China’s central bank has finished work on a blockchain-based system that digitizes checks issued by domestic businesses, according to a senior official.
In an op-ed published by a local news source on Tuesday, Di Gang, deputy head of the digital currency research lab at the People’s Bank of China, said the department has “completed the infrastructure of a system that issues digital checks based on a blockchain with smart contracts technology.”
According to Di, the work comes after a year-long R&D process that kicked off in 2016 when the lab first announced its plans to look to blockchain technology in the hopes of solving the issue of check fraud in the Chinese market. It was later reported that, in January 2017, the agency had successfully tested a prototype in a virtual environment.
Based on Di’s explanation, physical business checks in China function like money orders, except that besides being used to claim a payment from a bank, recipients can also exchange them with other entities.
An apparent problem with the existing system is the large numbers of intermediaries that take on the role of traditional banks to issue checks, and that brings added risks of fraud, he said. Subsequently, fake checks can circulate among commercial banks and potentially undermine the country’s financial integrity.
Built to arrive at consensus with the use of practical byzantine fault tolerance (PBFT), Di said the agency’s blockchain platform can essentially tokenize checks, while transactions can be controlled via smart contracts.
A main benefit of the system, he said, is to give regulators a transparent overview of the entire life cycle of a digital check, regardless of whether it is being redeemed for cash or being used as a security to back up other corporate assets.
“Once the smart contract rules are set in the blockchain, any participant cannot alter the system easily. Even for code updates, regulators will have full access to the record, which increases regulatory efficiency and reduces the cost by removing a manual cross-checking process for transactions.”