China has made blockchain technology a strategic priority. Blockchain-based Service Network, or BSN, is part of its efforts to build capacity in the industry.
Yuichiro Chino | time | Getty Images
Chinese President Xi Jinping has said his country must “seize the opportunities” presented by blockchain technology.
In a speech in 2019, the Chinese leader said blockchain was an “important breakthrough in independent innovation of core technologies.” Following this speech, blockchain was elevated to a national priority for China, among other technologies – such as semiconductors – in which the country is trying to build its capacity.
Since then, without much publicity or fanfare, China has built a platform that aims to make it easier for businesses to deploy blockchain technology. This is called the blockchain-based service network (BSN).
Here’s what we know so far.
First of all, what is blockchain?
Blockchain first established itself as the underlying technology of bitcoin cryptocurrency. It is a distributed activity ledger that records transactions on the bitcoin network.
It is decentralized and no entity owns or runs it. Instead, it is maintained by a network of participants running specialized computers.
Since then, there have been many different definitions of what a blockchain might look like. Some companies or governments may call it distributed ledger technology. Much depends on whether the blockchain is public or private.
Permissionless blockchains – also known as trustless or public blockchains – allow anyone to join and potentially make changes to the blockchain, as long as they are running a particular software or device.
In contrast, permissioned blockchains are usually private and only allow certain participants to be involved in their use.
Why use blockchain?
Proponents of the technology say blockchain can help bring transparency and speed to typically slow and expensive processes, such as cross-border money transfers.
Another important aspect of blockchain technology is so-called smart contracts. These are contracts, written in code, that automatically execute if certain conditions are met. Proponents see them as essential in areas such as trade finance.
“We believe that blockchain technology is so powerful that it will change the entire internet and almost the entire architecture of the computer system,” Yifan He, CEO of Red Date Technology, told CNBC.
Red Date Technology is one of the founding members of China’s blockchain-based service network.
“Blockchain technology in general is very important to China, as government officials view it as a low barrier to entry into the tech sector and want Chinese companies to push the boundaries of using blockchain applications to solve problems. the real world,” said Paul Triolo, head of technology policy. lead consulting firm Albright Stonebridge, CNBC told CNBC.
What can the Chinese BSN do?
BSN’s product is aimed at businesses, especially those that operate a cloud computing infrastructure. This could be a large public cloud player like Amazon or Microsoft, or a company that runs its own private cloud or intranet.
BSN bills itself as a “one-stop-shop” for deploying these blockchain applications in the cloud, a process that could otherwise be costly and time-consuming.
The Chinese company’s other selling point is that it is trying to solve a difficult problem in the industry: interoperability – or making different blockchains work with each other. For example, if two banks both had applications built on different blockchain platforms, they might not be able to work together. But applications built through the BSN infrastructure are said to be interoperable as the company links different blockchains.
For businesses that want to use multiple blockchain applications in their organization, BSN’s product would allow them to do so through the cloud provider they use rather than installing a bunch of new servers to create a blockchain product. The idea is that a business or government can use BSN’s platform to easily deploy blockchain applications, without incurring high costs.
Demand is now low, according to He of Red Date, but he is optimistic about the product’s long-term future.
“I think in 10 years, all clouds will have a standard blockchain environment to handle all blockchain-related applications,” the CEO said.
A key point about BSN, however, is that it does not create its own blockchain.
There is no cryptocurrency attached to BSN’s platform. Indeed, China has effectively banned cryptocurrency-related activities and made them illegal.
Jehan Chu, managing partner of Kenetic, a Hong Kong-based venture capital firm and investor in Red Date Technology, told CNBC that governments and big corporations don’t want or need a cryptocurrency. currency attached to their infrastructure.
“That’s where non-cryptographic use cases come in, and BSN offers compelling infrastructure,” Chu said.
Unencrypted blockchains could be attractive to large corporations that don’t want to be exposed to the risky and volatile nature of digital currencies.
Who is behind BSN?
Hong Kong-headquartered start-up Red Date Technology is one of BSN’s founding companies.
But the project is also supported by entities linked to the Chinese government. This includes the State Information Center (SIC) under China’s powerful National Development and Reform Commission (NDRC).
China Mobile, a state-owned telecommunications company, is also supporting the project.
The challenge of going global
BSN has the ambition to go global. However, his ties to the Chinese government could make it difficult.
“Part of the appeal of BSN is that it is such an ambitious undertaking. This ambition also means that it has come under intense scrutiny because of the connection with the Chinese government” , said Triolo of Albright Stonebridge.
He added that BSN “tries to separate the BSN International part from the national efforts, and [trying] to move away from the support of the Chinese government.”
The challenge is not lost on He, the CEO of Red Date Technology.
“It’s a huge, huge challenge,” he acknowledged when asked about the globalization project and the perception of being tied to the Chinese government.
He said the international version of the platform will be open-source, allowing public domain participants to inspect the code for any potential backdoors.
Meanwhile, the centralized nature of BSN’s blockchain efforts could also be a challenge on a global scale.
“There is a fundamental incompatibility between China’s stated ambition to support a national blockchain development ecosystem and the decentralized nature of blockchain technology,” Garrick Hileman, head of research at Blockchain, told CNBC. com.
“Unless China finds a way to familiarize itself with the disruptive power and loss of centralized control inherent in blockchain adoption, then China has no chance of becoming a global leader in this blockchain technology sector. strategic importance.
The Red Date CEO also admitted that not having crypto on his platform was a challenge. He said that “a lot of people aren’t interested” in the non-crypto blockchain offering.
Blockchain against China’s ambitions
In recent years, the United States has been engaged in intense technological rivalry.
China has focused on what it calls “cutting-edge” technologies, including quantum computing and semiconductors. Blockchain is another area of importance.
Chinese tech firms have also been emphasizing international expansion, a move backed by Beijing amid the global tech battle with the United States.
“The significance of the Blockchain Services Network is that it is an attempt by the Chinese government to support the development of blockchain ecosystems on its own terms, with allowances for regulatory approaches in different jurisdictions,” said Triolo.