China’s Quest to Unlock Blockchain’s Treasure Chest
With the recent dip in cryptocurrency prices amidst the bear market, many have held on to the “FOMO” or “HODL” mindset. Recent crypto-exchange hacks as well as delays in the Bitcoin ETF rulings by the SEC have further depressed the crypto market. China in particular have taken an iron-fisted approach, tightening its crackdown on cryptocurrencies. In August 2018, Beijing’s central authorities issued a notice banning the hosting of events that promoted cryptocurrencies. Several WeChat public accounts that promotes cryptocurrency news were also closed. Suspicious bank accounts were frozen and access to over 124 overseas crypto-exchanges were blocked. Large enterprises such as Tencent’s WeChat Pay and Ant Financial’s Alipay have also stepped up their monitoring activities towards suspicious cryptocurrency-related transactions
However, with a “in it for the tech” mentality, this article will not talk more about cryptocurrency but rather, we will delve into the development and adoption of blockchain in China, which is currently championing the initiative.
China is FOMOing about blockchain
Despite its ban on cryptocurrency trading, China is a strong proponent of the technology behind it and there are copious evidence to substantiate China’s blockchain ‘FOMO’ mindset:
- “Blockchain- A Guide for Officials” was published by on August 2018 by the Chinese Communist Party to educate Chinese officials about the technology as well as its current applications and future direction in the nation.
- At the inaugural Industrial Public Chain Summit (IPCS) in July 2018, Nanjing City partnered with Zhongguancun Blockchain Industry Alliance and several blockchain firms and government research institutes to launch a 1.48 billion USD fund to promote blockchain projects and R&D developments in the region.
- In June 2018, an hour-long special featured on China Central Television (CCTV) talked extensively about blockchain technology and ICOs. Prominent figures were featured, including Don Tapscott, the author of “Blockchain Revolution” and Chen Lei, CEO of cloud network giant Xunlei. The economic value of blockchain was cited as “10 times more than that of the internet”.
- In May 2018, a directive order of the highest level was issued by the China’s State Council, the country’s central administrative branch of government to accelerate the development of blockchain technology.
- On April 2018 during the launch of the Hangzhou Blockchain Industrial Park, 1.6 billion USD fund was presented to incubate blockchain startups in the park. 30% or 480 million USD of it would be funded by the district government.
- President Xi Jinping consistently describe blockchain as a ‘breakthrough technology” and emphasized the need for China to focus on technological development to be the global center for science and innovation.
- Investment by the Chinese government in blockchain technology stands at approximately 3.57 billion USD since 2016.
- In 2016, China’s 13th Five-Year plan emphasized on the development of new technologies such as artificial intelligence, virtual reality, unmanned vehicles, blockchain etc to drive economic growth and position China as the new tech leader.
And the list goes on and on but you should get it, China is betting big on blockchain.
A Made-In-China digital currency
The digital currency proposed by the People’s Bank of China (PBoC) deserves serious attention, for it seems to contradicts the government’s harsh stance towards cryptocurrencies. Named “Digital Currency Electronic Payment” or DCEP in short, DCEP is built to be a digital version of the Chinese Yuan.
While there are still speculations whether DCEP would be based on the digital ledger technology (DLT), it would not be decentralized and anonymous as wanted; instead, the government-backed DCEP is likely to be centrally-controlled, trackable and be subjected to monetary policies. Likewise, the currency is unlikely to be open-source or require third-party miners to validate transactions. While it seems to defeat the very purpose of creating it, a digital currency like DCEP would go a long way towards tracking illicit capital flows and combating money laundering activities, an issue that has plagued the nation since the uprise of the Chinese economy.
In August 2018, a blockchain research lab was set up in partnership between PBoC, the Nanjing government, the bank of Jiangsu and several institutions to drive the development and adoption of blockchain-powered financial services in blockchain hubs such as Nanjing, Shenzhen and Hangzhou. Already, the lab has more than 40 patents in its name, with most of it relating to digital currencies, wallets, loans management and the transfer of digital assets.
With the ex-governor of PBoC Zhou Xiaochuan stating that a Chinese digital currency is ‘technologically inevitable’, it is expected that DCEP would be rolled out on a national scale by 2020. Already, China is leading the world in the areas of mobile and digital payment; DCEP will undoubtedly receive rapid and massive adoption within the nation once introduced.
Decentralization in China? You must be kidding!
China’s communist ideology has made the country notorious for controlling almost every aspects of its citizens. The Great Firewall of China (Link to my article!) as well as the Social Credit System are great examples of communism at work. So how can blockchain or rather, decentralization work in China? The answer is private and permissioned blockchain.
First off, we have to recognize that there are different variations of blockchain, namely public vs private and permissioned vs permissionless.
Public, permissionless blockchain refers to blockchains that are publicly viewable and anyone can participate in the transactions. Bitcoin is a great example. On the other hand, there are no private, permissionless blockchain simply because it just doesn’t make sense to have a private blockchain but allow anyone to participate in it.!
For permissioned blockchains, it can be either public or private. Think of private blockchain as a network of computers (nodes) from each department within an organization. No one trust each other, but they need to trust each other in one way or another; private permissioned blockchain achieves that. Information is strictly kept within the organization but individual nodes have different ‘abilities’ based on the level of permission that they were granted with. The ‘permission hierarchy’ meant that nodes on the lower end of the spectrum could only read information while those on the top of the hierarchy could read and write new transactions on the chain. Nonetheless, these siloed nodes still communicate and update each other consistently and any transactions would still require a majority of the nodes to verify and approve. Henceforth, private chains ensures that all sensitive information is kept within the organization while providing an adequate level of checks and balances. The cost of providing true and accurate data is also significantly lowered since no incentiviation mechanism is required as the nodes are owned by the organization. Linux Foundation’s Hyperledger Fabric by IBM is a great example of private blockchains being deployed on a commercial basis.
However, private blockchains are often described as an oxymoron as the network is ‘decentralized’ only within the organizations and transactions are not publicly viewable. Furthermore, private blockchains are more susceptible to collusion since it requires far fewer nodes to verify and approve malicious transactions. Essentially, sybil attacks are prevented but the chances of a 51% attack are greatly increased.
Public permissioned blockchain simply refers to public blockchains that anyone can view and possibly verify but only a handful of nodes have the permission to create new transactions.
So how can private and/or permissioned blockchain aid China in their quest for blockchain supremacy? The key lies in consortium blockchain. Consortium blockchain is a variation of private blockchain where nodes are decentralized across different entities instead of a single organization.
“In general, so far there has been little emphasis on the distinction between consortium blockchains and fully private blockchains, although it is important: the former provides a hybrid between the ‘low-trust’ provided by public blockchains and the ‘single highly-trusted entity’ model of private blockchains, whereas the latter can be more accurately described as a traditional centralized system with a degree of cryptographic auditability attached.” Vitalik Buterin on the difference between consortium and private blockchains.
For instance, within a supply chain network, parties such as distributors, logistics partners and retailers serve as individual nodes scattered across the ecosystem. Information are constantly uploaded, cross-checked and verified by the various stakeholders, harnessing the power of collectivism to deter wrongdoings and provide greater transparency in the supply chain. Any malicious data can be easily traced back to its owner, providing a strong deterrence towards any attempt to cheat the system. Consortium blockchain also provide an adequate balance of privacy and transparency by allowing enterprises to decide what to show and what not to show. Furthermore, private blockchain eliminates the need for a token to power a incentivisation mechanism, complementing China’s harsh stance towards cryptocurrency.
While this is an over-simplified example, it demonstrates how blockchain can operate in a tokenless economy.
Unlocking the Blockchain Treasure Chest
As mentioned above, the Chinese central government has committed well over 3 billion USD into the technology. Along with institutional investors, the total amount could be in the upwards of 4 billion USD. In sharp contrast, blockchain investments in the U.S. is mostly funded by retail and institutional investors. However, it is noteworthy to mention that U.S is still the top place to invest in blockchain projects and that U.S. capital investments in the first half of 2018 has already exceeded the total of 2017, according to a report by KPMG. While several U.S. government agencies such as the U.S. Food and Drug Administration (FDA), the Department of Homeland Security as well as the Department of Treasury have been exploring blockchain initiatives, they pale in comparison to the scale that China is currently undertaking. This I believe, is the key difference between China and all other nations: money and vision.
“Investing in tomorrow’s technology today is more critical than ever.” Bill Gates
China has made it a national interest to invest in the latest technologies to propel the nation to the number one spot in the technological space. With blockchain startups sprouting all over the nation, the nascent industry is taking flight under the directives of the Chinese government. The plethora of ongoing blockchain projects will undoubtedly drive adoption and create an integrated network of ecosystems, each built on the foundation of digital trust. Already, enterprises both state and private as well as provincial governments have taken the lead in piloting blockchain projects, providing a sneak peak into what a blockchain-powered nation could look like. The pro-blockchain, anti-cryptocurrency stance China has taken prevents retail investors from investing in these volatile assets while allowing big players with the capital and know-how to enter the blockchain space. Indeed, if one is unable to differentiate blockchain from cryptocurrency, one should not invest in the first place. Nonetheless, the ban was a smart albeit controversial move, for it allowed the nation to divert its full attention towards the development of the technology.
As a technology that could fundamentally change the way we communicate and interact, the perks of blockchain have united countries and individuals worldwide to work towards a blockchain-enabled world. However, while U.S. frets about Bitcoin ETFs and cryptocurrency derivatives, China is taking a silent but proactive stance towards the development and adoption of blockchain. With a vested interest in the technology, China could very well be the first nation to unlock blockchain’s treasure chest.
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Hi all! I’m a freelance tech writer based in Singapore. I write about the latest tech happenings in the various industries as well as commentary on technologies such as Blockchain and Artificial Intelligence. I also welcome any job opportunities that arises!
