Digital Yuan, how it works?
The government of China is betting on positioning itself within the cryptocurrency market with its new virtual coin, the Digital Yuan. Since 2014, the People’s Bank of China (PBOC) has been working on the entire process of creating and distributing their new currency, with which they seek to replace the use of cash, including coins and banknotes.
So, WeChat and Alipay are Competitors or allies?
China is characterized by its dominance in digital payments and its two wallet applications WeChat and Alipay that control 94% of the market.
With this scenario, at first, the Digital Yuan was thought to enter as a competition to WeChat and Alipay, then, the head of digital currency research at the People’s Bank of China revealed that the Digital Yuan is designed to be digital money that will work and adapt in conjunction with these wallets.
The South China Morning Post reported that Changchun had to clarify, while speaking in Shanghai at the Bund Summit of the China Finance 40 Forum, that the Digital Yuan is not a wallet, it is digital money that can be used with these wallets.
How is China doing it?
China has distributed 1.28 million euros to 50,000 Chinese citizens as a test method to identify faults and see results in real-time. The beneficiaries were chosen at random and each one received 200 digital yuan equivalent to approximately 25 euros to make purchases in different stores of national commerce.
The digital Yuan is expected to be released officially at the 2022 Beijing Winter Olympics and be the kick-off to the blockchain game.
China’s national digital currency, DCEP (Digital Currency Electronic Payment, DC / EP) is a method of payment based on Blockchain technology and cryptography. This revolutionary cryptocurrency is the first digital currency issued by a central bank (CBDC) in the world, as it is issued by the state bank “People’s Bank of China”. Besides, this is the only legal digital currency in China. Cryptocurrencies such as bitcoins are not legal tender in the Asian giant.
DCEP is a digital currency backed by the yuan. That sets it apart from Bitcoin and other cryptocurrencies, whose values can vary wildly based on speculation, making them unsuitable for widespread use, in the eyes of most governments. The DCEP, however, must be as stable as the physical yuan.
Like cash, each digital yuan is created, signed, and issued by PBOC. However, due to its digital nature, the bank retains the ability to track the movement of each digital currency it issues. Specialists suggest taking special care with this crypto. It is considered dangerous since it may be used by the Chinese government as a potential financial watchdog of all its transactions. Why? Despite the digital yuan’s high efficiency and support for offline payments, it is not a decentralized currency like bitcoin.
Mickael Mosse, Cryptocurrency and Blockchain Advisor.