Digital Yuan vs Bitcoin: The significant differences

The digital yuan or e-CNY is China’s virtual national currency pegged with the nation’s fiat currency. It’s the world’s fifth most valuable currency. Platforms offer numerous trading options and help you start your bitcoin trading journey without dedicated training. The U.S. Dollar (USD) is still the dominant global reserve currency, but that may change as new technologies like blockchain grow in popularity. In addition, you may check the Features Of Bitcoin Currency.

Bitcoin is a decentralized cryptocurrency with an open-source code; it’s a worldwide payment system with no central authority or banking institution controlling it. In other words, Bitcoin has been designed to operate outside of China and beyond any single country’s control. 

At their core, the digital yuan and Bitcoin have one thing in common: they’re virtual currencies. Unlike the digital yuan, however, Bitcoin has been designed to operate independently of any country, government, or central bank. In short, e-CNY is centralized, whereas bitcoin is decentralized. 

The Yuan and Consensus Algorithms

One of Bitcoin’s most notable characteristics is its consensus algorithm. Under this system, transactions are verified and added to the public ledger by so-called delegates. In this web-of-trust scenario, people who contribute the most earn voting rights; those elected nodes then process transactions themselves. 

Although it was initially developed to secure the BTC blockchain, this consensus algorithm has also been adopted in other currencies. For example, the consensus algorithm on bitcoin is proof of work, whereas there is no such consensus algorithm on digital yuan.  

Digital Yuan’s Automated Stabilization Scheme

The digital yuan has a centralized mechanism for settling any financial transaction; known as Yuan Clearinghouse (YuC), the Chinese central bank manages all transactions in and out of China. It ensures more stability in the currency’s value as it maintains a trade-weighted exchange rate with the U.S. dollar. The YuC also ensures that CNY can be traded within China, unlike Bitcoin, which remains strictly global. As with “clearing” transactions, however, digital yuan cannot be mined like Bitcoin. Why Digital Yuan is Unlike Bitcoin

The key differences between bitcoin and the digital yuan are the following: 

1. The throughput of bitcoin, a permissionless p2p network, is much faster than the centralized digital yuan. With billions of users seeking to make transactions, a system with this many users will face congestion issues on a relatively small payment network. On top of that, it’s predicted that the number of bitcoin users will start to dry up after just 10 years. As a result, transaction verification will become increasingly expensive, and delays in completing transactions will also increase. For these reasons, the digital yuan has an automated stabilization scheme. 

  2. The digital yuan has no fixed supply, and the government must first burn no other currency to destroy the existing currency. On top of this, the government indexes the currency against the U.S. dollar. As a result, it is stable against market fluctuation and manipulation, like bitcoin’s volatile value. Therefore, the stabilization method of exchange on digital yuan is not nearly as affected by these fluctuations and is also efficient in terms of cost. 

3. Another thing to note is that the digital yuan is not a private currency – it’s under the control and regulation of the Chinese Central Bank. The rules are set in place for Chinese banks to meet a pre-established reserve ratio, which means that banking institutions can only lend up to 80% of their deposits.

 It prevents over-lending and, as a result, makes it much easier for banks to manage risks without going into bankruptcy or becoming insolvent. As for bitcoin, it’s controlled by no one, which means it’s more susceptible to market manipulation and price volatility. But on the other hand, Bitcoin’s transparent and immutable characteristics have helped it increase in popularity and acceptance as a medium for exchange and a store of wealth. 

Another reason for bitcoin to be seen as more desirable than the digital yuan is its deflationary design. In the long run, the supply of Bitcoin will be fixed at 21 million units until 2140; there is no way to increase its supply once that limit is reached. 

Summary:

The most significant difference between the digital yuan and bitcoin is that the digital yuan is centralized, whereas bitcoin is decentralized. It makes it much easier for the central authorities to implement technology that maintains the currency’s value. For example, they can change the algorithm to produce new coins or increase or decrease its supply as needed. China’s government has been experimenting with blockchain technology since 2013, which led to the development of a national digital currency known as the yuan.