t might be a little bit confusing when the PwC’s 2018 Global Blockchain Survey perceived China as the global blockchain leader for the next five years, given that the Chinese government has banned cryptocurrencies, their mining, and initial coin offerings in China since 2017. However, the Chinese government has never had an issue with the underlying technology—blockchain. The Chinese State Council had even included the development of blockchain into China’s 13th Five-Year-Plan. Following the national call, Chinese executives and entrepreneurs have made more progress than previously expected.
Before we lay out China’s blockchain development plan, let’s first understand blockchain. One CNBC article by Arjun Kharpal introduces blockchain as a technology that began with the cryptocurrency bitcoin, and in this case, its role is an immutable and tamper-proof public ledger of activity. It is also decentralized, which means it is not owned by any party.
Blockchain is immutable because of the way it functions. The supercomputers— “miners”—compete to validate transactions and organize them into blocks. By solving extremely hard mathematical problems, miners can generate “fingerprints,” the hash, as proof of adding new blocks onto the chain, and get rewards in the form of bitcoins. What’s more, each newly added block includes the previous block’s unique hash, which means that tampering with one block will simultaneously alter its hash and cause errors in all subsequent blocks, so all other miners will automatically reject this alteration.
China’s National Interests in Blockchain
When we know more about blockchain, the reasons why China is interested in Blockchain unfold: it has the potential to solve critical problems and bring prosperous opportunities to China at once if being properly used.
Efficiency. A Wharton finance report points out that “China is attracted to blockchain’s efficiency and ability to generate cost savings in transactions.” More importantly, blockchain records transactions in an immutable and transparent way, which can effectively help China clear its debt-laden banking system, getting rid of its corrupt bankers and fraudulent borrowers.
Digital Currency. According to experts, Blockchain can also support China to launch its own digital currency by “making its already-existing monetary base digital.” China has made huge progress in becoming a cashless society: about 80% of smartphone users and 60% of its entire population use mobile payments. However, this huge market is ruled only by Alipay and WeChat Pay. A state-backed digital currency would allow the Chinese government to retain its monetary control, reap the benefits of digital transactions, and collect the transaction data.
Technology Front. The Chinese government sees blockchain as “the critical next-generation IT infrastructure to build smart cities,” say experts from Coindesk. With blockchain, cryptographically secure databases can be linked by 5G to support China’s big data and AI grand plan. Also, China for sure would not lose this opportunity to appear technology-friendly to attract investors all over the world.
A New Standard. Just like any unexplored domain, whoever gets there first makes the rules. Promoting blockchain also helps internationalize China’s e-payment systems, making China’s RMB the de facto choice as an alternative to dollar, especially among belt and road nations.
Blockchain-based Service Network
The most notable plan China raised is called Blockchain-based Service Network (BSN), an initiative that is led by the State Information Center Smarter City Development and Research Center, as well as other state-owned telecommunication giants, including China Mobile, China Union Pay, and Red Date Technologies.
According to the white paper, BSN is a global infrastructure network based on the consortium chain and consensus method. Consortium chain is a type of permissioned chain when an association of multiple parties controls applications, while private chain is another type of permissioned chain when only one party makes the rules. On the contrary, public (permissionless) chains, well-known for decentralization and transparency, do not meet the regulatory requirements in China. “There are barely any information-based applications using only public chain structure, except for cryptocurrencies,” the white paper says. Consortium chain, on the other hand, is relatively easier for regulation purposes because it has entry barrier—nodes must be approved before joining the network. Some experts also agree that the fewer, but more focused nodes can perform more efficiently, avoid waste of redundant resources, and run on lower operating costs.
BSN is designed to achieve these targets. It is essentially a platform that has already done the hard work so developers can simply plug in and deploy their apps on the city nodes that BSN has connected with. City nodes can even automatically identify the popular apps that are connected and assign individual ledgers with greater computing power to them. This way, BSN can successfully reduce the operation cost from over $15,000 to less than $500 for each application each year, decrease development costs, improve connection flexibility, so developers can focus on innovation.
A national call has provided with profitable opportunities and has gained support and attention from city governments, companies, and individuals within China.
BSN has built around 120 city nodes including eight overseas, and expects to have nearly 200 nodes established by the end of 2020. It is already the “world’s largest blockchain ecosystem” that is expected to work as the “backbone for massive connectivity between China and the world,” explains John Xie from VOA. China now also has more than 700 blockchain projects registered since last year and has a 60% share of the world patent applications, three times the U.S. share, as of May 2020 data.
A test is even brewing in the Southern Chinese province Hainan. Supported by the State, the capital of Hainan—Haikou—has been setting up a Blockchain Pilot Zone, building up industrial parks, raising funds, and drawing in a great number of blockchain-related corporations. This is similar to the practice when China started opening up in the late 20th century by establishing Special Economic Zones (SECs)—experimenting first and scaling up the successful lessons learned later.
Blockchain with Chinese Characteristics: A Threat? A Pragmatic Trial.
Facing a blockchain with Chinese characteristics, most people are dragged into a zero-sum mindset right away, accusing China of adding surveillance into its blockchain plan to “repress its people” and “subvert the Western rule-of-law-based system.” However, if they can look more closely and walk away from the conspiracy theory for a moment, they might be able to see some merit in the plan, possibly even some ideas other countries can learn from.
Adapting to a New Trust System with Regulations at first—Pragmatist vs. Purists.
One of the biggest problems in the global blockchain industry is the dearth of big players due to no effective regulations. The respondents in the PwC’s 2018 Global Blockchain Survey ranked “regulatory uncertainty” (48%) and “lack of trust among users” (45%) the top two barriers to blockchain adoption. Big players such as hedge funds prioritize the safety of their money, thus preferring a trustworthy third party, which they can hold accountable. “Custodians matter,” says Dan Doney, CEO of Securrency, which provides decentralized investment banking services, “how can you be sure that this exchange isn’t going to lose $160 million of value? What mechanisms are there to assure someone that the right things are in place?”
People with views closer to purists cannot believe they have to argue for blockchain’s safety. Like Vanessa Grellet (executive director of blockchain solutions provider Consensys) says, blockchain will create a new path and new systems: “True innovation will come from new companies, not by replicating the existing [infrastructure] or trying to improve the efficiencies in the existing systems…. That’s not where innovation is going to be in the future.”
However, as long as no massively destructive events take down the current system, adopting transformative technology like blockchain requires concessions from the purists’ side, at least when people are still building confidence in it. After all, blockchain is a tool, and governments have to protect people from its potential harm, which means regulations will be in position sooner or later. For example, Facebook’s Libra will have to be subject to regulations before it can hit the ground running.
Creating Incentives for Businesses—Government Strategy and Lower Costs.
Another relevant hurdle is the lack of incentive for businesses to participate in blockchain projects. For any mature industry that has well-developed regulations, businesses have fewer reasons to leave everything behind and start under new rules, not to mention how difficult and costly blockchain development is.
A state-backed development platform that costs businesses little to plug in solves the problem, as blockchain businesses survive better in the environment that makes better preparations, which does not describe the United States for now.
There have been some moves. In February 2019, President Trump launched the country’s artificial intelligence initiative, and a National Action Plan for Blockchain was issued by the Chamber of Digital Commerce in the same month. As of June 2020, however, the bills that have advanced in the U.S. House of Representatives still ask the federal agencies to look carefully at the future use of blockchain-related technology only.
The United States has much more to do.
Let’s be pragmatic.
Theories and blueprints can be alluring, but drafting workable plans is a different thing. To get the wheels running on the ground some concessions have to be made, given that privacy concerns always show up with regulations in place.
As for conspiracy theories, we may giving too much “credit” to a country that is still understanding the consequences of a technology in its infancy phase. Nevertheless, China’s blockchain development gives one more reason for the U.S. containment under the current technology impasse. The United States can make China’s blockchain plan difficult to implement abroad because BSN’s overseas data centers are supported by U.S. tech companies—Amazon Web Services (AWS), Microsoft, and Google. Since developers can access services from BSN more easily and quickly if they use data centers that are physically close, according to experts from Coindesk, China’s plan beyond its boundary is at risk if the U.S. government decides to ban these U.S. companies from supporting BSN.
With a more centralized government, China can move, coordinate, and deploy resources more quickly, but it did invest heavily in the R&D of blockchain, recruiting talent, and drawing in capitals—the things all countries should be doing if they also believe in the potential of blockchain. The difference in ideologies makes the political games inevitable, but they do not need to dominate all discussions. Instead of exaggerating the “China threat” on every single issue, how about just taking more time settling the terms with the regulators before capital and funds flow to the more profitable places where investors can build trust?
We all remember a better world, a world that is merit-based, where people believe in trade, technology, and science. Whether we are going to move away from this world largely depends on how the United States, one of the world’s greatest powers, weighs its relationship with it. More specifically, facing China’s blockchain trial, will the United States be trapped by political illusion and conspiracy theories, and build “walls” again, or will it learn some lessons from this experiment, re-start its innovation engine, and make the world a better place like it used to?
a global affairs media network
China’s Bet on Blockchain
October 12, 2020
I
t might be a little bit confusing when the PwC’s 2018 Global Blockchain Survey perceived China as the global blockchain leader for the next five years, given that the Chinese government has banned cryptocurrencies, their mining, and initial coin offerings in China since 2017. However, the Chinese government has never had an issue with the underlying technology—blockchain. The Chinese State Council had even included the development of blockchain into China’s 13th Five-Year-Plan. Following the national call, Chinese executives and entrepreneurs have made more progress than previously expected.
Before we lay out China’s blockchain development plan, let’s first understand blockchain. One CNBC article by Arjun Kharpal introduces blockchain as a technology that began with the cryptocurrency bitcoin, and in this case, its role is an immutable and tamper-proof public ledger of activity. It is also decentralized, which means it is not owned by any party.
Blockchain is immutable because of the way it functions. The supercomputers— “miners”—compete to validate transactions and organize them into blocks. By solving extremely hard mathematical problems, miners can generate “fingerprints,” the hash, as proof of adding new blocks onto the chain, and get rewards in the form of bitcoins. What’s more, each newly added block includes the previous block’s unique hash, which means that tampering with one block will simultaneously alter its hash and cause errors in all subsequent blocks, so all other miners will automatically reject this alteration.
China’s National Interests in Blockchain
When we know more about blockchain, the reasons why China is interested in Blockchain unfold: it has the potential to solve critical problems and bring prosperous opportunities to China at once if being properly used.
Efficiency. A Wharton finance report points out that “China is attracted to blockchain’s efficiency and ability to generate cost savings in transactions.” More importantly, blockchain records transactions in an immutable and transparent way, which can effectively help China clear its debt-laden banking system, getting rid of its corrupt bankers and fraudulent borrowers.
Digital Currency. According to experts, Blockchain can also support China to launch its own digital currency by “making its already-existing monetary base digital.” China has made huge progress in becoming a cashless society: about 80% of smartphone users and 60% of its entire population use mobile payments. However, this huge market is ruled only by Alipay and WeChat Pay. A state-backed digital currency would allow the Chinese government to retain its monetary control, reap the benefits of digital transactions, and collect the transaction data.
Technology Front. The Chinese government sees blockchain as “the critical next-generation IT infrastructure to build smart cities,” say experts from Coindesk. With blockchain, cryptographically secure databases can be linked by 5G to support China’s big data and AI grand plan. Also, China for sure would not lose this opportunity to appear technology-friendly to attract investors all over the world.
A New Standard. Just like any unexplored domain, whoever gets there first makes the rules. Promoting blockchain also helps internationalize China’s e-payment systems, making China’s RMB the de facto choice as an alternative to dollar, especially among belt and road nations.
Blockchain-based Service Network
The most notable plan China raised is called Blockchain-based Service Network (BSN), an initiative that is led by the State Information Center Smarter City Development and Research Center, as well as other state-owned telecommunication giants, including China Mobile, China Union Pay, and Red Date Technologies.
According to the white paper, BSN is a global infrastructure network based on the consortium chain and consensus method. Consortium chain is a type of permissioned chain when an association of multiple parties controls applications, while private chain is another type of permissioned chain when only one party makes the rules. On the contrary, public (permissionless) chains, well-known for decentralization and transparency, do not meet the regulatory requirements in China. “There are barely any information-based applications using only public chain structure, except for cryptocurrencies,” the white paper says. Consortium chain, on the other hand, is relatively easier for regulation purposes because it has entry barrier—nodes must be approved before joining the network. Some experts also agree that the fewer, but more focused nodes can perform more efficiently, avoid waste of redundant resources, and run on lower operating costs.
BSN is designed to achieve these targets. It is essentially a platform that has already done the hard work so developers can simply plug in and deploy their apps on the city nodes that BSN has connected with. City nodes can even automatically identify the popular apps that are connected and assign individual ledgers with greater computing power to them. This way, BSN can successfully reduce the operation cost from over $15,000 to less than $500 for each application each year, decrease development costs, improve connection flexibility, so developers can focus on innovation.
A national call has provided with profitable opportunities and has gained support and attention from city governments, companies, and individuals within China.
BSN has built around 120 city nodes including eight overseas, and expects to have nearly 200 nodes established by the end of 2020. It is already the “world’s largest blockchain ecosystem” that is expected to work as the “backbone for massive connectivity between China and the world,” explains John Xie from VOA. China now also has more than 700 blockchain projects registered since last year and has a 60% share of the world patent applications, three times the U.S. share, as of May 2020 data.
A test is even brewing in the Southern Chinese province Hainan. Supported by the State, the capital of Hainan—Haikou—has been setting up a Blockchain Pilot Zone, building up industrial parks, raising funds, and drawing in a great number of blockchain-related corporations. This is similar to the practice when China started opening up in the late 20th century by establishing Special Economic Zones (SECs)—experimenting first and scaling up the successful lessons learned later.
Blockchain with Chinese Characteristics: A Threat? A Pragmatic Trial.
Facing a blockchain with Chinese characteristics, most people are dragged into a zero-sum mindset right away, accusing China of adding surveillance into its blockchain plan to “repress its people” and “subvert the Western rule-of-law-based system.” However, if they can look more closely and walk away from the conspiracy theory for a moment, they might be able to see some merit in the plan, possibly even some ideas other countries can learn from.
Adapting to a New Trust System with Regulations at first—Pragmatist vs. Purists.
One of the biggest problems in the global blockchain industry is the dearth of big players due to no effective regulations. The respondents in the PwC’s 2018 Global Blockchain Survey ranked “regulatory uncertainty” (48%) and “lack of trust among users” (45%) the top two barriers to blockchain adoption. Big players such as hedge funds prioritize the safety of their money, thus preferring a trustworthy third party, which they can hold accountable. “Custodians matter,” says Dan Doney, CEO of Securrency, which provides decentralized investment banking services, “how can you be sure that this exchange isn’t going to lose $160 million of value? What mechanisms are there to assure someone that the right things are in place?”
People with views closer to purists cannot believe they have to argue for blockchain’s safety. Like Vanessa Grellet (executive director of blockchain solutions provider Consensys) says, blockchain will create a new path and new systems: “True innovation will come from new companies, not by replicating the existing [infrastructure] or trying to improve the efficiencies in the existing systems…. That’s not where innovation is going to be in the future.”
However, as long as no massively destructive events take down the current system, adopting transformative technology like blockchain requires concessions from the purists’ side, at least when people are still building confidence in it. After all, blockchain is a tool, and governments have to protect people from its potential harm, which means regulations will be in position sooner or later. For example, Facebook’s Libra will have to be subject to regulations before it can hit the ground running.
Creating Incentives for Businesses—Government Strategy and Lower Costs.
Another relevant hurdle is the lack of incentive for businesses to participate in blockchain projects. For any mature industry that has well-developed regulations, businesses have fewer reasons to leave everything behind and start under new rules, not to mention how difficult and costly blockchain development is.
A state-backed development platform that costs businesses little to plug in solves the problem, as blockchain businesses survive better in the environment that makes better preparations, which does not describe the United States for now.
There have been some moves. In February 2019, President Trump launched the country’s artificial intelligence initiative, and a National Action Plan for Blockchain was issued by the Chamber of Digital Commerce in the same month. As of June 2020, however, the bills that have advanced in the U.S. House of Representatives still ask the federal agencies to look carefully at the future use of blockchain-related technology only.
The United States has much more to do.
Let’s be pragmatic.
Theories and blueprints can be alluring, but drafting workable plans is a different thing. To get the wheels running on the ground some concessions have to be made, given that privacy concerns always show up with regulations in place.
As for conspiracy theories, we may giving too much “credit” to a country that is still understanding the consequences of a technology in its infancy phase. Nevertheless, China’s blockchain development gives one more reason for the U.S. containment under the current technology impasse. The United States can make China’s blockchain plan difficult to implement abroad because BSN’s overseas data centers are supported by U.S. tech companies—Amazon Web Services (AWS), Microsoft, and Google. Since developers can access services from BSN more easily and quickly if they use data centers that are physically close, according to experts from Coindesk, China’s plan beyond its boundary is at risk if the U.S. government decides to ban these U.S. companies from supporting BSN.
With a more centralized government, China can move, coordinate, and deploy resources more quickly, but it did invest heavily in the R&D of blockchain, recruiting talent, and drawing in capitals—the things all countries should be doing if they also believe in the potential of blockchain. The difference in ideologies makes the political games inevitable, but they do not need to dominate all discussions. Instead of exaggerating the “China threat” on every single issue, how about just taking more time settling the terms with the regulators before capital and funds flow to the more profitable places where investors can build trust?
We all remember a better world, a world that is merit-based, where people believe in trade, technology, and science. Whether we are going to move away from this world largely depends on how the United States, one of the world’s greatest powers, weighs its relationship with it. More specifically, facing China’s blockchain trial, will the United States be trapped by political illusion and conspiracy theories, and build “walls” again, or will it learn some lessons from this experiment, re-start its innovation engine, and make the world a better place like it used to?
