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■ Date: July 14, 2021
【 Without Cryptocurrency, Where to Go for China’s Blockchain? – Infrastructure, Major Players and Use Cases】
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[Snapshot]
1. China has banned cryptocurrencies but the blockchain infrastructure deployment is on a raging fire, featured with national project Blockchain Service Network (BSN).
2. As the biggest consortium blockchain, China’s BSN is eyeing a worldwide range of blockchain applications, indicating its ambition to take a lead in the rising high-tech world.
3. Baidu, Alibaba, Tencent, JD, PingAn and Huawei (BATJPH), being the major six Chinese blockchain players, have actively applying the tech in public services, such as finance. Followed are three typical use cases in e-government, logistics, and energy sector.
If you like this article, please also refer to our comprehensive analysis report:【 Blockchain in China 】
China's government has initiated the cleaning project of mines for digging cryptocurrency these days. Before the dawn of June 20th in Sichuan, almost all mines were cut off power – the Chinese province that hosts the most bitcoin miners due to its abundant waterpower. This is the biggest practice directly under the government, in cooperation with State Grid, and a clearer voice calling off any crypto-related mining activities in China.
Actually, there have been traces before. Since May 18th, three Chinese financial supervision authority (National Internet Finance Association, China Banking Association and Payment & Clearing Association of China) co-released the notification of the high risk inherent in trading cryptocurrencies. Following that, the provincial NDRC in Inner Mongolia introduced a report platform (举报平台) for crypto-currency focused mining companies. Then the Office of the Financial Stability and Development Committee under the State Council (国务院金融稳定发展委员会) claimed to decisively deter bitcoin mining and trading. Indeed, China seems to have serious concerns about cryptocurrencies and the decentralized issuance that adds uncontrollable financial risks to vulnerable Chinese investors and domestic currency structure. (Source: Yicai. 2021.6.20. 禁令已达四川！中国全面禁止挖矿已成定局，比特币何去何从？)
On the contrary, Digital Renminbi, one China's key strategic initiatives specifically known as the Decentralized Currency / Electronic Payment (DECP), has embraced the momentum. Introduced by the People's Bank of China (PBOC) in 2020, the DCEP has entered pilot applications in Suzhou, Shenzhen, Shanghai and Chengdu as of now. Compared to Bitcoin, Digital Renminbi is not a decentralized digital asset, but a form of centralized currency for blockchain-based transactions.
However, the two (BSN and DCEP) share one underlying technology – blockchain. They both utilize many valuable blockchain features such as immutability, decentralization, transparency, high-security and traceability, etc. Prioritized as a state-focused technology, blockchain has penetrated many other major areas, covering juristic, finance and supply chain.
Figure 1 Technology distribution of major blockchain research team
Source: Qianzhan Research Institute. 2020.06.14. CCID–2020年中国区块链行业市场现状及发展前景分析
In fact, beyond cryptocurrency, blockchain has demonstrated incredible potential in various industries. And that is exactly the position the Chinese government wants to put this cutting-edge technology to boost the real economy.
Basics about blockchain
<Characteristics>
In a retrospect to the pure technology, blockchain is merely a series of time-stamped data blocks that are connected by consensus mechanisms (or cryptographical principles) without any central supervision. As a type of Distributed Ledger Technology (DLT), blockchain is most featured with decentralization, also highlighted for its traceability, immutability and anonymity.
Figure 2 the properties of blockchain technology
Source: Integral Analysis
<Types>
Blockchain can be primarily categorized into three types according to the degree of openness: public blockchain (公有链), consortium blockchain (联盟链) and private blockchain (私有链).
- On a public blockchain, anyone in the world can read and write on the network. Data is validated by every participant (‘node’) in the network. It necessarily works with token coins (i.e., ETH, TRON and EOS) to incentivize users at nodes to help maintain the public blockchain. Since ICO is forbidden in China, the market development of public blockchain is very restricted. Public blockchains function as infrastructure platforms to build distributed applications (DApps). The more DApps on the public blockchain, the more popular it is.
- The consortium blockchain gives permissions to read and write data onto the blockchain are controlled by a few predetermined nodes. Consortium blockchains are created for a small group of users, which mostly serves for industry applications, i.e., supply chain.
- Private blockchain gives permissions to read and write data onto the blockchain are controlled by a single ‘highly trusted’ organization – the owner of the blockchain. Private blockchains are used for specific purposes, often in government affairs.
China’s BSN: the blockchain infrastructure beyond the border
<Focus on consortium blockchains>
The BSN is an open-source platform that allows China to lead the digital world in the forthcoming blockchain era. Myriads of DApps and BaaS will be launched on BSN by both domestic and foreign providers, where many global and local transactions are conducted smartly.
According to CAICT’s Blockchain Whitepaper (2020), the blockchain development roadmap is defined as ‘based on consortium blockchain, aiming at optimizing real economy and public services. Indeed, the consortium blockchain has been clarified as the most important development direction for China to provide a fundamental framework for enterprise-level blockchain applications. On the infrastructure level, the Chinese government and some domestic industry associations build some platforms, such as BSN, FISCO BCOS and FIMAX. They function as public or low-cost network infrastructure and generally not commercial-oriented.
However, since the infrastructure platform is highly technically required and difficult for developers to utilize, the second-layer network platform known as Blockchain-as-a-Service (BaaS) is created based on the infrastructure platform to serve more blockchain developers on an enterprise level, i.e., Antchain under Alibaba’s AntGroup. They integrate blockchain and cloud computing as one of the primary business services and use a blockchain network to provide quick deployment and visual management platforms based on the cloud as the infrastructure resources. They are generally commercial-oriented and need to consider business models.
Besides the aforementioned two types of consortiums, some blockchain companies provide customized technical services to satisfy various demands of companies or governments. These companies provide one-stop blockchain services for customers who don’t have any blockchain expertise, i.e., governments, SMEs.
Figure 3 Consortium blockchains in China
Source: Integral Analysis
<The cornerstone infrastructure BSN>
Since the blockchain technology was advanced to another China’s National Strategy on October 24th, 2019, the central government expedited the development of the Blockchain Service Network (BSN) and the aforementioned Digital Renminbi (DECP).
Backed by China’s State Information Center, China Mobile, China UnionPay and Red Date Technology, the BSN delivers ‘a cross-cloud, cross-portal, and cross-framework global public infrastructure network used to deploy and operate all types of blockchain distributed applications (DApps)’, or say ‘open-source’, ‘user-friendly’ and ‘ecosystem’. One indication is that the BSN can be compatible with other infrastructure frameworks, inbound or outbound, such as Hyperledger Fabric, FISCO BCOS, CITA*, Wutong Chain, Brochain, XuperChain (under Baidu), ConsenSys Quorum and allows them to interoperate with each other, creating efficient cross-chain communications.
As a government-initiated information infrastructure, it helps blockchain developers save much high cost on operation and maintenance and connect to public city nodes (PCN) nationwide and overseas. The interoperability among all DApps is another valuable feature that BSN provides. It means different blockchain and DApps can communicate with each other on one gateway.
Figure 4 the BSN partners
Source: Integral Analysis
As of April 25th, 2020, with the support of China Mobile, China Telecom, China Unicom, Amazon AWS and Baidu Cloud, BSN has established 128 public city nodes (PCN), including 120 in China and 8 abroad. The number is expected to reach 200 by the end of 2020. Unlike blockchain projects in the West, China’s BSN is backed by the government and hereby can provide such large-scale one-stop service, i.e., interoperate all public and private chains.
With such a wide coverage of PCNs, the BSN is expected to empower the real economy. Earlier on May 27th, 2021, the Ministry of Industry and Information Technology (MIIT) and Cyberspace Administration of China (CAC) co-released the Guidance on Accelerating the Application and Industrial Development of Blockchain Technologies (关于加快推动区块链技术应用和产业发展的指导意见), an orientation policy that encourages applying blockchain to supply chain management, product traceability, data sharing, public services, evidence deposits, and smart cities, etc.
Major players in China
China’s blockchain industry can be categorized into three layers. The underlying layer includes key hardware such as mining machines and fundamental software like data storage, smart contracts. The middle platform services are built on the underlying technologies for developers, enterprises and institutions, as the core network in the blockchain system. The industry application layer covers various blockchain applications into industry verticals. In the China’s blockchain development, the ‘platform services’ is the most important layer. On the system platforms, the most note-taking major companies are Baidu, Alibaba Group, Tencent, JD Group, Ping An Group and Huawei (BATJPH).
Figure 5 The overview of blockchain in China
Source: China Academy of Information and Communications Technology (CAICT). 2020.12. 区块链白皮书(2020 年)
In China’s consortium blockchain segment, the top six ‘BATJPH’ are in fierce homogeneous competition – they all emphasize constructing underlying infrastructure platforms and inject blockchain capabilities into large quantities of industry verticals, which makes them highly comparable.
The top six all have 1) independent brands, 2) self-developed infrastructure platforms, 3) deeply connected with their own Cloud and SaaS (Software as a Service) products. When comparing these giants, the key perspectives lie in their blockchain ecology (the combination of their blockchain infrastructure, BaaS, DApps and etc.,) and the integration capability into industry applications.
Figure 6 the six major Chinese blockchain enterprises
Source: Integral Analysis, company website
- Baidu Xuper, Ant Chain (Alibaba) and TrustSQL (Tencent) are three BaaS products launched by Internet companies and they all prioritize applying blockchain to public areas, such as government affairs and city services, followed by finance. BAT’s major clients are the local governments thus they deliver blockchain-based public services
- Unlike the three giants BAT, JD, PingAn Group and Huawei mainly focused on original businesses. JD Group is rooted in China's e-commerce and has a good reputation for logistics. Thus one of its main blockchain focus lies in the supply chain, as well as related financial payments. PingAn Group has a strong background in the insurance sector, recently ranking the top insurer across China. Its technological branch naturally applies the blockchain to finance, healthcare and asset businesses. Huawei is well-known for making cell phones and building 5G cell towers around the world. Without stepping into various sectors, the tech focuses on telecommunications and IoT applications.
Application examples
Blockchain technology has a good reputation for improving transparency, decentralization, and high security in a wide range of applications. Apart from the well-known blockchain application in finance, here we pick out some most classic blockchain usages in China.
Figure 7 the industry applications of blockchain projects in China
Source: Sohu. 2021.3.15. CCID–2021年中国区块链发展趋势.
- E-government
Based on its infrastructure blockchain TrustSQL, Tencent Group’s TBaaS mainly provides user-oriented functions, including search and some chain-related functions. TBaaS has launched some framework solutions for supply-chain financing and government affairs and plans to develop blockchain applications in the areas of games and public welfare.
E-government is one of the successful blockchain application scenarios, especially in some applications that involve a lot of zigzag processes and back-and-forth operations such as taxation certificates.
When applying for a tax payment certificate of vehicle and vessel tax, taxpayers used to firstly receive the tax invoice from insurers or maritime bureaus and then apply to obtain the certificate after the tax settlement is done. The whole process takes around one month and taxpayers are always baffled by commuting and heavy time cost.
Recently the Administration of State Taxation (Shenzhen) launched the blockchain-based WeChat Mini Program (税务数字钱包) to help individuals and enterprises efficiently deal with their taxation. Authorized collectors, delegated agents and local tax authorities can safely upload data to the blockchain platform and complete the certification in a few minutes, without much effort from taxpayers.
Figure 8 Blockchain-based E-Government
Source: Integral Analysis, TustSQL website.
- Logistics (COSCO)
China’s COSCO Shipping Lines, the world’s top shipping company, operated a weight load of 109.33 million tons / 1,391 ships as of the end of Sep. 2020 and owns 51 container terminals with an annual throughput capacity of 126.75 TEU (a Twenty-foot Equivalent Unit). To solve the time procrastination problem in the shipping industry, COSCO Shipping used blockchain in transferring goods in a paperless and contactless method.
Figure 9 Blockchain application: Contactless Logistics (China COSCO Shipping Lines)
Source: 1) Integral Analysis, 2)COSCO Shipping. 2020.6.28. 区块链推动进口提货无纸化.
- In the traditional method, business customers need to handle much paperwork as required by shipping companies and port administrators. During shipping, transshipment vessels are usually unknown or hard to track and most shipments don't have direct Electronic Data Interchanges (EDI) from railways.
Generally, 17% of booking confirmations are missing Estimated Time of Arrival (ETA), 25% missing Actual Time of Departure (ATD) and 25% missing Actual Time of Arrival (ATA).
- Based on the blockchain, COSCO has launched a contactless and paperless solution for convenient pick-up solutions for business customers. The solution shortens the port call turnaround times, with better predictability and reduced CO2 emissions.
By using the blockchain delivery platform, COSCO can save an average of the nearly 24-hour pick-up time for its customers.
- Energy attribute traceability
Power consumers can lever blockchain to track low-carbon energy and certificates from energy origin throughout the stage and transaction, ideally applicable to peer-to-peer energy exchange market or private EV charging stations. Also in the carbon credit exchange business (see Eco-China: How Carbon Emission Trade Nurtures Low-carbon Economy), using blockchain to track carbon emission, credit and certificates can create immutable trading history and data, which facilitates recording carbon footprints worldwide.
Figure 10 example of blockchain’s streamlined process
Source: Cocoachina. 2018.7.26. 能源区块链崛起：在五大领域发现有前途的区块链应用
In China, renewable certificates and carbon emission trading can be two promising application areas integrating blockchain. For some power consumers eyeing Green Certificates (i.e. Green Buildings, Green Factory, etc.) or companies claiming to take the RE 100 road (an initiative to use 100% renewable energy), they may need blockchain to track green energies from source to consumption as evidence of their low-carbon attributes.
China's national carbon market is about to open soon and is expected to cover 4 billion tons of carbon (check Eco-China: How Carbon Emission Trade Nurtures Low-carbon Economy). The traceability and distributed ledger, as two major blockchain functions, have great potential in practicing a decentralized transaction platform with guaranteed security in the carbon emission trading market, further accelerating carbon neutrality in China’s society in the future.
How does blockchain specifically empower/innovate China’s energy sector? In our next blog, we will specifically mention three typical cases integrating blockchain into China’s energy industry and identify relevant business opportunities.
If you like this article, please also refer to our comprehensive analysis report:【 Blockchain in China 】
Should you have further questions about blockchain and related topics, please feel free to drop us an email at info@integral.net.cn.
References:
Coinmod.com.2020.01.09.China’s Blockchain-based Service Network to Debut Commercial Operations in April
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