China's paper cash is going digital.

There are other incentives, like zero transaction fees for merchants and one day, it'll even work offline. But one major difference is that the digital yuan is 100% trackable by China's central bank and when it's launched nationwide, it could impact not only citizens but also foreign companies operating in the country. The central bank will know who's paying, how much they're paying, when they're paying, where they're paying and then to analyze the patterns of payment.

China's central bank has also said it plans to gradually replace all cash and coins with the digital yuan. The country would be the first major economy to introduce a digital currency in the real world. And while many users say the digital yuan is easy to use, China's money revolution could usher in privacy concerns. Using the phone to pay isn't a new concept for Huang since he's one of about 770 million mobile payment users in China who rely on digital wallets like Ant Group's Alipay and Tencent's WeChat Pay. These private tech firms hold data on transactions, which the government can access. But because the digital yuan is developed by the central bank, there are no third-parties and that data sits with the government.

To begin testing the digital currency online and in physical stores, last year, the Chinese central bank started rolling out digital cash through public lotteries in cities across China. Huang is one of the 750,000 people who have won some piece of the $23 million prize in the past year. To start spending his $30 worth of winnings, Huang first downloaded the digital yuan app. It recorded that he spent money on lunch and medicine one Saturday afternoon in the southwestern city of Chengdu.

About 10,000 merchants in Chengdu have signed up to accept digital yuan. Zhong Jiaying manages a dumpling restaurant and she said the digital yuan has some advantages compared with other payment options. For instance, two of China's most popular digital wallets charge merchants an average of .6% for every transaction. There's also another upside in the works. The central bank is planning to make transactions possible even without an internet connection. So, restaurants like Zhong's won't have to worry about their spotty connections that sometimes make it hard to process digital transactions. This digital yuan is less about money and more about data.

Yaya Fanusie is an adjunct senior fellow at the nonprofit think tank Center for a New American Security in Washington, D.C. He's been studying digital currencies for the past six years and he says China's new currency is not as anonymous as it claims. The central bank has talked about there being controllable anonymity, which really means it's anonymous horizontally, right? The users that are using it don't necessarily know the identity of everyone that they're interaction with but vertically, it's not anonymous. The central bank is at the top with information on all the users.

China's central bank has promised to protect users' privacy. For now, people can choose whether they want to use the digital currency. But the central bank has said that as the country becomes a cashless society, it expects the digital yuan to become the primary way to make transactions. The Chinese government could force Chinese companies to only accept payment in digital yuan, which would then force the foreign companies, their foreign counterparts for trade. It could ensure that they have to use that.

Central banks have authority to control money supply but their actions to restrict a digital currency would have a more immediate effect, leaving companies holding that currency all the more vulnerable. For example, Fanusie says China's central bank have put an expiration date on the digital money, similar to how lottery winnings have to be spent before a certain date. - It means that the Chinese government could set up a whole lot of things to have your currency maybe valid or invalid based on its own priorities. This is almost like handing over the keys to your business or to your finance department in some ways because you really can't control what, at the end of the day, may happen with the funds that you're holding.

While there are privacy concerns, Fanusie says digital currencies can create more efficient monetary policy and counter criminal activities. China's central bank said its digital yuan system would help combat money laundering, gambling and terrorism financing. Meanwhile, the central bank is also looking into ways to make international transactions possible in digital yuan. And Fanusie says there's a big variable that'll determine if that's going to work. Will foreign governments allow their businesses and citizens to hold digital yuan and use it? It's not a given that all other countries are going to transact with this and because of the privacy, the data issues. So, this is really to be determined. While there's no set date for a national rollout, some officials have said the digital currency could be ready for wider use next February during the 2022 Winter Olympics in Beijing.

There is an element of showing off for the big international audience. We have a central bank digital currency that we're using. We're the biggest country that's doing it. And China isn't alone in this experiment. According to one survey of central banks, 86% of them from the US to Japan are exploring these types of currencies. For early digital yuan winners like Huang, he says the trial went smoothly and if the currency does go mainstream, he expects the surveillance aspect will matter less to him.