The central bank of China has completed a Blockchain-based system that would enable local businesses to issue digital checks, as disclosed by a senior official.
According to a local news outlet’s op-ed published Tuesday, deputy head of the digital currency research lab at the People’s Bank of China, Di Gang, stated that the lab has finished building the infrastructure of “a system that issues digital checks based on a blockchain with smart contracts technology.”
The newly developed system is the product of a year-long R&D process that was initially piloted in 2016 when the agency first disclosed its plans to integrate Blockchain technology, in an effort to reduce the prevalence of counterfeit checks in the Chinese market. Following the announcement, the department disclosed in January 2017 that it has successfully completed the prototype’s trial in a virtual environment
Paper checks generally serve as money orders for claiming payments. The only difference in China, Di explained, is that the recipients may also exchange these checks with other entities. As such, this prevailing system raises several concerns, including the massive number of intermediaries that function as a substitute for traditional banks, which increases the risk of issuing counterfeit checks that may consequently be circulated among commercial banks, thereby compromising the financial institutions’ integrity.
Di also touted that the Blockchain-based system, which was built to establish a consensus through practical byzantine fault tolerance (PBFT), is capable of tokenizing physical business checks while relying on smart contracts for managing transactions.
With digitized check, regulators would be provided a transparent overview of its entire lifecycle, regardless of how it was used, whether for redeeming cash payments or for supporting corporate assets. As Di went on explaining further:
“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.”