China Finds A Blockchain-Based Replacement For Checks


According to reports in CoinDesk, care of a Chinese government official, China’s central bank has completed its work on a blockchain-based system for digitizing checks issued domestically by businesses.

Di Gang, deputy head of the digital currency research lab at the People’s Bank of China, told media outlets that his department has “completed the infrastructure of a system that issues digital checks based on a blockchain with smart contracts technology.”

The work is the culmination of a years-long effort by the Central Bank’s R&D department, according to Di. The lab first began looking seriously at blockchain technology in 2016, with an eye toward shutting down the pervasive problem of check fraud in the Chinese marketplace. As of 2017, reports were emerging that the department had managed to launch a working prototype of the product, though only within the virtual environment they created.

Checks in China are a bit different than their U.S. counterparts. They tend to function more like money orders do here, according to Di, as consumers typically either cash them out in banks or directly exchange them with other entities when possible. The insecurity comes from the large number of third-part intermediaries that have sprung up in the economic ecosystem, which function in much the same way that banks do when it comes to issuing checks. The problem, Di noted, is that all of these players in the game have the overall effect of making it easier to commit fraud via fake checks in the market.

Fake checks in circulation pose a risk to the local economies where they exist, as well as to the health of the financial system in general, Di noted. The blockchain platform digitizes and tokenizes checks, making it possible to build further control into transactions by leveraging smart contracts. Regulators get an additional boon in this system, as they get transparent insights into the entire life cycle of a digital check, no matter what its ultimate fate happens to be. If it gets cashed, they can see that. If it gets used as security as part of a loan, that is also visible in its history recorded by the blockchain.

“Once the smart contract rules are set in the blockchain, any participant cannot alter the system easily,” Di explained. “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.”


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