Thu, May 14, 2020 11:00 AM

Digital Yuan — What Shall We Know About The Chinese Cryptocurrency 

CJ with hat holding big yuan coin.
China has launched a preliminary version of the application for digital yuan. According to the plan of the Chinese government, the release of cryptocurrency will fully transfer the yuan to the digital plane and oust the dollar from the electronic payment market.

One of the key goals for China nowadays is the Digital Currency Initiative. Seven state-owned enterprises were selected as a platform for testing the digital yuan: four commercial banks and three telecommunications giants — the state-owned China Mobile, China Telecom, and China Unicom. It is reported that the Central Bank of China gave these companies almost complete freedom of action and encourage competition between them.

The experts mark that the Central Bank of China has treated the development of its own cryptocurrency extremely carefully. Beijing received patents for all those inventions that will be used in the circulation of the digital yuan, including the crypto wallet. With the crypto wallet, it will be possible to gain access to all public services of the country and take part in voting in the future.

More than just money

It is stated that low costs and high security will be used in the Chinese cryptosystem. However, there are a lot of questions regarding information security and the protection of people's personal data. Indeed, the digital yuan as a payment platform requires users to introduce a large amount of private information during registration. But the Central Bank of China says the system will provide “controlled anonymity.”

Also, industry experts, including HCM Capital analysts, noted that the introduction of digital currency will allow the Chinese Central Bank to strengthen control over the movement of money. The People's Bank of China is already actively tracking serial numbers of banknotes. And blockchain will only expand its capabilities.

Hard facts about crypto-yuan:

  • The cryptocurrency of China is called DCEP, which stands for Digital Currency Electronic Payment.
  • Besides the standard features, one of the main functions is called “touch and touch” – it allows two people to simply touch their mobile phones and transfer money.
  • This can be also done without an Internet connection on devices, for example, via NFC or Bluetooth.
  • The payment system will be able to process up to 300,000 transactions per second.
  • Chinese cryptocurrency will be well suited for any financial operations, including the field of small retail due to the speed of transactions.
  • It goes without saying that DCEP blockchain will be centralized.
  • Patents also indicate that DCEP will use a two-tier architecture that allows licensed third-party payment institutions and banks to participate in the secondary issuance of digital currency.
  • All organizations licensed to participate in the DCEP issue will have a backup account in the People's Bank of China.
  • The Central Bank said that DCEP is also planned to be widely used during the 2022 Olympic Games, which will be held in Beijing.
  • Today, China is the second economy in the world, which is the least dependent on oil prices. And while the fiat yuan has not greatly violated the dollar’s monopoly, the digital yuan has this prospect.
  • And there is no doubt that other states will follow China’s example.

The real threat to the US dollar

While other projects that could potentially take the place of the world cryptocurrency, such as Libra or Ton, change their concepts or do not start due to regulatory requirements, China has a very serious opportunity to become a leader in global cryptocurrency competition.

The digital yuan can be used to make payments even if dollar payments are limited by Washington. Thus, Beijing is betting that central banks around the world will use digital yuan as a reserve currency that may squeeze the dollar.

Decentralized cryptocurrencies such as bitcoin, suffer from a low transaction confirmation rate. This is due to the need to confirm operations by many computers before recording to the blockchain, which leads to significant delays in transfers. As digital yuan is centralized, and the servers located in large banks will confirm transactions, the delays will be avoided. 

The goal of the Chinese authorities is to make the new digital yuan a world currency. With its own cryptocurrency, China will be able to offer international payments at a lower price and with increased speed. This is interesting news for a business that adopts corporate blockchain technology. This year has shown that technology will move forward, and the scale of their use will grow.