While other countries like France, Venezuela, Iran are considering launching a state-backed cryptocurrency, China announced that the Digital Currency Electronic Payment (DCEP) pilot is almost getting ready in a screenshot on April 14 and that it is being tested in Suzhou, Chengdu, Xiongan and other regions.
The announcement came months after president Xi stated the vital role of Blockchain.
Recall that china on December 5, 2013, placed a ban on cryptocurrency activities, the same way Facebook did to cryptocurrency-related posts on January 30, 2018.
Months after, they were on the news launching cryptocurrencies. China called theirs Digital Currency Electronic Payments (DCEP) while Facebook called theirs Libra Cryptocurrency.
Since the announcement, the cryptocurrency community had two popular opinions: some said DCEP was progress for cryptocurrency. In contrast, others suggested that the launch of DCEP was merely a policing of cryptocurrency, maintaining that it would lead to a significant crackdown on the long run.
However, before accepting or disagreeing with the opinions, it is necessary to know what DCEP is. Notwithstanding, this article goes beyond explaining DCEP, to the opportunities and limitations of DCEP. Cumulatively, it addresses in a broader view, what state or institution backed Cryptocurrency as DCEP means to the global economy and its users.
What is DCEP?
A previous publication made a distinction between digital currency and cryptocurrency. It went further to highlight the major differences: consensus, privacy, transparency, and technology. Here the question is, ‘What is Digital currency electronic payment (DCEP)?‘
DCEP is an example of a state-backed cryptocurrency. It is a Chinese digital yuan, as a consequence, a digital currency.
Simply put, DCEP is 100% state-backed by the government’s reserve fund. That is to say that it is the central bank’s debts guaranteed by PBOC. The digital currency is issued by the People’s Bank of China (PBoC), and works exactly like cash or reserve in monetary economics; it is not “credit” itself. The launch of DCEP rose many questions as follows:
Does it use Blockchain?
Firstly, Blockchain offers a peer to peer transactions while bringing transparency, privacy, and decentralization, but DCEP does not meet the above criteria of Blockchain. According to OKEx CEO, Jay Hao, DCEP is likely to integrate asymmetric cryptography, Unspent Transaction Output, UTxO, and smart contracts, but had no interest in consensus governed by the state. Also, Mu Changchun, director of the DCEP project, affirmed that DCEP is not necessarily using blockchain technology. As a result, it can be deduced that DCEP is a partial blockchain use case, but rely on cryptography. For this reason, it is called a state-backed Cryptocurrency.
Opportunities and advantages of DCEP?
Every state-backed economic instrument would always work for the interest of the state, unlike cryptocurrency, which is community-based. DCEP, in a similar way, would be a win for Chinese banking and the economy. The government is already limiting issuance and selling off DCEP to certain institutions and banks like YaunPay and certain banks. Therefore the state-backed cryptocurrency, DCEP, has the following advantage to the Chinese economy.
1. It provides a solution for the long-standing Chinese debt, according to finance-yahoo.
2. It offers a solution to the high cost of issuing, withdrawal, storing, and carrying banknotes.
3. It helps the government’s anti-terrorism, anti-corruption, and Anti-money laundering wars. OKEx confirmed that the Peoples Bank of China, PBoC, can use big data and other emerging technologies to identify suspicious transactions in favor of the government.
4. Because DCEP operates in a DLT and digital, it is easy to monitor and gather transactional data, which would help the government make better economic and monetary policy formulation and implementation.
Libra and DCEP: The big deal
The Chinese government and Facebook have almost the same story on cryptocurrency. Both of them, in time past, banned cryptocurrency activities, and now they are major adopters of cryptocurrency. Before stating why DCEP is a big deal, it is essential to look at the difference between DCEP and Libra cryptocurrency.
Libra Cryptocurrency is a private institution backed cryptocurrency, and it is not a legal tender, while the DCEP is a state-backed cryptocurrency and a legal tender. It is also noteworthy that both currencies do not allow blockchain-based consensus. Exponentially, China has a vast population of close to 2Billion people with wide cronies across Africa, Asia, and others like Facebook. However, DCEP is a big deal because it operates as a legal tender despite having almost the same feature as Libra.
Why is DCEP is a big deal?
Outside the Chinese and associates growing population, the Chinese government is known to be master planners. Regardless, the launch of e-yaun would be a strategic move according to Mu Changchun in a statement: “It is to protect our monetary, so advanced and legal currency status. We need to plan for a rainy day.” Therefore, DCEP is a tool to rattle power with the US and other advanced economies. In any case, Economictimes in a post agreed that DCEP is all about tracing and power.
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