The People’s Bank of China has just released a new working paper on the capabilities and limitations of blockchain technology for economic and financial purposes.
The paper entitled “What Can Blockchain Do, What Can’t It Do?” (区块链能做什么、不能做什么) by Xu Zhong (徐忠) and Zou Chuanwei (邹传伟) seeks to “study block chain’s economic functions” as well as “categorise major blockchain applications according to how they use tokens and discuss relevant economic problems.”
The paper concludes with a note of skepticism about the current potential of blockchain technology with respect to economic applications.
“Overall, there are currently very few blockchain projects which are actually implemented that produce social benefit,” said the report. “The shortcomings of blockchain economic functions are a key factor.
“[We] shouldn’t exaggerate or mystify blockchain capabilities…the past few years of industry practice have already proven that certain blockchain application directions are not feasible.
“This is especially the case when it comes to the continuous incorporation of various tech innovations by the modern financial system during its process of development.
“Technological innovation only needs to be of assistance to raising the efficiency of financial resource allocation and the security and convenience of financial transactions in order for them to be incorporated into the financial system.
“As of the present, there has not yet been a technological innovation which has had a groundbreaking impact upon the financial system, and the blockchain is no exception.
“Blockchain applications must be rooted in reality, and cannot be caught up in certain excessively idealised goals.
“For example, the use of technology to replace systems and trust is extremely difficult, and there are many scenarios which are even utopian.
“For example, decentralisation and centralisation each have their respective application scenarios, and neither is better than the other. In actuality complete decentralisation and complete centralisation scenarios are rarely seen.
“Very many blockchain projects set off with the goal of decentralisation, but subsequently must to a greater or less extent incorporate an element of centralisation, or they will prove impossible to implement.
“For example, the incorporation of information from outside the blockchain into blockchains frequently requires a reliable centralised institution, and complete centralisation is impossible.”
The report concludes with another official caution against blockchain-related speculation.
“At present there is a pronounced bubble in blockchain investment and finance… speculation, market manipulation and even conduct in breach of the law and regulations is widespread,” said the report.
“This is especially the case for projects involving the public issuance and trading of tokens…the relevant government departments must strengthen regulation and prevent financial risk.”