The race between Bitcoin and the digital yuan

Global markets are waiting for China to make the first move by issuing its own digital yuan, which could counter the run of Bitcoin.

Digital yuan could curb the use of Bitcoin

China has been testing the issuance of its CBDC for some time, and it appears to be at a more advanced stage than its main “opponents”. 

This could mark a major innovation in the financial world, and China is racing to prove its dominance, especially to the United States and Europe. 

It is well known that Xi Jinping‘s country has little respect for the privacy of its citizens, and perhaps that is why it decided to make Bitcoin and mining illegal. 

The state cannot have control over a decentralized asset, which is therefore managed by the network, and moreover where transfers are anonymous. 

With the digital yuan, on the other hand, it would be able to exert no small amount of pressure. Every transaction, every transfer, every exchange would be recorded and tracked, and any form of data would be transparent and available in real time. 

Even if it possesses the peculiarities offered by blockchain technology, the only common thread with Bitcoin, the digital yuan will not be able to be likened in the slightest to a cryptocurrency, since it is issued by a Central Bank and therefore, completely centralized. 

As much as it may have benefited the world and as much as the exploitation of the technology for noble purposes is still in its infancy, in this particular case the blockchain would also cause collateral damage. 

Sure, it would make the payments system more efficient, more secure, faster and more globally united, but using a CBDC would undermine the privacy of the individual more than it does now. 

The differences between Bitcoin and fiat currencies

The key difference between Bitcoin and any fiat currency, physical or digital, is that BTC monetary policy is deterministic. This means that it is completely predictable since it is already fixed in the instructions of the algorithm, which by nature is immutable. 

In addition, Bitcoin follows a deflationary process, as the process of mining BTC becomes slower and slower every 4 years thanks to the halving event, giving the asset a certain scarcity. 

Most fiat currencies, on the other hand, follow a monetary policy that is not entirely predictable and more oriented toward an inflationary aspect. 

According to Ray Dalio, founder of Bridgewater Associates, the digital yuan could compete with Bitcoin and even the dollar. In fact, the reach of this digital currency could take the place of the US dollar, becoming the world’s benchmark currency. 

At first glance, the main factor that could ensure some advantage of China’s CBDC over the crypto queen is that China has about 1.5 billion people.

It is enough to think that at the moment, Bitcoin has about 700k unique addresses. It is not certain, however, that each address corresponds to a single person, as a user can create and use multiple addresses. 

Adoption of the digital yuan will be almost instantaneous, since the Chinese government is “almost” a dictatorship. Indeed, it has never been a problem for China to force a given decision on everyone. However much it might be forced, it would represent an additional advantage over Bitcoin in that no one is forced to use it. Precisely because of this, the adoption rate of China’s CBDC will surely be much faster.