China blockchain explanation: What is BSN?

Chinese President Xi Jinping has stated that his country must “seize the opportunities” offered by blockchain technology.

In a speech in 2019, the Chinese leader said that blockchain was an “important breakthrough in independent innovation of core technologies.” As a result of that speech, blockchain was raised to a national priority for China, among other technologies – such as semiconductors – in which the country is trying to increase its capabilities.

Since then, without much publicity and fanfare, China has built a platform aimed at facilitating the distribution of blockchain technology to companies. It is called Blockchain-based service network (BSN).

Here’s what we know so far.

Blockchain first became prominent as the underlying technology of the cryptocurrency bitcoin. It is a distributed ledger of activity that records transactions on the bitcoin network.

It is decentralized and no single entity owns or operates it. Instead, it is maintained by a network of participants running specialized computers.

Since then, there have been many different definitions of what a blockchain can look like. Some companies or authorities may refer to it as distributed ledger technology. Much of it comes from whether the blockchain is public or private.

Unauthorized blockchains – also known as untrusted or public blockchains – allow anyone to join and potentially make changes to the blockchain, as long as they run a particular software or device.

In contrast, permitted blockchains are usually private and allow only certain participants to be involved in their use.

Proponents of the technology say blockchain can help bring transparency and speed to typically slow and expensive processes, such as cross-border money transfers.

Another important aspect of blockchain technology is so-called smart contracts. These are contracts, written in code, that run automatically if certain conditions are met. Spokesmen see these as central to areas such as trade finance.

“We believe blockchain technology is so powerful that it will change the entire Internet and almost the entire IT system architecture,” Yifan He, CEO of Red Date Technology, told CNBC.

Red Date Technology is one of the founders of China’s Blockchain-based service network.

“Blockchain technology in general is very important to China, as government officials see it as a low barrier to entry into the technology sector, and want Chinese companies to push the framework of using blockchain applications to solve problems in the real world,” Paul Triolo, the technology policy leader at consulting firm Albright Stonebridge, told CNBC.

BSN’s product is aimed at companies, especially those that operate cloud computing infrastructure. It could be a large public cloud player like Amazon or Microsoft, or it could be a company running its own private cloud or intranet.

BSN bills itself as a “one-stop shop” for distributing these blockchain applications in the cloud, a process that can otherwise be costly and time-consuming.

The Chinese company’s other selling point is that it’s trying to solve a difficult problem in the industry: interoperability – or getting different blockchains to work with each other. For example, if two banks both had applications built on different blockchain platforms, they may not be able to work with each other. But applications built via BSN infrastructure will be interoperable as the company builds bridges between different blockchains.

For companies that want to use multiple blockchain applications in their organization, BSN’s product will allow them to do so through the cloud provider they use instead of installing a bunch of new servers to build a blockchain product. The idea is that a company or a government can use BSN’s platform to easily distribute blockchain applications, without incurring high costs.

Demand is now low, according to Red Dates He, but he is optimistic about the long-term future of the product.

“I think in 10 years, all clouds will have a standard blockchain environment to handle all blockchain-related applications,” said the CEO.

A key point with BSN, however, is that it does not create its own blockchain.

There is no cryptocurrency linked to BSN’s platform. This is because China has effectively banned cryptocurrency-related activities and made them illegal.

Jehan Chu, managing partner of Hong Kong-based Kenetic, a venture capital firm and investor in Red Date Technology, told CNBC that governments and large corporations do not want or need a cryptocurrency linked to their infrastructure.

“This is where non-encryption comes in and BSN offers a compelling infrastructure,” Chu said.

Non-encrypted blockchains can be attractive to large companies that do not want to be exposed to the risky and volatile nature of digital currencies.

Head-up Red Date Technology, headquartered in Hong Kong, is one of the founders behind BSN.

But the project is also supported by units with links to the Chinese government. This includes the State Information Center (SIC) under China’s powerful National Development and Reform Commission (NDRC).

China Mobile, a state-owned telecommunications company, also supports the project.

BSN has ambitions to become global. However, the links to the Chinese government can make it difficult.

“Part of the interest in BSN is that it is such an ambitious company. This ambition also means that it has been put in the spotlight because of the Chinese government,” said Triolo of Albright Stonebridge.

He added that BSN “is trying to separate the BSN International part from the domestic effort, and [trying] to distance itself from Chinese government support. “

The challenge is not lost on He, CEO of Red Date Technology.

“It’s a huge, huge challenge,” he acknowledged when asked about the plan to become global and the notion of being linked to the Chinese government.

He said that the international version of the platform will be open source, so that participants in the public domain can inspect the code for any backdoors.

In the meantime, the centralized nature of BSN’s blockchain efforts may also be a global challenge.

“There is a fundamental incompatibility between China’s stated ambition to support a domestic blockchain development ecosystem and the decentralized nature of blockchain technology,” Garrick Hileman, head of research at Blockchain.com, told CNBC.

“Unless China can somehow find a way to become comfortable with the disruptive power and loss of centralized control inherent in embracing the blockchain, China has zero chance of becoming a global leader in this strategically important technology sector. “

Red Dates’ CEO also admitted that it is a challenge not to have crypto on their platform. He said “many people are not interested” in the non-crypto blockchain offering.

In recent years, the United States has been engaged in intense technological rivalry.

China has focused on what they call “frontier” technologies, including quantum computing and semiconductors. Blockchain is another important area.

Chinese technology companies have also placed great emphasis on international expansion, a move supported by Beijing in the context of the global technology battle with the United States.

“The significance of the Blockchain Services Network is that it is an attempt by the Chinese government to support the development of blockchain ecosystems on its own terms, with quotas for regulatory approaches in different jurisdictions,” Triolo said.