In a surprising move, Zhou Xiaochuan – the chairman of the People’s Bank of China – has called the development of a state-backed digital currency ‘inevitable’.
The chair’s comments come in the wake of a tumultuous time for cryptocurrency investors in China, as the authoritarian nation has undertaken swift bans to prevent local access to both offshore cryptocurrency exchanges and Initial Coin Offerings (ICOs).
Speaking during a press conference this Friday, Zhou remarked that it remains uncertain as to whether the People’s Bank would pursue the creation of a national cryptocurrency or some other form of digital currency.
Zhou, however, would not rule out the use of distributed ledger technology – and specifically outlines that such a concept might underpin a future project.
The chairman outlined that a cryptocurrency might not serve the interests of the People’s Bank – quipping that “we think that we need to be more cautious in this direction, because this doesn’t serve our goals that financial products shall serve the real economy”.
Zhou further clarified that the bank would carefully research a state-backed cryptocurrency to prevent it from becoming a speculative product, and that any digital currency should not “conflict with the current financial order.”
A state-backed cryptocurrency?
The Bank of China recently filed patents with the Chinese State Intellectual Property Office that depict a proprietary blockchain scaling solution; In the patent, the bank principally describes a solution which would involve the compression of data stored within a blockchain – a proposal that could effectively offer a way to scale blockchains to multitudes of users or data inputs.
The patent outlines a system wherein a full-size node, upon receiving a compression request from a client, would compress transaction data stemming from multiple different blocks into a new ‘data block’, which could then be temporarily hosted on a different storage system.
Following that, the data would then be run through a hash function with the hash value of the data block, and the subsequent compression transaction would record the relation of the compressed block, the data block, and the compression event within the blockchain.
The process could effectively downsize data stored within the blockchain, and might accommodate more space wherein further transactions could be recorded.
The proposal aims to effectively scale blockchain use without compromising its traceability and immutability, though the integrity of the proposed temporary storage solution remains up for discussion.
The use of a temporary storage solution could provide the People’s Bank – or the state at large – a censorship mechanism to control a blockchain-based cryptocurrency.
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