This may be the year we finally see the world’s pioneering national crypto, the digital yuan. First discussed more than five years ago, China’s DCEP (Digital Currency/Electronic Payments) looks to be drawing up to its completion.
There have been several false alerts about the project finally launching. Reports at first said the national digital currency would be released countrywide by November 11, 2019, while Caijing finance magazine falsely reported it would be debuted in Shenzhen province before the end of 2019.
Nonetheless, China has been gearing up to release its digital currency sooner rather than later, according to presentations by Mu Changchun, the head of China’s digital currency research institution.
Mu has expounded on a plan for a sovereign digital currency, dubbed the “Digital Yuan” that stands in stark contrast to the decentralized ecosystem embedded into existing cryptocurrencies such as BTC.
What We Know About the Digital Yuan
In January 2020, the People’s Bank of China issued a statement about the digital yuan development progress, revealing that functionality development and integration testing are nearly done.
The digital yuan surpasses the technical features of Libra, including the ability for the processing of offline transactions on mobile phones and functional attributes that are identical to those of paper money.
Mu Changchun, the man in charge of research for the national digital currency, has previously said that the yuan will be available for transfers without the use of digital wallets or an internet network.
Just placing two mobile phones in physical contact will be enough to transfer the digital currency from one user to another via the use of near field communication (NFC) technology.
Deutsche Bank research suggests that the creation of digital currencies in countries like China could shift the epicenter of global economic power.
This is because companies doing business in or with China in the future may be forced to adopt the yuan, which could potentially erode the power of the US dollar in international transactions.
How The Yuan Differs from Bitcoin
There are three main variances between DCEP and existing cryptos, such as BTC and ETH. Firstly, the value source is different, with the likes of Bitcoin being mined, which means the source is decentralized and controlled by an algorithm.
On the other hand, DCEP is a government-issued with the Chinese central bank, indicating that it will distribute the digital currency via traditional banks and the monetary system, making it completely centralized.
Secondly, the underlying tech underlying both digital currencies is very different, as the Yuan blockchain ledger will be controlled by the government and not distributed across the ecosystem, as is the case with traditional cryptos.
Lastly, a national digital currency is designed to operate just like normal fiat currency and integrated throughout the commercial structure.
Since the ledger is held by the government and is not distributed to mining nodes, the imminent digital currency won’t have the time lags associated with BTC, making it practical to use in routine transactions.
Will The Yuan Be a Bitcoin Killer?
Some in the crypto space have been very distrustful of the yuan, going as far as to label it a “bitcoin killer.”
Crypto writer Andy Mukherjee argues that the digital yuan is far bigger than BTC, as it will be backed by the central bank of the world’s second-largest economy. This implies that the yuan could be used to make the regime a monopolist in the supply of currency to retail customers.
According to Mukherjee, the Chinese digital currency could set a precedent, stimulating other countries to launch their own digital currencies, rivaling BTC, and other blockchain-based cryptocurrencies.
Such developments would contribute to the complete elimination of the anonymity linked to crypto transactions today, which is likely to be the biggest impact of the digital yuan on the crypto space.
Will the digital yuan open new opportunities in the digital currency space?
Well, it’s too early to tell, and we’ll have to wait and see what unfolds in the coming months. That said, China’s move in the digital currency sector will likely help to shape the future of traditional cryptos, veering them radically away from the decentralized principles they were based on.
Bitcoin stands in contradiction to central banks and legacy financial institutions, which is why China’s regime has so doggedly tried to block crypto in the country, issuing a slew of restrictions for the industry since 2017.
The imminent digital yuan will allow China to move forward into the digital era, while still retaining control over its monetary system.
Finally, Libra, Facebook’s long-proposed digital currency that is currently facing regulatory challenges in the US, had been singled out as a particular threat that China wanted to get ahead of by launching the digital yuan.