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The Chinese city of Shenzhen will become a test bed for a new sovereign cryptocurrency with residents issuing millions in the digital currency for free.
As reported by the South China Morning Post, citizens were able to participate in a lottery to receive digital funds, of which coins worth 10 million yuan (1.47 million dollars) will be awarded to promote their use in approximately 3,400 designated stores in the Luohu District. .
The 50,000 “red packs” will each contain approximately $ 30 in cryptocurrency. Chinese citizens living in Shenzhen were able to apply through iShenzhen, a blockchain-based, government-run network that supports the new sovereign resource.
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Digital Renminbi, an official state app, can be used to create an e-wallet to store and trade cryptocurrency. The gift amounts can only be used until October 18th and cannot be transferred to traditional bank accounts. If the coins are not used, they will be withdrawn.
The scheme is considered a pilot project for the digital yuan, also known as electronic digital currency payment (DCEP).
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By airing this huge amount and encouraging residents to spend their funds in a short time, China will be able to test the transactional capability and reliability of the DCEP system, while also isolating the proof from traditional payment methods and accounts.
Many cryptocurrencies currently in circulation are decentralized, which means there is no central support – loosening control over traditional fiat currency, but also increasing the likelihood of market fluctuations.
However, China’s sovereign virtual currency is backed by the People’s Bank of China (PBOC), which means the currency should be viewed less than a standard cryptocurrency and more as a government-controlled digital alternative to cash.
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In addition to retail use cases, transportation and bill payment are also proposed as potential applications of DCEP. Other pilot programs took place in 2020 to debut with DCEP, including in the cities of Xiongan, Suzhou and Chengdu.
China is looking to move to a cashless society, and state-backed virtual alternatives could provide the means to do so. However, with every transaction recorded on the blockchain, this can also be considered a privacy risk as payments would not have the anonymity offered by traditional physical cash.
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