China has issued a digital version of its yuan currency. Photo: AFP / Fred Dufour

This may be the year we see the world’s first sovereign digital currency, Wired reported. First discussed more than five years ago, China’s DCEP (short for Digital Currency/Electronic Payments) looks to be nearing completion. There have been some false starts; reports initially said there was a chance it would be released countrywide by November 11, while Caijing, a large domestic finance magazine, thought it would be debuted in Shenzhen before the end of 2019.

While neither of these deadlines have come to pass, it’s clear that China is gearing up to release DCEP as soon as possible, according to presentations by Mu Changchun, the head of the Chinese central bank’s digital currency research institute. In these presentations, Mu has elucidated a vision of a sovereign digital currency, one that stands in stark contrast to the decentralized aspirations embedded into existing cryptocurrencies such as bitcoin.

Bitcoin, which was released into the world by the mysterious Satoshi Nakamoto in 2009, is based on a techno-utopian vision of a decentralized global currency that would provide anonymity and security, while allowing users to subvert the established financial system and its gatekeepers. Underpinning this technology is the blockchain. Miners, who use heavy-duty processors to solve the difficult computational problems necessary to string together transactions in clusters, or “blocks,” which constitute the “chain,” are rewarded for their efforts with coins. By forcing miners all over the world to compete for coins by algorithmically contributing to the blockchain, the ledger for transactions is both decentralised and unhackable.

There are three main differences between DCEP and existing cryptocurrencies such as bitcoin, according to Terry Liu, CEO of VoneChain Technology, a blockchain consultancy based in Shanghai that is working closely with various government agencies on projects related to its rollout. First, it’s underlying value source is different. Bitcoin and related currencies are mined, which means the source is decentralized and controlled by an algorithm. DCEP is government sanctioned, and as more than 50 patents registered in relation to DCEP indicate, the plans are for the government to distribute the currency through traditional banks and the monetary system, making it fully centralized and exactly like the release of traditional paper money.

Second, the underlying technology is different as the blockchain ledger will be controlled by the government and not distributed across the system. Finally, it is intended to operate exactly like a normal currency and integrated throughout the commercial system. Because the ledger is held by the government and is not distributed to mining nodes, the currency won’t have the time lags associated with bitcoin, making it practical to use in everyday situations. Also, because it is released by the government and pegged to the valuation of the yuan, it won’t be traded in fractions. It is likely to be seamless; most consumers won’t really notice a huge difference between using DCEP and existing digital payments platforms.

Meanwhile, Michael Sung, a professor at Shanghai’s Fudan University, spoke to CoinDesk about the digital yuan on the sidelines of the World Economic Forum in Davos, Switzerland.

“So I think the world kind of noticed on October 24 when [Chinese President] Xi Jinping stood up and basically announced two major things for that week,” said Sung. “First, there was something called the fourth plenary sessions for the CPC (Chinese Communist Party). It’s is one of the most important high-level government meetings to decide the strategy of what’s happening in China. Then they said they’re going live with the digital currency that they had been in planning since 2014.”

Sung has been following the new currency project for nearly half a decade as the Chinese Communist Party built out plans for a country-wide digital solution. The party accelerated that project, he believes, as a direct reaction to Facebook’s Libra.

“Because of the Libra situation, Mu Changchun, who is the head of the official Digital Currency Research Institute, ran back to Beijing and held a special workshop for all the Communist officials and decided, ‘OK, get in front of this.’”

Also read: Why China’s digital yuan is ‘a dictator’s dream’

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