Opinion: Four major risks in the current Blockchain industry in China
On October 15, 2020, the U.S. government released the National Strategy for Critical and Emerging Technologies. This strategy aims to redefine the scope of key and emerging technologies involved in global science and technology development, arguing that the United States needs to develop and protect these critical technologies. In this document, blockchain technology stands out, with AI, chip and other technologies that are listed as the national security technology of the United States.
The announcement immediately caught the attention of blockchain practitioners, as the so-called protection mentioned in the strategy refers to preventing these key technologies from being acquired by US competitors. Due to trade frictions between China and the US in recent years, Huawei and other companies have been added to the list of entities and banned from using US-related technologies. People worry that the blockchain industry in China, which has just started, will face a situation similar to that in the high-end chip field.
As a result, autonomous control of the blockchain is no longer an option, but a required option. If the whole process is not truly autonomous and controllable, it may also face the passive situation of being controlled by others just like the chip, which will affect China’s future development and security.
Risk 1: No independent core technology
As an emerging technology, the strategic value of blockchain has been widely recognized, which has been proved by the strategy announced by the United States and the promotion of blockchain technology by the global financial system. Blockchain has the ability to create new rules and new ecosystems for operating systems, next-generation databases, and the Internet. There is no doubt that the blockchain has great potential for development in the next two decades. Last year, China also proposed the blockchain as an important breakthrough point for independent innovation of core technologies.
However, due to the industry’s early stage of development, it is reported that there are a significant number of self-developed blockchain platforms in China, which are actually based on overseas Bitcoin, Ethereum and IBM’s Hyperledger, rather than strict independent innovation.
Although China’s mobile Internet industry has been booming, the lack of independent research and development in the underlying key technologies has led to our almost complete dependence on overseas intellectual property rights in chip manufacturing, operating system, database and other key technologies, which has been under the control of others.
What Huawei is facing internationally today is likely to be the same for any leading Chinese technology company in the future. The only way to face this challenge is to become self-reliant, and for those that have already adopted foreign technology, they need to support the “backup” as soon as possible. Even though independent technology is still relatively weak and the field of adoption is still relatively few, space and support should be given for its development.
At present, blockchain technology is still in its infancy. Only by seizing the opportunity and building a blockchain system with China’s independent intellectual property rights can China take the lead in the global blockchain competition in the future.
Risk 2: Encourage the development of alliance chain and miss the opportunity of public chain
China has a vast territory and a large population. If you want to implement a blockchain network that provides services to people all over the country, you usually need multiple peer nodes. Alliance chains can play a role in industries with few nodes, but some larger business scenarios can only be met by public chains. Public chain is permission-less, anyone can join the network. Of course, such convenience is also accompanied by the greatly increased probability of node malfeasance, which also requires that the public chain must design a better consensus mechanism and anti-risk method. If the public chain wants someone to provide service spontaneously, it needs a well-designed incentive mechanism.
Unlike public chain, which is permissionless, alliance chain requires permission. The security risks it faces and the number of nodes are not of the same magnitude compared with the public chain. The challenges and problems of developing and running a qualified public chain are much greater than developing an alliance chain. It can be said that if you can build a good public chain, it will not be hard to build an alliance chain, but not vice versa.
Every public chain is a complete economic system with service providers and demanders. Such a public chain can give birth to many new business forms, which can be described as subversive innovation. Network can effectively configure demand and supply to reduce trade friction and improve efficiency, which is also an important value of blockchain. However, alliance chain is usually just a “patch” to an existing software service, an upgrade to an existing service.
Therefore, we believe that focusing too much on alliance chain will miss the technology accumulation in the public chain field with higher technical difficulty, and thus lose the initiative in the global public chain technology competition of blockchain in the future.
Risk 3: Ignoring the development of the public chain may cause BRI development to lose its support
In the year 2020, the international situation is ever-changing. With the acceleration of “decoupling” between China and the United States, China urgently needs to establish closer cooperation with other countries. At the same time, being a responsible major country also requires more active participation in international affairs and international organizations. From the Shanghai cooperation organization to the One Belt And One Road, it has become an important strategy for China to go global in a more open way. And the public chain, which has no national boundaries, will become an important tool for us to go global.
Openness to the use of the public chain may be a more acceptable form for countries than the alliance chain. If China can lead the establishment of a high-performance public chain for the world, which can bear the visit from all over the world and is equal to provide services for all the people in the world, it will be a cause that will benefit generations to come.
Risk 4: Absent global cooperation
Around the world, many countries are open to public chain technology. Many international industrial alliances and associations are actively cooperating and communicating, and a group of worldwide public chain standards is being discussed and established. But at present, China has been absent from these international industrial alliances for a long time. If the relevant research and pilot of public chain are carried out in China, it will be helpful for Chinese enterprises to participate in the discussion and formulation of world public chain standards and strive for greater discourse power for China.
For example, TradeLens, a blockchain organization involving global shipping giants, was jointly established by MSK and IBM in 2017. So far, TradeLens can provide more than half of the data of global shipping container cargo, and the number of members of TradeLens has reached 119. However, so far no Chinese shipping giant has joined this organization. In the future, their settlement can be completed based on Libra or USD-CBDC, and most importantly, TradeLens is also built based on IBM’s Hyperledger technology. If China’s DCEP can be used for settlement, it will be a major breakthrough in the process of RMB internationalization.
Another example is Mobility Open Blockchain, a blockchain organization in the manufacturing field, which was founded in 2018. This organization gathers the world’s top automobile manufacturers, and its members mainly include three categories:
Automobile manufacturers: such as BMW, Ford, GM, Renault Group, Honda, Hyundai, etc.
Auto parts: Bosch, ZF, etc.
Blockchain-related organizations: R3, Hyperledger, Weichain, IBM, Accenture, etc
According to its website, it has more than 85 member organizations, with only one Chinese blockchain technology enterprise participating. Besides, according to the current data, the blockchain technology used by its organization is also based on Hyperledger.
In 2017, two industrial blockchain alliances were also born: Mediledger, which works on medical data, and Marcopolo, which works on supply chain data.
MediLedger has 45 members already including Pfizer, Genentech and three wholesalers: McKesson, AmerisourceBergen and Cardinal Health. In June 2019, Walmart, a giant retailer, joined MediLedger. Mediledger is a blockchain alliance that aims to track drug sources and it used the corporate version of the Ethereum blockchain, which was built by a modified version of the Parity client and a consensus mechanism called Proof of Authority.
Marcopolo was created by Tradeix in collaboration with R3, which naturally uses CORDA technology of R3. Many prominent western banks are involved in this project. Commerzbank, Mastercard, Bank of America and Sumitomo Mitsui Banking Corporation have all joined this year alone. As for other early members, there are Paribas and ING. There are more than 30 members currently.
The six blockchain alliances listed in the chart, as well as Libra, launched last year, have a lot in common:
First of all, its members are all transnational giants from traditional industries or the world’s top 500 companies. In some alliance organizations, native blockchain companies provide technical support. This shows that when blockchain technology is applied to the ground, it is difficult to leave the support of traditional enterprises.
Because of the participation of transnational giants, these organizations are very active, and the members of the alliance continue to increase. It can be seen that transnational giants continue to input capital, scene and manpower to the alliance. While some original blockchain projects have been suspended due to funding and other reasons, these alliance projects are still in the process of technological iteration, application implementation attempts and new member recruitment.
Second, while western companies are mostly involved, companies from developing countries, including China, have little access to these alliances. It can be seen that even though The proportion of Chinese companies in the global top 500 has surpassed that of the US (129 Chinese companies are in the Fortune Global 500 in 2019, which is the first time in history to surpass 121 American companies), the blockchain alliance still not “welcome” Chinese companies. There may be two reasons for this: First, Chinese companies were not invited; Second, Chinese firms are reluctant to get involved because they do not have the technology to do so.
Generally speaking, when these alliances apply blockchain technology, they solve the needs of western multinational giants, and their essence is still to safeguard the interests of western central enterprises. And if we can also establish or participate in such an industrial cooperation organization, and then combine with “One Belt And One Road”, and continue to expand the influence, it will be of great help to both national development and technological autonomy and control.
Conclusion
The above is our reflection on the risks that China’s blockchain industry may face after the US announces its national key technology strategy. Addressing these risks will require not only “fresh” innovation, but also more support from policymakers, industry associations and upstream and downstream companies. In a sense, America’s blockade of our high-tech industry today has also shattered our illusion of “taking ideas”. As globalization enters a new stage, we need to strengthen international cooperation and technology introduction to ensure that our science and technology are among the best in the world. And we need to make sure that we don’t get stuck with these advanced technologies. China has a glorious history of self-realization of “two bombs and one star”. We believe that in the future, we can also make products with global influence in the field of blockchain.
Article from Du Ting(CBO of ShaDing Blockchain)
Translated by Yang(Mengyan Finance)