China Releases Digital Yuan Wallet as Bitcoin Crackdown Continues

By Jeff Benson

At the start of 2021, China dominated the Bitcoin mining industry; more than half of all new BTC were minted there, according to stats compiled by the Cambridge Centre for Alternative Finance. By mid-year, Chinese Bitcoin mining had all but disappeared as the government banned the practice. 

But even as China cracked down on crypto, it scaled up its plans for a central bank digital currency—an electronic version of the yuan that will eventually make bills and coins obsolete—and began piloting the project in regions throughout the country. 

The government today made its e-CNY (electric Chinese yuan) wallet publicly available for download via China's Apple and Android app stores, according to the South China Morning Post. (It was previously available for download via a private link.) Citizens in cities covered by the pilot, including Shanghai and Shenzhen, can register the trial version. The app will also be available for use by foreigners at next month's Winter Olympics events.

Many countries are researching central bank digital currencies (CBDCs)—which are typically backed by distributed ledgers such as blockchains—as a way to go cashless and enhance security while lowering the cost and increasing the speed of payments. According to CBDCTracker.org, two countries have rolled out CBDCs: the Bahamas launched the Sand Dollar in October 2020 while Nigeria released the e-Naira one year later.

But with a population of 1.4 billion, China represents the largest test yet for state-issued digital currencies. The head of the Digital Currency Research Institute, the developer of the project, claimed that over 140 million citizens had opened accounts by last October. 

By contrast, Alipay, a one-stop-shop for finances created by Ant Group, counts over 90% of the country's residents as users. It's like a mix between Venmo, PayPal, Uber, Geico, and a bank. Tencent's WeChat Pay is also ubiquitous in the country.

As the Carnegie Endowment for International Peace points out, the digital yuan might allow China to break Ant Group and Tencent's stranglehold on payments infrastructure—and the government itself has said it wants to use the e-CNY network to increase financial surveillance.

For those skeptical of the Chinese government's intentions, that's neither good for privacy nor the surreptitious use of cryptocurrency, says Carnegie: "Its success could weaken dominant incumbent payment platforms, enabling policymakers to bring these platforms in closer alignment with Chinese financial regulators’ objectives, such as cracking down on unauthorized cross-border capital flows and bitcoin trading."

In short, less financial privacy. 

To incentivize citizens to use the network, government officials have been running digital yuan lotteries, distributing a combined 30 million yuan ($4.7 million) to 150,000 residents of Shenzhen and Suzhou.

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