Although the road to adoption for blockchain-based technology is often long and difficult, China is making significant progress in developing and integrating this technology into its own country.
The Chinese government announced in April that it had completed two milestone initiatives involving blockchain and cryptographic technology after several years of work. China is reportedly testing a digital currency in four local cities.
BSN is a network of blockchain-based services that is said to be fully operational. China is also launching a grandiose plan dubbed the “Chinese Standards of 2035,” which outlines how the next generation of technology, including telecommunications and artificial intelligence, will be operated.
Here are some of the facts about China’s two biggest developments related to blockchain and crypto, what their true goals are, and why they have little to do with the intrinsic concept of blockchain and crypto.
New technologies such as blockchain, a type of distributed ledger technology, can be used in many different ways and in many different parts of the world. Global powers are recognizing the potential of blockchain to shape critical processes in many fields, including financial, healthcare, government, and supply chain. In order to be competitive on a global scale, China is testing blockchain technology as well as working onlegal frameworks, regulations, and government initiatives related to it.
The purpose of this paper is to examine China’s progress in testing, adopting, and implementing blockchain technology. This text provides insight into China’s vision for blockchain technology and how it has spurred many innovation initiatives.
While Bitcoin was the first to introduce blockchain to the world over a decade ago, the underlying technology, distributed ledger technology (DLT), continues to be talked about. During the past ten years, industries have been investing time and money into developing blockchain solutions and researching its capabilities. The global blockchain funding is projected to reach $11.7 billion by 2022.
Global spending on blockchain technology is increasing. It is worthwhile to ask how and why global actors like China are using blockchain technology. Impacts of DLT on financial sectors globally are improving market competitiveness. Are there potential opportunities for collaboration?
China has put a lot of effort into blockchain and has made good progress in figuring out how it could be used in their own industries. China is looking to DLT to help it become a leader in the global community. This paper discusses the technology behind DLT and its potential implications. It also assesses how DLT is being developed in China. This paper explores China’s plans for implementing blockchain technology, including its focus on domestic regulation, public/private sector use cases, and international innovation initiatives.
What is Distributed Ledger Technology?
Despite a common misconception that “the blockchain” is cryptocurrency itself, the blockchain is the underlying technology, a subset of distributed ledger technology (DLT).2 At its core, DLT is a shared ledger that stores time-stamped data across multiple locations and combines technologies like cryptography, peer-to-peer protocols, and hashing.3 4
In permissionless ledgers, anyone can access the ledger. In permissioned ledgers, only specific participants can access the ledger. In order to input data, participants in the network must agree that the data are valid, and this is done through “a consensus mechanism that is specified in the algorithmic design of the distributed ledger.”5 Specific to blockchain, data are stored in “blocks,” which are linked to one another by a cryptographic signature, and are append-only,6 meaning that data are not deleted, but rather that a change is notated at the end of the chain. Each block contains a cryptographic signature which verifies that the data in the block has not been altered. Each transaction stores the hash of its predecessor, and any attempts to alter a transaction are rejected as incompatible with the rest of the chain.
The value of DLT is that it creates an unchangeable record of data, which can be used to verify the authenticity of things like licenses, legal documents, and photos. Firms and governments are interested in using DLT because it is resistant to cyberattacks. To change data in the distributed ledger, a cyberattack would need to affect every copy of the ledger stored on different nodes. Instead of being stored in one central location, DLT is distributed across many computers. This makes it more secure, as there is no single point of failure. If a hacker wants to tamper with or access data in a centralized database, they only need to attack one location. This means that changes to one ledger may not be noticed since there is no way to compare it to other trusted copies of the ledger that exist in a DLT system.
There are a few reasons why China is interested in exploring the applications of decentralised ledger technology (DLT) across various industries. This text looks at how digital ledger technology (DLT) is regulated in China, where initiatives using DLT are focused, and the ways in which DLT is being used.
Fact 1: Libra triggered adoption in China
China has gradually been accepting blockchain and cryptocurrencies over the past four years, even though its attitude towards the latter is generally negative.
Musheer Ahmed, managing director at FinStep Asia — an advisory firm assisting fintech startups — explained to Cointelegraph that blockchain networks have been in development for over a few years in mainland China, with the Financial Blockchain Shenzhen Consortium, which was launched four years ago by top local firms such as Tencent and Huawei, being the first major initiative that engaged a host of private and state-owned companies:
” The successful proof-of-concept of blockchain technology within the FISCO consortium is now being explored in a more comprehensive way through BSN. In addition to President Xi’s endorsement of blockchain technology, the launch of BSN was inevitable.
In October 2019, China’s President called for the country to accelerate its adoption of blockchain technology. This was soon after Facebook CEO Mark Zuckerberg highlighted the threat of Chinese dominance that could grow with the emergence of its national cryptocurrency.
The Chinese government’s stance on cryptocurrency seemed to have changed after Facebook’s announcement of its Libra coin launch. The widespread use of privately-issued coins by over 2.3 billion people worldwide has given governments a glimpse of the financial landscape of the future.
China is the first country to develop its own central bank digital currency, ahead of its closest competitors. While many central banks around the world are researching the idea of state-issued cryptocurrencies, China is the only one that has taken concrete steps towards implementing one.
Fact 2: The BSN is centralized
A blockchain service network has officially launched in China on April 25. The network is based on blockchain technology. The BSN is a global infrastructure designed to help blockchain projects launch applications at lower costs. This system can be used for a variety of purposes, such as operating smart cities, digital economy platforms, database management, and more.
Jeff Chu, the founding partner of BN Capital, told Cointelegraph that the BSN (Blockchain Service Network) aims to build up a new type of global service network and create cross-regional and cross-institutional information services based on blockchain technology.
So far, 2,000 developers have joined the BSN, and it currently has 128 public nodes. This appears to be a typical decentralized structure, but that is not the case with the BSN.
While the word “node” in the network’s structure is often confused with a blockchain node, the BSN public city nodes (PCN) have no relation to blockchain technology, explained Yifan He, CEO of Beijing Red Date Technology. He went on to say that PCNs are responsible for research and development within the BSN. He further explained:
BSN’s are able to use a PCN as a resource pool in order to access a portion of the computing power, storage, and bandwidth resources from the cloud service or data center it was deployed on.
Although blockchain is not being used as intended, it is still being used to some extent. He noted that the Blockchain Service Network’s main goal is to create a public infrastructure similar to that of the Internet and provide a “one-stop-shop” style blockchain-based service that integrates cloud resources, underlying frameworks, operating environments, key management, development SDK and gateway API.
In a conversation with Cointelegraph, professor Olinga Taeed compared the service provided by the BSN to cost-effective decentralized hosting aimed at stimulating the market.
Fact 3: The digital yuan is centralized
ThePeople’s Bank of China (PBOC) does not plan to launch a separate cryptocurrency, but rather to digitize the yuan. This was reported earlier. The digital yuan will be available first to local commercial banks and then to users for circulation. The digital yuan will be centralized and issued first by the central bank. There is very little difference between commercial banks and state banks in China, with three of the country’s biggest banks being owned by the state.
This means that banks will be the only entities that will issue and circulate the digital yuan by exchanging it for other currencies. Furthermore, the central bank in China is probably occupied with determining the national cryptocurrency’s functionality and wallets, and might have access to the related information.
It may be difficult to combine blockchain technology with other technologies such as NFC and PayPass in order to create a payment system that is as convenient as WeChat Pay. Based on what we know so far, people will be able to conveniently send CBDCs from their phones using NFC technology and the internet for payments. Transactions that occur offline are typically saved and processed once the device is back online.
There are concerns that blockchain technology might not be able to scale sufficiently to accommodate a digital money system. The deputy director of the PBoC’s payments department suggested that blockchain cannot provide the necessary speed for retail purposes.
Fact 4: The digital yuan is being tested
In April, the first screenshots of the digital yuan application were posted online. According to the evidence, the tests were conducted among selected clients of the Agricultural Bank of China from the Shenzhen, Xiong’an, Chengdu and Suzhou regions.
The new currency will reportedly be used by Suzhou-based companies to cover up to 50% of their workers’ transport costs from April 2020. Some of the world’s most famous brands, such as McDonald’s, Starbucks and Subway, were invited to take part in a test as part of the Xiong’an Smart City initiative.
Chu, from BN Capital, told Cointelegraph that the Xiong’an pilot recommendation list mainly focuses on catering and retail enterprises. More information about the digital currency’s pilot test will be released in May.
Fact 5: The digital yuan will strengthen the economy
In an interview with Cointelegraph, Paul Sin, who leads FinTech Practice and Asia Pacific Blockchain Lab, said that the digital yuan is aimed at financial inclusion. This will allow for a significant expansion of the financial infrastructure in the country and lead to increased efficiency in cross-border payments.
According to sources, the world’s largest banks, including the Industrial and Commercial Bank of China, the Bank of China and the Agricultural Bank of China, as well as the Union Pay association of Chinese banks and two of China’s largest fintech companies, Alibaba and Tencent, will be using the cryptocurrency to streamline operations and facilitate a smooth onboarding process.
Cryptocurrency is being introduced in China due to the internationalization of yuan and the high popularity of smartphones and mobile payments in the country. The digital yuan will make it easier for tourists to pay for things during the 2022 Beijing Olympics.
Fact 6: Decrease reliance on the United States dollar
Some of the reasons given for why the national economy should be digitized include the fact that China has had difficulty in curbing the U.S. dollar’s dominance of global markets. Despite having over $3 trillion in foreign currency reserves, China sees digital currencies as a way to break away from the U.S. dollar. Commenting on the issue, China E-Commerce Blockchain Committee’s Taeed opined:
China wants to be less reliant on the US dollar because it represents a different way of thinking and control. Therefore, China is working on projects that will strengthen independent currencies and weaken the dollar’s power.
With the launch of digital yuan, China is seen as taking a more secure stance, as this victory in the digital currencies domain may be a step toward the end of the U.S. dollar as the global reserve currency. A number of analysts believe that the digital yuan will supersede the dollar on the world stage within 15 years.
Fact 7: The digital yuan will not see mass use
The main purpose of the digital currency being implemented in China is to replace paper money, which is the first step in the development of its digital economy, according to Chu. However, according to him, the full transition to a digital Chinese economy will take years:
Although the digital currency pilot in China may be successful, the amount of digital currency in circulation is unlikely to replace traditional forms of currency anytime soon.
In an interview with Cointelegraph, Beijing Red Date Technology’s He called China’s digital currency “just a testing project,” adding that it won’t have any impact on the Chinese economy, world trades or financial worlds:
” In the beginning, it can only be used between customers and merchants. The DCEP will not be able to be used for transfers between businesses. It is expected that individuals will not see any difference when using the DCEP compared to using AliPay or WeChat Pay.
He said that three things will determine how much the currency will be used: the amount the Chinese central bank releases, how much interest commercial banks have, and how willing people are to use it instead of Alipay and WeChat Pay. He said that the digital yuan is not as likely to be used as Alipay and WeChat Pay. He also noted that DCEP will not have any significant impact on the Chinese economy until it is used for corporate-to-corporate money transfer or international wire.
Fact 8: China won’t use its CBDC to dominate the world
With the introduction of the digital yuan, China aims to establish a dominating position in the blockchain market rather than in the world economy, as Taeed’s comments to Cointelegraph suggested:
China is looking to establish itself as the global leader in blockchain technology, believing that it will eventually have an impact that is 10 times greater than that of the internet.
He also added that the future global market for blockchain is considered to be over $100 trillion, of which China aims to maintain its current 70% share. fifth-generation payment systems
Fact 9: China still skeptical on crypto
The Chinese government is not likely to change its stance on cryptocurrencies given that the digital yuan is the only legal cryptocurrency in China. FinStep Asia’s Ahmed told Cointelegraph:
” I doubt that the powers-that-be will shift their stance on retail cryptocurrencies anytime soon. If authorities want the e-RMB to be widely adopted, other forms of currency are likely to continue to be banned. The main reason cryptocurrencies are banned is due to their cross border nature. They could lead to capital movement out of countries, which is highly restricted.
Looking ahead
The two projects mentioned are the largest developments in the field of cryptographic technologies in Chinese history. Some experts have high hopes for the country’s bitcoin-based digital currency. They believe that the system has the potential to revolutionize international trade and banking. Chu shared his expectations with Cointelegraph on the matter:
Digital currency will play an important role in various business ecosystems and payment channels in the future.
Although the Putential launch date for the new Chinese currency has not yet been confirmed, it is speculated to be released in the middle of 2021. This leaves the next two years to be crucial in terms of the technological advancements that will be made.
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