Tuesday , 20 March 2018

Chinese regulator: Blockchain needs centralization

An official from one of China’s top financial regulatory agencies said that he believes blockchains function more effectively when they are built on a centralized system.

Acting as a policy advisor at the Chinese People’s Political Consultative Conference this week, Zhang Ye, head of the technology unit at China’s Securities Regulatory Commission, encouraged the public sector in China to embrace advanced technologies such as artificial intelligence and blockchain technology in public services.

However, at the same time, he cautioned that, while he believes in the potential of blockchain, to fully achieve its benefits will rely on using a centralized infrastructure.

“Blockchain’s advocates for absolute decentralization have no solid ground, because [blockchain] itself is a software developed in a centralized way. So is the public key infrastructure, which remains an important feature adopted by blockchain,” Zhang said in an interview with Securities Times, an official mouthpiece that covers the securities industry in China.

The regulatory official did acknowledge that some blockchain applications may require decentralization, but he said that these scenarios should be limited and he did not go into detail about what applications should and should not be centralized.

“Admittedly, some application scenarios need to be decentralized, but whether all scenarios need to be decentralized requires careful consideration,” he said.

In addition, Li Lihui, former president of the Bank of China and now head of the blockchain research at a fintech self-regulation group in China, previously commented that most of the current efforts in blockchain adoption from entities such as IBM and R3 are, in essence, designed with multiple centralizations instead complete decentralization.

Zhang’s comments are the latest evidence that China is grappling with whether and how it can reap the benefits of blockchain technology while retaining complete control of the system’s underlying infrastructure.

Last month, the People’s Daily — a state-sponsored media outlet — published an article praising blockchain technology, even as the government has taken measures to snuff out what little volume remains in the country’s once vibrant cryptocurrency trading industry.

Notably, though high-ranking official has also reportedly called for the government to establish a state-controlled digital asset trading platform, sparking speculation that the government could ease prohibitions on cryptocurrency trading, as long as the markets are directly controlled by the government.

As reported last October, officials from the People’s Bank of China (PBoC) including Yao Qian, the director at the central bank’s digital currency research lab, have outlined a vision for a centrally issued and managed digital currency, which may still be decentralized in its underlying technology.

Yet, in January, the PBoC’s vice governor went far as picturing scenarios that could remove standard features of public blockchain such as the peer-to-peer mechanism and anonymity from a centrally issued digital currency.


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