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Square or rectangular tanks or cages can both work but you don't want anything that's too narrow as it will make setting up the cage & best use of space difficult.
You need chinchilla sand (not dust) not aquatic or reptile sand.
Shredded paper isn't really good enough for the main substrate, they need to be able to dig & burrow in it & it needs to hold burrows, you need at least 15cm of substrate which is a lot of paper!
If you use a litter tray then you either use the same substrate as in the rest of the cage or chinchilla sand, most litter pellets aren't safe.
A seed mix is preferable to a kibble diet, it does depend on what mixes are available to you though.