A recent news report by Baidu has helped to uncover new details about the planned national digital currency of China. While the report was released in October 2019, it is only recently that it has gained mass exposure. This is part of efforts by Baidu to raise awareness about crypto since it is also working on a cryptocurrency.
As predicted by many experts, China’s digital currency is going to be centralized. This is as opposed to cryptocurrencies such as Bitcoin, according to the report. While details of the release date were not revealed, this report shows that it will happen soon.
The coin will be fully controlled by the Chinese central bank. However, it will be issued via commercial banks operating in China. The ecosystem for the digital currency has been divided into six parts:
- Investment and Financing
- Interbank Settlement
The central bank will be in charge of the creation and issuance of the digital currency. Commercial banks will send requests to the central bank to receive new coins on behalf of their clients.
This two-tier mode is similar to how fiat currency is issued. However, the difference is that once the central bank issues the fiat currency, it will still have full control of the coins. It can stop a transaction with just the click of a button and follow every transaction made using the digital currency with ease.
The result is that China will have even more control over its monetary system than is possible using fiat. As a result, this could help to end the shadow-banking sector in China. However, it could in term help to increase China’s control over its citizens.
Securing the Digital Currency
The report shows that there is a heavy emphasis on security. For processing transactions, it will utilize basic encryption. However, the information will not be sent in plain text. Instead, it is going to be encrypted.
They have also built features into it that will make it resistant to hackers. For instance, it has authentication technology that will prevent one transaction being conducted multiple times, thus crippling the system. It also has the technology to ensure that only the owner of the currency can spend it.
Since it is centralized, users will be able to conduct transactions, even when they do not have access to the internet. This will ensure that even those in rural areas, with low internet connectivity, can spend their digital Yuan.
Managing data for the digital currency has been split amongst three entities. One entity will manage data for the use of the currency; a second one will manage the registration of users into the network, while a third one will analyze financial data that is generated by the system.
There will also be some privacy. For instance, only the central bank will be able to see all transactions and who made the transactions. Other businesses would need to contact the central bank to access such information. Besides that, the wallet for the digital currency will use authentication methods such as fingerprints, codes, and passwords.
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