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PBoC Digital Currency Director Says Blockchains Need Centralization

Last Updated March 4, 2021 5:06 PM
Josiah Wilmoth
Last Updated March 4, 2021 5:06 PM

China’s digital currency director said that excessive decentralization is a fatal flaw that spells doom for Bitcoin, Ethereum, and many other public blockchains.

Writing in an op-ed published by Chinese-language business news outlet Yicai , Yao Qian — who leads the People’s Bank of China (PBoC) digital currency research institute — argued that is impossible to exercise decentralized, informal blockchain governance on a large scale. He said that the solution to this problem is for the blockchain to have a central governor.

He wrote:

“In fact, by relaxing the decentralization constraint, many problems can be solved. For example, in a multi-center system such as a coalition chain, upgrading the blockchain bottom by shutting down the system, or emergency intervention, rolling back data, etc., are available means when necessary, and these methods help to control risks and correct mistakes.”

“It can be foreseen that there will be a new area between the two poles of centralization and decentralization in the future,” he added, according to a rough translation.

As evidence, Yao cited the DAO hack and the subsequent messy divorce between Ethereum and Ethereum Classic.

Under Yao’s proposed structure, the PBoC would have the ability to pause or shut down the system, roll back transactions and other data, as well as push software upgrades without the need for community consensus.

“For regular code upgrades, controllable smart contract replacements can be achieved by separating code and data and combining multi-layer smart contract structures,” he explained.

Yao is no the first official from a Chinese regulatory agency to argue that central banks should adopt distributed ledger technology (DLT) but maintain a centralized governance structure.

In March, Zhang Ye, the director of the China Securities Regulatory Commission (CSRC), said that “the absolute decentralization of the blockchain is not valid because the blockchain itself is software and software must be centralized.”

Previously, PBoC vice governor Fan Yifei said that a central bank digital currency should have “controllable anonymity” so that the government could mitigate money laundering, terrorist financing, and other financial crimes.

Featured image from Shutterstock.