According to one of the leaders of the central bank of China, the department has completed work on a blockchain-system for digitizing checks issued by local companies, reports CoinDesk.
In a column published on Tuesday in one of the Chinese publications, the deputy head of the People’s Bank of China Laboratory for Digital Currency Studies, Di Gang, said that his department “completed work on the infrastructure of the system issuing digital checks with the help of a detachment using smart-contract technology.”
According to Dee, before that the laboratory had been engaged in research work for about a year, which started in 2016, when the agency first reported that it was eyeing blockchain technology to solve the problem of cheating with checks in the Chinese market. Later, in January 2017, the service stated that it successfully tested the prototype system in a virtual environment.
As Di explains, in China paper checks function as money orders (ie, these are not bank checks used to receive bank payments), and recipients of checks can exchange them with other persons.
The obvious problem with the existing system is that the role of a traditional bank can be performed by intermediaries, of which there is a huge number, which introduces a risk of fraud into the system. Thus, forged checks can circulate in commercial banks and potentially harm the country’s financial system.
According to Di, the blockchain-platform, using the PBFT algorithm (from the English “practical byzantine fault tolerance”), is able to tokenize checks, while transactions can be managed using smart contracts.
The main advantage of the system, he said, is that it gives regulators a transparent overview of the entire life cycle of a digital check – regardless of whether it was cashed or used as a security to provide other business assets.
“When rules of smart contracts are specified in the blockchain, network participants will not easily change the data in the system. Regulators have full access to records, even when it comes to updating the code, this increases the efficiency of regulation and reduces its cost by eliminating manual cross-checking of transactions,” Di explains.