A Brief Analysis of the Similarities and Differences between DCEP and BTC
On the evening of October 8, 2020, Shenzhen launched a pilot program to distribute China’s CBDC through the lottery and the digital RMB can be spent at designated shops. Though many people are not familiar with it, as soon as the news came out, it attracted wide attention and took another big step forward in the process of digital RMB. Here this article aims to deepen readers’ understanding of the digital RMB by comparing China’s CBDC with cryptocurrency Bitcoin.
Introduction of DCEP & BTC
DCEP is a digital version of RMB studied and issued by the People’s Bank of China, it positioned as M0 (cash in circulation), which is the most liquid currency caliber type.
Bitcoin, the epitome of cryptocurrency, was created by Satoshi Nakamoto in 2009 and has a decentralized nature, totaling 21 million.
The similarities and differences between DCEP & BTC
Despite their names, the two currencies differ in many ways:
1. In terms of the basic feature of money, both are digital and loosely coupled, which means that transactions can be made without a bank account. The difference is that BTC is completely decentralized and in limited quantities, but DCEP is not. In addition, according to the Notice on Guarding Against Risks of Bitcoin, Bitcoin is recognized as a virtual commodity in China and does not have the legal status of currency, while DCEP is legal currency and is positioned as M0.
2. From the perspective of debt, the issuing institution of DCEP is the People’s Bank of China, which has the government’s credit endorsement and has unlimited legal liability, while bitcoin does not. Although DCEP and Bitcoin both have no credit risk, the reasons behind are different: DCEP has no credit risk because of national endorsement, while Bitcoin itself is a trustless currency, so there is no credit risk.
3. In terms of operation, DCEP adopts a two-tier operation system, in which the Central Bank first exchanges DCEP to commercial banks, which then release it to the public, and the commercial banks need to pay 100% of the reserves to the Central Bank. Bitcoin, on the other hand, operates on a full ledger.
4. From user’s point of view, DCEP and Bitcoin are not interest-bearing. The difference between them is that DCEP can support offline payment and can still be used without the Internet, while Bitcoin does not. There are time and amount restrictions on the use of DCEP, which are mainly aimed at the retail scenario, while there are no such restrictions on Bitcoin. In order to strike a balance between protecting the privacy and fighting crime, DCEP is anonymous but controllable, while Bitcoin is completely anonymous, which makes it easy to generate illegal and criminal activities such as money laundering. In addition, the biggest drawback in the use of Bitcoin is that it is too volatile and its value is very unstable, while the value of DCEP is stable.
The first large-scale test for the general public
Although news about the pilot of DCEP keeps coming out, this time the airdrop in Shenzhen has attracted more attention and generated more influence.
Since this year, news about the pilot of DCEP keeps coming out, such as the participation of four major Banks and three major operators, closed pilot projects in Shenzhen, Suzhou and other cities, and cooperation with Meituan, Bilibili and etc. All these tries are smaller groups-oriented, such as employees. But this time, the pilot is the first large-scale test for the general public. Users can participate publicly through the “I Shenzhen” lottery. When making an appointment, they only need to be located in Shenzhen, so the event threshold is low and all the public can participate in this airdrop.
The retail scenario fits the original purpose of DCEP
According to the news, there are in total 10 million China’s CBDC distributed to 50,000 recipients, which means each airdrop values 200 yuan. All of these airdrops need to be used by 3,389 businesses within Luohu District that has completed the transformation of the digital RMB system. In this way, it belongs to the micro-retail scene. And other leaked pilot fits the small retail scenarios too, such as the distribution of transportation subsidies for employees of enterprises and institutions in Xiangcheng District, Suzhou, and the payment of party fees by employees of the Bank of China, which are all consistent with the original design of DCEP.
Conform to the general environment of stimulating consumption and domestic demand
In the environment of the full resumption of work and production, one of the purposes of Shenzhen’s digital RMB airdrop is to promote consumption. Jinan took the lead in issuing vouchers in March this year, and Zhejiang, Liaoning and other provinces followed suit to stimulate consumption and boost domestic demand. The implementation of vouchers has been effective in improving consumption, according to WeChat Pay data, after the issuance of vouchers in Guangdong Province, the total transaction value of tourism increased by 7.9 times, and the apparel and beauty industry increased by 8 times. The consumption leverage ratio driven by consumption vouchers reached 6.2 times during the “May Day” period in Wuhan. According to Luohu Bureau of Commerce, the consumption driven by vouchers in Luohu District of Shenzhen increased by 9.55 times from April to mid-May.
Conclusion
As a digital currency, DCEP is as same as BTC, which both are digital and have loose coupling accounts and no credit risk characteristics, but as a fiat, DCEP need to find a balance in the privacy protection and the fight against crime, it is anonymous but controllable, which positioned as M0 and uses two-tier operation system.
This trial of digital RMB airdrop in Shenzhen conforms to the environment of stimulating consumption, and it selects small retail scene with low participation threshold and open activities. It is the first large-scale trial of DCEP for ordinary people. Compared with previous pilots, this test has made breakthroughs in both object orientation and scale. Since 2014, the footsteps of digital RMB exploration have never stopped. With the continuous expansion and deepening of DCEP test scene, it is believed that it will be officially launched in the near future.
Article from OKLink/Translated by Yang(Milian Tech)