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E-yuan or bitcoin : How China is advancing its cryptocurrency

Even before the corona crisis, China's head of state and party leader Xi Jinping knew that the development of blockchain technology would be of fundamental importance for his country. In a speech in autumn last year, Xi instructed the country's ministries and authorities to rely more on blockchain technology in the future. Xi said China will invest more in this area. He had previously personally chaired a study session on the development of this industry.

The message was so clear that afterwards the shares of several companies whose business cores are in big data, networked industrial and information technology, were briefly suspended from trading on the stock exchanges in Shanghai and Shenzhen because their stocks had exceeded the daily limit of maximum growth . In the course of this, the value of the digital coin Bitcoin rose by over 25 percent to $ 10,000, after Xi's announcement.

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There is fierce international competition for cryptocurrencies. Facebook's announcement last year that it would launch its own currency Libra later this year spurred Beijing even more to develop and use its own cryptocurrency.

Counter concept to Bitcoin

But Beijing doesn't want to jump on the Bitcoin bandwagon, whose inventor Satoshi Nakamoto comes from Japan. China is pursuing a counter-concept to the existing blockchain currencies. After the Chinese government first banned Bitcoin trading in autumn 2017, it has been taking action against the so-called "mining" of Bitcoin coins even more sharply than before since the beginning of 2020. With “prospecting”, a solution to a math problem is sought after each other. If you are the first to solve this, you have decrypted part of the blockchain and receive the Bitcoin coin as a reward.

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This process now requires large data centers with many mining-oriented computers that try to mine Bitcoin around the clock. Currently, more than half of all bitcoins in the world come from the Chinese province of Sichuan. There the electricity is generated by hydropower plants and is relatively cheap by international standards.

The fact that some of the world's largest mining farms are in China shouldn't be Beijing's biggest problem with Bitcoin. Rather, it is the fact that the system on which it is based is neither regulated by central banks nor controlled by state institutions.

Control for the government

However, China's idea behind its own cryptocurrency is control and thus promises more stability for the government. Smartphone payments are already ubiquitous in China, and leaders hope that a government-run digital payments system will fight money laundering, gambling and terrorist financing.

China has been testing its state digital currency since the end of March. It is called DC / EP - Digital currency / Electronic payment, because it has not yet had a name of its own. China's financial supervisors have been trying to get their own digital currency since 2014. Now the research institute for digital currency, which is located at the central bank, has announced that it is already being used in four Chinese cities in China.

In Shenzhen, Suzhou, Xiong’an and Chengdu, the state banks are testing apps that can be used to pay in e-yuan. These apps are also linked directly to the user's bank account. In the future, you should also be able to pay with the new state crypto currency at McDonalds or Starbucks.

Digital payment is part of everyday life

In the second largest economy in the world, people have been using Alipay from Alibaba or WeChat Pay from the technology giant Tencent on their smartphones for a long time to pay in the café or when shopping, but also to pay their electricity bills and rent. Each of the two digital payment platforms already has around a billion users.

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This makes it easier for China's commercial banks to get the digital currency into circulation. You can link them to both existing payment platforms and thus test their acceptance among citizens.

The US business paper "Wall Street Journal" reported last week that employees of the Chinese management in the southern Chinese city of Suzhou near Shanghai will receive part of their salaries in digital currency as early as May. All they have to do is download a corresponding app. Images about this app and its functions have also been circulating on the social platforms.

E-Yuan can be traced back exactly

While US financial experts fear that the renminbi, as the Chinese currency is officially called, will gain in importance internationally, data protectionists see the danger that Beijing could gain even more insight into the finances of its citizens through the new currency. However, it is not yet entirely clear which system the new E-Yuan will be based on. But it is already clear that all transactions can be traced back exactly.

“The currency is not suitable for speculative purposes. It is different from Bitcoin or stable-of-value tokens, which can be used for speculation or require the support of a basket of currencies, "said Mu Changchun, head of the central bank's digital currency research institute. According to Mu, the cryptocurrency would give users a degree of" anonymity “Offer, he said, to allay concerns.

The openness to the e-yuan is favored by the current coronavirus pandemic. Because overall, people's fear of physical contact with cash is making digital payment platforms even more popular. And in order to reduce the circulation of counterfeit money in China, a large part of the amount of cash is to be replaced by the new digital currency.

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