A widespread report on Baidu reveals new details about the Chinese digital state cryptocurrency. For one thing, the report confirms something quite obvious: it will be a completely centralized currency in the hands of the Central Bank of China, the PBoC (People’s Bank of China).
In the document released by a profile called Future Think Tank and which indicates as source Huatai Securities, there is also mention that the Chinese digital currency DCEP (Digital Currency Electronic Payment) will not be a payment system like Alipay but will be a valid alternative to the banknotes in circulation, which means it will be an M0 system, acronym that indicates the monetary base of the banknotes in circulation.
The report then outlines the differences with Bitcoin, explaining that while the queen of cryptocurrencies is based on blockchain technology and a consensus mechanism that is the Proof of Work, becoming de facto digitalized and with the risk of high volatility, the Chinese digital currency will be issued by the central bank that regulates its issuance. Its value will be anchored to the Chinese Renminbi so the entire management will be centralized and based on a blockchain architecture that is defined in the report as “not pure”.
The digital currency will be pegged to the paper currency, with reserves held in the central bank vault. The report goes into detail about the security systems that are being adopted and which are divided into basic security, data security and transaction security. An encryption system will be used to make the use secure. In addition, an authentication system will ensure that the currency will only be used by those who actually own it.
Chinese digital currency, a project at an advanced stage
The project is divided into six phases:
- Investments and financing;
- Interbank regulations.
In the in-depth analysis dedicated to management, there is an explicit reference to a digital currency tracking system, which confirms that it will not be an anonymous currency but fully traceable by the central bank. A great innovation lies in the fact that it can also be used offline, i.e. transactions can take place even in the absence of the internet.
The final part of the report is dedicated to digital wallets intended to become the courier of the Chinese digital currency. Both individuals and companies will be able to open their wallets at banks and commercial institutions. The wallets will have to be verified and authenticated not only by password but also by biometric data (facial recognition or fingerprint) and classic systems used by online banking such as U-Shield.
Transactions between digital wallets will also be subject to controls in case of suspicious use of currency for money laundering or terrorist financing. Just like paper currencies, digital currency transactions will have limits, and therefore it is not excluded that the exchange of large amounts of money will be subject to the booking of the amount. In other words, it won’t be instantaneous.
The report suggests that China is at an advanced stage in the design and testing of its digital currency. The testing phase has recently been announced. With a population of about one billion people, China is preparing to be a large-scale test ground for a digital currency issued by central banks. If the Chinese project is successful, it will encourage other central banks around the world to follow.