The
story of how China came to settle the technological frontier begins
with the 2008 financial crisis. Just one month after the Summer
Olympics, an underregulated U.S. financial sector tripped the world into
recession. It was a vulnerability that China decided it was no longer
willing to accept. As the crisis was unfolding, then-President Hu Jintao
called upon like-minded nations at the G20 summit to “steadily promote
the diversification of the international monetary system.”
Receiving
a muted response, China forged ahead in creating parallel institutions
to those dominated by the U.S. In 2010, when Washington’s sanctions
effectively locked Iran out of the international financial system,
China’s focus on cross-border currency flows intensified.
By
then, domestic concerns were spurring creative thinking around monetary
policy. One was how to get 400 million “underbanked” Chinese out of
poverty. E-commerce giant Alibaba introduced a mobile payment system in
2008, taking advantage of the country’s high rates of smartphone
adoption: by 2015, 800 million Chinese would be using smartphones,
according to the Pew Research Center. But such private payment systems
left the Bank of China on the sidelines and did little for rising
Communist Party leader Xi Jinping’s anti-corruption strategy, which
required closer state monitoring of money.
Then,
around 2012, regulators began to observe strange patterns in power
grids across the country. From Xinjiang to Inner Mongolia, huge amounts
of electricity were surging into warehouses packed with powerful
computers and colossal servers. The processors were crunching numbers to
produce — or “mine” — a new kind of money called Bi te bi in Mandarin. At their peak in the late-2010s, Chinese miners are thought to have produced 95% of the world’s Bi te bi, or Bitcoin.
This
money had no connection to a bank, or any centralized authority at all.
It was entirely digital and uniquely secure. Every transaction was
broadcast to every computer within a network for confirmation and
recorded permanently in a long series of distributed ledger entries, or
blocks.
Chinese
officials grasped the implications of this unregulated activity
immediately. In 2014, its Peoples’ Bank of China (PBOC) began studying
the possibility of a government version of Bitcoin. With each passing
year, the disappearance of paper yuan from the economy made the idea
more plausible. By 2019, PwC reported, 96% of Chinese regularly shopped
online.
“Before
many governments even knew the basics of Bitcoin, Chinese authorities
started to take leadership in the security of the network on the mining
side,” said Ian Wittkopp, vice president at Beijing-based Sino Global
Capital. “This led to the development of a strong blockchain and crypto
ecosystem.”
By October 2020, the digital yuan was ready for pilot testing
among China’s masses. All told, 750,000 people chosen by lottery were
given 150 million e-CNY (US$23 million) to spend at roughly 70,000
brick-and-mortar businesses plus a slew of online retailers.
Six
months later, new trials allowed open participation. This marked the
first monitored release of the digital yuan into the wild. By June,
nursing homes in Chengdu were teaching elderly residents how to use the
new money.
Such
care and expense are necessary to ensure the Olympics debut is as
well-rehearsed as those 2,008 drummers, according to Peter Cai, who
studies China’s economy and trade policy at the Lowy Institute in
Sydney. “The cost of getting something wrong on this is tremendous,” he
said. “Chinese officials are right to talk about the digital currency as
if it’s a new frontier. What are the full implications for financial,
banking and payment systems, or the conduct of a monetary policy? I
don’t think anybody has a firm grip on that. And that includes China.”
The next internet
During
two decades of historic economic growth, China has had a mixed record
on high technologies. It has struggled to attain self-sufficiency —
never mind dominance — in the production of semiconductors and chips. It
was ahead of the curve on 5G broadband, but lags behind the West in
fields of arguably greater strategic value, such as artificial
intelligence.
When
it comes to blockchain, China appears to have taken a lead in a
technology of consequence. After President Xi in 2019 promised
blockchain would “lead the next wave of the digital transformation of
China,” thousands of companies reportedly initiated blockchain projects
related to everything from retail banking to global shipping and supply
chains. This profusion of activity continues apace. Said Wittkopp, “It’s
a field of one. No other country is even close.”
These
projects are transforming a digital ecosystem that was already among
the world’s most sophisticated, according to a recent McKinsey study.
China has 850 million internet users and more than a quarter of the
world’s most successful startups. One of them is Hangzhou-based Ant
Group. The financial services giant has over 50 blockchain-based
decentralized apps, or dapps, in areas such as shipping, insurance claim
processing and charitable donations. Internet search firm Baidu, the
Google of China, has 20 dapps, including one that has handled 35 million
pieces of electronic evidence for China’s “Internet Court.”
It’s
not just tech companies staking territory on the blockchain frontier. A
division of the Industrial and Commercial Bank of China has developed
dapps for retail and corporate use. Insurance giant Ping An uses them to
finance public-works projects. A dapp used by the China Construction
Bank has helped local banks facilitate $134 billion in loans.
“Blockchain will make our tech and our society work better,” said Yifan He,
blockchain evangelist and CEO of engineering firm Red Date Technology.
“It can make all the IT systems in the world communicate like they are
in one room.” He predicts in 10 years all transactions that require more
than two parties will be blockchain-based.
The
state of blockchain today is like the internet of 1993, He said. Back
then, most companies could not afford the entry costs of the nascent
internet (which began as a public infrastructure project overseen by the
Pentagon).
In
April 2020, China formalized its bet on blockchain by creating the
Blockchain-based Service Network, or BSN, managed by Red Date. It is an
infrastructure platform that allows private entities, especially small
and medium-sized businesses, to overcome the two biggest barriers to
entry — interoperability and prohibitive costs.
“We
built everything for you already; you just connect to it and work on
your smart contract,” said He, who claims the development cost of a
simple dapp within the BSN could be as little as 1% of commercial
blockchain.
By
its first anniversary in April 2021 the BSN had attracted 20,000 users
and more than 2,500 projects across 120 “nodes” throughout China plus
Johannesburg, Northern California, Paris, São Paulo, Singapore, Sydney
and Tokyo. S-Labs, a Beijing startup, has used it to develop
applications that have helped over 5,000 SMEs find more than 500 million
yuan in loans during the pandemic. S-Labs chief technology officer Li
Ming said the BSN is easy to use because it meets Chinese government
standards and helps them find customers. “The biggest convenience of BSN
is its brand effect.”
And
if He has his way, today’s youth will be the first blockchain-native
generation. This fluency is already being developed in high schools
where the BSN is exploring how to teach students, including by holding
programming contests with cash prizes. “Blockchain should be a basic
skill,” said He. “The idea is to help more people become comfortable
using the technology.”
In
June, Red Date closed on US$30 million in Series A funding that was
notable for its global reach. Major investors from Saudi Arabia,
Switzerland and Thailand participated.
Part
Two of this series will examine how China is deploying technology—in
particular the digital yuan—to advance initiatives that intertwine
economics and geopolitics, straddle concrete and virtual infrastructure,
and span the hemispheres, from Cambodia to the Caribbean.
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China Bets on the Blockchain: A Special Report. Read full article. Forkast News. Sun, June 27, 2021, 5:17 PM ·8 min read. By Alexander Zaitchik, Jeanhee Kim
Leader in cryptocurrency, Bitcoin, Ethereum, XRP, blockchain, DeFi, digital finance and Web 3.0 news with ... China Bets on the Blockchain: A Special Report.
Source : https://www.coindesk.com/china-blockchain-forkast-news