China is quietly building a blockchain platform. Here’s what we know

Chinese President Xi Jinping said his country should “take advantage of the opportunities” presented by blockchain technology. In his 2019 speech, the Chinese leader said that blockchain is “a major breakthrough in independent innovation of enabling technology.” As a result of the speech, blockchain was made a national priority for China, alongside other technologies – such as semiconductors – that the country is seeking to leverage. Since then, without much publicity or fanfare, China has built a platform that aims to make it easier for businesses to adopt blockchain technology. It is called Blockchain-based Service Network (BSN). This is what we know so far.

First, what is blockchain?

Blockchain first rose to prominence as the core technology behind the cryptocurrency Bitcoin. It is a distributed activity log that records transactions on the Bitcoin network. It is decentralized and no entity owns or manages it. Instead, it is supported by a network of participants working with dedicated computers.

Since then, there have been many different definitions of what a blockchain looks like. Some companies or governments may refer to it as distributed book technology. Much of this depends on whether the blockchain is public or private. A permissionless blockchain — also known as a hopeless or public blockchain — allows anyone to join a blockchain and potentially make changes to it, as long as they run certain software or certain devices. In contrast, official blockchains are usually private and only allow certain participants to participate in their use.

Why Use Blockchain?

Tech proponents say blockchain can help bring transparency and speed to normally slow and expensive processes like cross-border money transfers. Another important aspect of blockchain technology is the so-called smart contracts. These are contracts written in code that run automatically when certain conditions are met. Proponents see this as important 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 IT systems,” Ifan Hee, CEO of Red Date Technology, told CNBC. Red Date Technology is a co-founder of China’s blockchain-based service network. “Blockchain technology in general is very important for China because government officials see it as a low barrier to entry into the technology sector and want Chinese companies to continue using blockchain applications to solve real-world problems,” Paul Triolo, head of technology policy at consulting firm Albright Stonebridge, opposite CNBC.

What can BSN China do?

BSN products are intended for companies, especially those running cloud computing infrastructure. This could be a big public cloud player like Amazon or Microsoft, or a company running its own private cloud or intranet. BSN is billed as a one-stop shop for deploying these blockchain applications in the cloud, a process that can be expensive and time-consuming.

Another view of Chinese companies is trying to solve a difficult problem in the industry: interoperability — or getting different blockchains to work together. For example, if the two banks have applications built on different blockchain platforms, they may not be able to work with each other. However, applications built on the BSN infrastructure will be interoperable as the company connects various blockchains.

Businesses looking to deploy multiple blockchain applications in their organization can use BSN’s product to do so through the cloud provider they use, rather than installing many new servers to create a blockchain product. The idea is that companies or government agencies can use the BSN platform to deploy blockchain applications easily and without high costs. According to He’s Red Date, current demand is low, but he is counting on the long-term future of the product. “I believe that in 10 years all clouds will have a unified blockchain environment to process all blockchain-related applications,” said the CEO.

However, the important point for BSN is not to create its own blockchain. There is no cryptocurrency for the BSN platform. This is because China has effectively banned cryptocurrency activity and made it illegal. Jehan Chu, managing partner at Hong Kong-based Kenetic, a venture capital firm and investor in Red Date Technology, told CNBC that governments and large corporations don’t want or need cryptocurrencies tied to their infrastructure.

“This is a non-cryptographic use case, and BSN provides an attractive infrastructure,” Chu said. Non-crypto blockchains can be attractive to large companies who don’t want to be exposed to the risky and volatile nature of digital currencies.

Who is behind BSN?

Hong Kong-based startup Red Date Technology is one of the founders of BSN. However, the project is also supported by organizations with ties to the Chinese government. These include the State Information Center (SIC) of China’s powerful National Development and Reform Commission (NDRC). China Mobile, the state-owned telecommunications company, also supports the project.

Challenge to be global

BSN has ambition to go global. However, his relationship with the Chinese government can be difficult. “Part of the interest of BSN is that it is an ambitious endeavor. “That ambition also means it has come under serious scrutiny regarding its relationship with the Chinese government,” said Triolo of Albright Stonebridge.

He added that BSN was “trying to separate the part of BSN International from domestic efforts and [trying] to distance itself from supporting the Chinese government.” The challenge did not escape from Hee, CEO of Red Date Technology. “It’s a very big challenge,” he admitted when asked about plans to go global and ally with the Chinese government. He said the international version of the platform will be open source, which will allow participants in the public sphere to examine the code for possible backdoors.