A variety of industries are finding new, creative uses for blockchain. Cryptocurrency’s underlying technology has been widely embraced by the banking industry, which is leveraging blockchain’s immutable ledger to prevent fraud, streamline record-keeping, and more. Now China’s central bank has announced the creation of a blockchain-based system to digitize checks from its customers. Di Gang, the head of the digital currency research lab at the People’s Bank of China, announced that a year’s worth of development has yielded a way to tokenize checks and conduct operations via smart contracts, part of an effort to make checking safer, more transparent, and reduce printing costs.
Check fraud has been widespread in China to the point that the agency announced the initiative in 2016, before cryptocurrency and blockchain’s rise to mainstream prominence. Business checks in China function more like money orders than traditional checks – recipients can use them to claim payment from banks and exchange them with other institutions. This results in intermediaries acting as banks to issue checks and raises the possibility of circulating fake checks among traditional financial institutions, with the potential to affect the country’s overall financial integrity.
January 2017 saw the first successful test of the new system, which is designed to issue “digital checks based on a blockchain with smart contracts technology.” Blockchain works to tokenize each check, with transactions controlled via smart contracts. The system uses a consensus algorithm called practical byzantine fault tolerance (PBFT) to ensure it can meet the transaction-time requirements of the financial industry. Transactions take around three seconds and, when complete, cannot be manipulated. "Once the smart contract rules are set in the blockchain, any participant cannot alter the system easily,” explained Di. “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." Regulators will be able to examine the entire life cycle of a digital check, whether being cashed out or used as a security.
The system is the latest example of China’s embrace of blockchain – a somewhat surprising development given the government’s hostility towards cryptocurrencies. The country filed more blockchain-related patents in 2017 than any other country and continue to be at the forefront of innovation using the technology. Use cases like this stand to be the norm as blockchain continues to build on its potential to revolutionize banking and other sectors.
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