China is in quest of becoming an advanced economy, which is why it embraced cryptocurrency in 2011. When bitcoin was born, China opened the first bitcoin exchange. Over the years, China has become an influential player in creating equipment for bitcoin mining and as a centre of crypto trading. If you are interested to know more about diversifying the crypto investment then click here
Just when we thought the war between cryptocurrency and hard currencies was over, the fight became interesting. The Chinese released its national digital legal tender under the digital name yuan. There is no official notification that China will replace its traditional currency with the digital yuan, so people are sceptical. Before understanding whether China’s digital yuan can threaten cryptocurrency, it is essential to know a bit about Digital Yuan.
A brief overview of Digital Yuan
China’s e-currency is known as Digital Currency Electronic Payment. China is on the way to replacing its traditional currency with the Digital Yuan to encourage cashless transactions. Just like other cryptocurrencies, the digital yuan also works with blockchain technology. But, unlike bitcoin, Digital Yuan will be controlled by different regulatory authorities, and it will also be backed by fiat currency.
Will the digital yuan affect cryptocurrency?
Ever since the beginning, China has had an unclear relationship with cryptocurrencies. China is still mining more than 50% of all bitcoin mining. But, with the coming of the digital yuan, the Chinese government is cracking down on different crypto-mining hubs. The main reason behind this is that mining cryptocurrencies need a heavy amount of energy and heavy computers with good processing powers. Chinese crackdown on different cryptocurrencies is making people think that China is moving towards banning cryptocurrency.
Why is China planning to ban cryptocurrency?
The main reason for banning different cryptocurrencies in China is the nature of cryptocurrencies. Cryptocurrencies are decentralized in nature, and currency bearers are primarily anonymous. Thus, the communist government of China believes it can be used for bad purposes like money laundering and sponsoring different criminal activities.
Why is the digital yuan an option for the Chinese government?
For the Chinese government, the digital yuan is not just a way to counter the growth of Bitcoin but also offers different advantages for the Chinese government. For the government, tracking hard cash is difficult as it can be easily counterfeited. The digital nature of the yuan enables the government to follow trials, and they can easily prevent financial crimes like counterfeiting. Just issuing digital yuan does not mean that the government will monitor people’s financial transactions. The government has assured users that anonymity will remain intact and steps will be taken only in case of financial crimes.
The future of digital yuan
The future of the digital yuan looks positive as Chinese people have already started adopting different cashless payment options like Alipay and WeChat Pay. The Chinese government plans to integrate the same infrastructure and will use the existing system to issue digital yuan. Thus, mass adoption will become easy. Digital Yuan will also benefit rural Chinese people with less access to banking services. Using the digital yuan will lead to an economy that is financially inclusive and economically integrated.
Regarding international transactions, the Chinese government is also planning to make the digital yuan the main currency for trade. They opine that there is uncertainty surrounding the stability of the US dollar, the currency of exchange. Digital Yuan is also gaining attraction from different international traders as they are easy to use. During the winter Olympics, many international guests used digital yuan.
Digital Yuan and the future of cryptocurrency
Many experts opine that the digital yuan threatens cryptocurrency, but it is too soon to tell. Many factors may affect the success and failure of the digital yuan. If Chinese people accept the digital yuan, many other countries may also choose to have their digital currencies. Just like China, they may also come up with their own set of policies and procedures to ban and limit the use of currency. We must wait and watch how the digital yuan will perform in China and how international bodies comment on its usage. It is quite early to reveal whether the digital yuan will replace cryptocurrency.