Chinese bank gives blockchain technology a lift

Digital currency and global payment systems are likely to be first to apply tamper-resistant applications for financial services

China is investing significantly to develop blockchain database technology to reshape financial services, and digital currency and global payments may be the first applications to emerge.

The technology allows parties to carry out direct transactions without using an intermediary by providing a means for people to share reliable and tamper-proof lists of information known as distributed ledgers or blocks.

The People's Bank of China said earlier in November that it would recruit personnel to develop digital currency.

"Blockchain technology can be applied to many areas, and digital currency and global payment systems may be the first applications," says Xu Mingxing, CEO of a blockchain payment company called OKLink.

Xu says the technology is still in the early development stage and will be mature in the next two to three years. Developing digital currency with the blockchain technology is not difficult, but it is very important to control risks, Xu says.

OKLink is a Beijing-based global business-to-business blockchain payment platform that cooperates with about 100 financial institutions with remittance licenses in more than 20 countries and regions.

"Our business is growing rapidly, and we expect the transaction value of our platform will reach more than $100 million (94.4 million euros; 80.6 million) in 2017," Xu says.

Yao Qian, the official leading the central bank's digital currency research center, says developing digital currency can make transactions more transparent and efficient and decrease the costs of printing and transportation. China will first introduce the currency in certain money markets and promote its use in a gradual and cautious way.

According to a report by the World Economic Forum in August, international payments and wire transfers, which currently involve a lot of manual steps and fees, will be replaced by blockchain transactions.

Several blockchain alliances have been formed to develop the technology. In October, Shanghai set up a blockchain alliance with 13 financial institution members, based in Lujiazui, Pudong New District. Its main research areas include renminbi cross-border payments and blockchain applications in a registration-based initial public offering system.

In April, a noncommercial organization, China Ledger Alliance, was set up to focus on research and development of blockchain applications. It is led by R&D company Wanxiang Blockchain Lab.

"Before full adoption of blockchain is possible, there are factors that need to be addressed, including an uncertain regulatory environment, lack of standardization efforts and the need for a formal legal framework," says Bob Contri, Global Financial Services Industry leader, Deloitte Global.

Huang Zhen, a professor of law at Central University of Finance and Economics, says it is necessary for regulators to monitor blockchain activities and carry out appropriate regulations.

The World Economic Forum report said blockchain technology will fundamentally alter the way financial institutions do business around the world, but it comes with a set of risks that must be considered. These include errors in design, malicious behavior introduced by human decisions and potential gaps in security.

caixiao@chinadaily.com.cn