Massive retail giant JD.com has made headlines by paying some of its employees in China’s new Central Bank Digital Currency (CBDC).
The e-RMB, a digital form of China’s renminbi (yuan) currency, has been in production for several years now and was officially launched for testing last year. News of the new digital currency has recently begun circulating amongst cryptocurrency and blockchain news outlets – but what does it mean for Bitcoin and crypto?
Firstly, it’s important to note that the only similarities that the digital yuan has with cryptocurrencies like Bitcoin are that they’re both digital. That’s about it. The digital yuan is neither decentralized nor is it built on blockchain technology. It has all the same bad money characteristics of the traditional yuan – government-control, centralization, infinite supply – plus added characteristics like extensive monitoring and surveillance tools.
China is already infamous for its over-zealous surveillance, extreme censorship, and monetary control, and the digital yuan will only increase these powers. However, with the majority of citizens already using traceable payment apps and credit cards, these issues probably won’t raise many eyebrows. On paper, at least, the digital yuan should help to reduce cash-based crime, money laundering, and corruption. In reality, however, it could push such criminals towards using privacy-based cryptocurrencies.
China’s Relationship with Crypto
Despite the Chinese government enacting some of the world’s strictest cryptocurrency laws, China remains the world’s largest Bitcoin mining hub, creating over 50% of the supply. This is in large part due to the cheap electricity and labor available but clearly, it is also ‘allowed’ by the Chinese government. Even the recent ban on crypto mining in China’s Inner Mongolia region was reportedly due to electricity concerns rather than the mining itself.
Allowing mining in the country could be a way to enact some level of monitoring or control over Bitcoin in case it threatens the CBDC. While taking any real control over Bitcoin would be near impossible, it could explain the unusually soft approach. Reports suggest that the Hangzhou government has even “given money and land” to mining machine manufacturer Canaan Creative.
Fortunately, the level of Bitcoin hashrate dominance in China has been dropping lately and greater efforts are being made to allow everyday users to mine more easily. For Bitcoin to remain truly decentralized, no single country, entity or organization should control more than 50% of the network.