tokens, nor is it based on blockchain technology, so its issuance method is likely to be based on accounts.

If Mizuho Bank's stable currency is not based on blockchain technology, but this new payment method is superior to the existing centralized clearing system, then it is estimated that the underlying clearing and settlement system it uses is more like a distributed database. Then it is probably Corda with R3. Corda is not a real full-node accounting blockchain technology, but it supports direct settlement between peers. Therefore, Mizuho Bank is likely to use R3's Corda, so it still adopts the model of clearing first and then settlement.

Interestingly, as early as 2017, three major banks in Japan, Mizuho Bank, Mitsubishi UFJ Financial Group and Sumitomo Mitsui Bank, tried to join forces to jointly issue a digital stable currency based on blockchain technology. The three banks have also partnered with technology company Fujitsu for this purpose. The consortium was also tested in 2018. But apparently they went their separate ways. Mizuho Bank is issuing its own J-Coin. Mitsubishi Bank plans to issue its own MUFG Coin. Although Mitsubishi Bank did not say what kind of underlying technology it uses. But I guess it will also adopt Corda like Mizuho Bank. So I estimate that the two banks are not issuing token-based stablecoins, but account-based stablecoins.

If the two banks do issue their stablecoins in this way, then this method is completely different from the mainstream US asset-backed issuance and token-based issuance. Stablecoins in the United States usually adopt the ERC20 standard of Ethereum, so they can be circulated anywhere that supports ERC20. Its applicable scenarios include centralized and decentralized exchanges, e-commerce and offline payment scenarios. The stable currency issued by the Bank of Japan in its own way can only be circulated within its network, and cannot be applied to application scenarios outside the network.