Own Digital Currency: China Balances Blockchain Technology

In a recent interview with the Chinese newspaper Caixin Weekly, the head of the Peoples Bank of China (PBOC) gave further details on the bank’s own digital currency, Zhou Xiaochuan said in the interview that the bank is also considering possibilities that are not based on blockchain technology. The electronic payment network will use mobile payment methods, cloud computing, secure chip solutions and blockchain technology.

Xiaochuan said, however, that there is currently no clue as to what the final product will ultimately look like:

“We will work closely with the financial industry and research to explore all new technologies in detail. We want to find out which technology provides us with the best conditions for issuing a digital currency and what risks are involved for each individual”.

On 20th January the PBOC announced for the first time plans for its own digital currency, triggering great speculation about the exact appearance of the digital currency. Until now, digital currencies were largely associated with Bitcoin and the blockchain.

Xiaochuan pointed out that the blockchain still requires too many “resources” in terms of computing power and memory capacity. In addition, many banks are of the opinion that the blockchain cannot process enough transactions simultaneously.

“We have to wait and see whether the problem can be solved in the future. The banks have invested some resources in research on this issue,” says Xiaochuan.

Privacy of the digital currency

One issue where Bitcoin in particular was closely scrutinized with regard to the digital currency of the People’s Bank of China was privacy. According to Xiaochuan, this feature is very important for the planned digital currency.

Even though all Bitcoin transactions are publicly visible on the blockchain, the technology offers a certain amount of anonymity through the pseudonymous address system.

Nevertheless, the digital currency will use many different “information technologies”, including cryptographic algorithms to protect against counterfeiting.

The article in Caixin magazine also raised the question of a possible “51% attack” on the Bitcoin network, with a Miner network providing more than half of the hashing power and thus influencing and falsifying transactions.

Xiaochuan replied that a blockchain based digital currency would run on an authorized network, which is safe from external manipulation.

During the interview, Caixin Magazine also asked about a timeframe and when the digital currency would eventually replace paper money.

Xiaochuan pointed out that there is currently no precise timetable and it is unlikely that the digital currency will completely replace paper money.

“It takes months for a small country to issue a new version of paper money. In the case of China, the same step has already taken 10 years.”

Xiaochuan expects that when the digital currency comes onto the market, the fees for paper money payments will rise continuously to motivate people to use the digital currency.