Comparison of China's central bank's digital yuan and Bitcoin

Weisha Zhu

Summary: Comparison of China's central bank's digital yuan and Bitcoin A friend who read my article about Bitcoin and Satoshi Nakamoto is Wei Dai and wanted me to discuss the difference between the Chinese central bank's digital currency and Bitcoin. I haven't paid attention to Central Bank's digital currency for a long time. I looked at ...

Comparison of China's central bank's digital yuan and Bitcoin

A friend who read my article about Bitcoin and Satoshi Nakamoto is Wei Dai and wanted me to discuss the difference between the Chinese central bank's digital currency and Bitcoin. I haven't paid attention to Central Bank's digital currency for a long time. I looked at the information and found that not much has changed. It is better to analyze it from the statement of the designer Mu Changchun.

Mu Changchun's views can be summarized as follows:

"Digital RMB is issued by the People's Bank of China, operated by designated operating agencies, and redeemed by the public. It is based on a broad account system, supports the loose coupling function of bank accounts, is equivalent to banknotes and coins, and has value characteristics and legal compensability. A controllable and anonymous payment tool."

If you understand this paragraph, you will also understand the central bank's digital currency. Let's analyze it sentence by sentence.

".The People's Bank of China issues Digital RMB."

Digital RMB (CBDC) is, first and foremost, a legal currency and a new form of RMB issued by the central bank. It has some characteristics of cryptocurrency and is also commonly called digital currency or digital fiat currency to distinguish it from the RMB published by traditional methods. The functions of digital currencies in different countries are different, but the characteristics of legal currencies are the same. Therefore, digital legal currency can better show the difference from cryptocurrencies like Bitcoin.

There are now three forms of RMB: banknotes, coins, and bank account forms. Isn't the form of bank account digital renminbi? There is no difference between digital legal currency and the current three RMB models in terms of use, and there is not much difference in name, but they are entirely different in design.

In the personal account model of the bank, the personal account and money are not in the hands of the individual in the bank, and the bank can use the money. The user has absolutely no control. Whoever owns an account has the right to use the money.

As for the digital renminbi, the money is in the wallet, and whoever owns the wallet owns the money in the wallet. The money in the wallet is more like a token and can be used for peer-to-peer transactions like Bitcoin. In cryptocurrency, money is in your own hands, and there is no bank concept. Exchanges are most similar to banks. Users transfer money to the exchange just like sending it to a bank. When the regulatory system is imperfect, cryptocurrency exchanges will use users' assets at will, causing frequent scandals.

In the cryptocurrency space, we need platforms without third-party credit. Ethereum is the most similar platform, but its performance is too weak to compare with banks and Alipay. It is impossible to shake the status of third-party payments such as banks and Alipay. Digital RMB has this ambition and possibility.

Digital RMB has an issuer, which is a central bank. Issuers need to have credit. Currencies issued by creditworthy issuers can flow globally. Currencies that cannot stream globally are ecological coupons. For example, Q coins are coupons issued by Tencent and circulate in the Tencent ecosystem.

The issuer's credit is the sovereign credit of its ecology, while Bitcoin does not have an issuer and does not require the issuer's sovereign credit. Bitcoin is a cross-sovereign currency with global liquidity that surpasses any legal currency.

The central bank's total digital currency issuance is recorded in the central bank's general ledger. Whether it is recorded or not depends on the central bank's credit. It cannot be seen in the short term. In a long time, it will manifest as inflation, which will manifest as exchange rate changes in the international market. The total amount of Bitcoin is limited, and there is no need to trust a third party, so there are no problems with legal currencies in various countries.

Digital RMB is still a legal currency and must be backed by credit to ensure that the currency does not depreciate. The reason is self-evident. If the scale of the scale is constantly changing, the meaning of weights and measures will be lost. Satoshi Nakamoto said: "The central bank keeps destroying its credibility." Bitcoin was born during the financial crisis of 2008, which was Satoshi Nakamoto's anger at the central bank for destroying credit. Bitcoin, like gold, is an asset currency and a kind of digital gold. Arguments from financial experts that Bitcoin has no value are absolutely malicious and are meant to deceive the market for their benefit. When there is cost and there is an exchange, there is value. It is an axiom recognized by all schools of economics. There is a cost to produce Bitcoin. Bitcoin is backed by ever-increasing computing power. The current cost of Bitcoin computing power is more than 20,000 US dollars, which is not far from the current trading price of Bitcoin.

In the era when humans used gold as currency, there was no inflation, only deflation. Fiat currency emerged to solve deflation; its side effects are inflation and hyperinflation. The digital renminbi is still a legal currency and is not a tool to fight inflation, while Bitcoin was born to solve inflation. The difference at this point is significant. For a detailed explanation, please refer to the relevant articles of the chainless community (

Conclusion 1: Digital RMB is a digital legal currency that fundamentally differs from cryptocurrencies represented by Bitcoin.

"The designated operating agency participates in the operation and redeems it to the public."

This designated institution is a bank. Large banks such as the Industrial and Commercial Bank of China are currently designated. The bank gives the central bank a 100% deposit, the central bank gives an equal amount of digital renminbi, and the bank then exchanges the digital renminbi for the public. The problem is that the money leaves the bank account and enters the personal account after the exchange. What does the bank make in the middle? No one wants to make money. All major banks have deposits with the central bank, but there is interest. Is there any interest in paying a digital currency deposit? Would the bank be willing if there was no interest? I'm not a circle member, so I haven't found any relevant explanation. If the bank places the deposit with the central bank and the central bank gives a certain proportion of additional digital renminbi to the bank, the bank will undoubtedly be willing. But now, the central bank is equivalent to releasing the original deposit, which is undoubtedly an injection of water into the currency. In this regard, the market should be explained as to how the central bank operates.

Banks with little profit have no incentive to do unprofitable things unless they receive pressure from users. Assume that all the bank's money has arrived in personal accounts, the bank's money has decreased, and the bank's ability to form a bubble and lend M2 will be reduced. At the same time, how to achieve currency turnover V? Obviously, if a large amount of money enters the wallet, it will affect the bank's profitability.

If individuals use wallets to save digital fiat currencies, just like depositing Bitcoins, without interest, will they still save? Although there is no interest when we deposit Bitcoin, there is a prospect of rising prices. Is there a central bank digital currency? No. Because it is equivalent to RMB.

Theoretically, the central bank can pay interest to each wallet deposit. Because it knows how much money is in each wallet and can control it, just like the margins handed over by various banks, the central bank can also set up regular deposits similar to margins. Therefore, the central bank must insist on no interest. Otherwise, it cannot balance its relationship with banks. The objective effect of digital legal currency is the same as that of the Bitcoin system. It has the characteristics of disintermediation. There is no room for banks to survive. Blockchain has fully demonstrated this.

Digital RMB is a new system independent of current banks and third-party payments, but the efficiency of the digital legal currency system is much higher. Could you figure out the mentality of banks? Of course, you love and hate them.

If the central bank uses the margins handed over by banks to issue digital renminbi, it will benefit the banks in the short term or at least be harmless.

Conclusion 2: There are conflicts between the interests of digital renminbi, banks, and third-party payments.

"Based on the broad account system."

The bank account system is rigorous, and many requirements exist for opening an account. There is no concept of sub-accounts. Under the central bank's digital legal currency system, anything that can form a unique personal identity can become an account. Mu Changchun explained: "As long as you can prove your identity, you can use it as an account. For example, your license plate number can become a sub-wallet of digital renminbi. When you pay on the highway or when parking, this is The concept of a broad account system." The digital RMB wallet has a sub-master wallet structure, and one wallet can be linked to multiple sub-wallets. Bitcoin also has this structure. All deposit addresses correspond to specific private keys, equivalent to the sub-wallets mentioned by Mu Changchun. The anonymity of digital RMB is different from that of Bitcoin. It needs to be related to your identity. Not everyone can find your information, but there are always people who can find it, such as relevant departments of the central bank, so it is relatively anonymous.

Conclusion 3: The design of digital RMB refers to the design technology of cryptocurrency.

"Support loose coupling of bank accounts."

It means you can open a digital RMB wallet without a bank account. There is a cost for banks to open branches. In places with no bank branches, you can also enjoy corresponding financial services through digital wallets, which helps achieve inclusive finance. In addition, overseas tourists and other people who do not have domestic bank accounts can also open a digital RMB wallet to make small payments more conveniently. Loose coupling means that the account opening requirements are not as strict as those of banks. The advantage of this account is that online payment makes it difficult for hackers to steal a large amount of property. This payment has the same function as Alipay. None of us save a lot of money in Alipay. But when large payments are required, real names are also necessary, and loose coupling will be risky at this time. Therefore, one of the purposes of the design of digital RMB is to fill in the gaps and be suitable for small-amount payments. Unlike Bitcoin, Bitcoin has no payment limit and does not require an outlet.

Conclusion 4: The application scenarios compete with Alipay.

"Equivalent to banknotes and coins."

Digital RMB replaces banknotes and coins, so it is M0. It supplements the current central bank's legal currency issuance system and reduces cash circulation. Alipay can also reduce cash circulation, but Alipay is an account model, and digital renminbi can be used for point-to-point payments, which is relatively more advantageous. Bitcoin itself is M0. In the long run, the central bank's digital renminbi can't replace Bitcoin, and the Bitcoin standard will eventually end the legal currency system, including digital legal currency.

Conclusion 5 "Digital RMB is not a substitute for Bitcoin.

"A controllable and anonymous payment instrument with value characteristics and legal liability"

Divided into four points of analysis.

"Value Characteristics and Legal Compensation"

Digital RMB is also a legal currency, equivalent to the RMB, and has the three essential characteristics of a currency, namely stored value, medium of exchange, and price scale. The most significant benefit is that the digital RMB is M0, which has the central bank's credibility. The money in the bank account is M2. If the bank fails, it will not receive total compensation, and the asset security level is not as good as the digital RMB in the digital wallet. Silicon Valley Bank in the United States collapsed, and the Federal Reserve fully rescued it, setting a precedent, but it was not M0's statutory compensation.


Digital RMB has one more feature than paper money, which is controllability. Paper money is anonymous and uncontrollable; digital RMB is controllable. The good thing is that it can be reported lost, and, to some people's misgivings, it can be tracked. Monetary controllability refers to regulating the economy through controlling monetary aggregates and interest rates. The central bank's digital RMB handles cash that was initially uncontrollable. There is no dead end in society. If one day it is announced that cash must be converted into digital renminbi, corrupt officials will have nowhere to hide. The cash at home is invalidated.

There is a way to promote digital RMB wallets. The country will spend 140 billion, give each Chinese citizen 100 yuan, and require them to download a digital wallet. Then, all RMB banknotes with a denomination of 20 yuan or more will be recycled, and all the money hidden by corrupt officials at home will be invalid. It is estimated that more than 140 billion will be invalidated. It's definitely a profit.

There are good and bad aspects of controllability. The disadvantage is that individuals have no privacy at all. The advantage is that the central bank can track any wallet without going through a third party. Moreover, you can clearly understand all the circulation processes of digital currencies.


Anonymity is limited anonymity. Both parties to the transaction may not know each other, but the central bank must know it. The policy does not care about small amounts but identifies large ones. It is incomparable to the anonymity of Bitcoin. Anonymity and real names are controversial and difficult to judge as right or wrong. Without the privacy of Bitcoin, replacing Bitcoin is impossible.

"Payment instrument"

The payment functions of central bank digital currency and Alipay and WeChat payment overlap, and there is no apparent functional substitution effect. From a bank's perspective, they are willing to support Alipay because the money in Alipay is in the bank. As a payment tool, it is not a pain point application of digital RMB.

The only advantage of digital RMB is that there are zero transaction fees. Although the central bank's fees are low, it still has to bear the cost of cloud hosts in various places. Is it possible to be free forever? I have no idea. Cash is always free to trade, and the central bank bears issuance costs. Will the central bank bear the cost of digital RMB? Maybe.

In short

1. The unique function of digital renminbi as a payment tool is that when paying with mobile phone NFC, both parties can touch and pay, which draws on the advantages of cryptocurrency. The biggest benefit is the overseas circulation of RMB. Even without a settlement bank, both parties can trade if they have RMB. As long as 1.4 billion people are mobilized, it will become the largest community. No one in the world can ignore the existence of this force.

2. Spending 140 billion to allow all Chinese people to have digital RMB wallets and promote domestic consumption is excellent for the country. Hong Kong spent 200 billion in four years to encourage consumption, and Alipay benefited. The most extensive use of the digital renminbi is to promote products for the young, old, and poor, just like Alipay's promotions. Due to understanding consumption habits, the result is product recommendations for thousands of people, just like TikTok and Alipay.

3. Since digital RMB wallets can reach people directly point-to-point, they can send more money to people in remote and impoverished areas, directly stimulating consumption, which is much more effective than investment stimulation and better safeguards fairness and justice. Technology is neutral; it depends on how you use it. From the perspective of stimulating consumption, it should be a gift of trillions of digital renminbi. It is a pain point application that digital RMB.

4. Breaking through international settlement and using digital renminbi is feasible, but does the central bank dare? The activities of 1.4 billion people are random. How can large foreign investors control it? Will it break through the state control of the RMB and turn it from a voucher into a real currency? If there is a significant exchange rate difference, it may cause the RMB exchange rate to collapse. Should the RMB internationalization come first, or should digital currencies be used to break through? Internationalize the RMB? China's price reform shocked the government and the public at that time. That was even more risky than price reform. China has won the exchange rate reform. We look forward to the courage of great men who can use digital RMB to change our national destiny.

5. Digital RMB is centralized and aims to replace banknotes and coins and enhance currency control. Blockchain serves as a laboratory for modern finance. So far, no example can prove that the central bank's digital RMB will be successful. The central bank can move forward steadily, and of course, it can experiment as it goes, but there is no need to make progress like this without any improvement for a few more years. Because with the emergence of new technologies and ideas, this set of methods will inevitably remain outdated.

6. Finally, comment on the central bank's digital renminbi. The details are good, including the introduction of smart contracts and the Ethereum platform, and the technical grasp is also in place. The Chinese have no problem copying it, but the designers still don't understand Bitcoin well enough, and they don't understand the hot spots of the application well enough. It's useless even if they know it because they can't do it. Still singing for their bold attempts. At least there are more possibilities.

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