China’s international blockchain push may face Huawei-like obstacles

China’s Blockchain-based Service Network (BSN), a state-backed consortium tasked with building a domestic digital infrastructure, wants to go international, but some experts said BSN’s links to Beijing could be a challenge overseas due to data security and privacy concerns .

BSN describes itself in a user manual for potential customers as a worldwide infrastructure network that provides a one-stop-shop for blockchain and distributed ledger technology and decentralized applications (DApps).

BSN, which does not build blockchains itself, offers programming, software development and other services, according to the manual. It has said it aims to build a global network that will allow connectivity between different blockchains to improve efficiency and cut costs for clients.

But in the quest to go global, BSN will have to convince potential foreign customers that the company is independent from China’s state control, that data is safe and that transactions will not be censored, said Zennon Kapron, founder of fintech consultancy Kapronasia. Discard.

“Questions like these are going to be critical questions for them to overcome,” Kapron said.

Such issues may become more pressing as BSN on September 6 launched its Spartan Network, which it said is an international platform for public blockchains and only available outside mainland China.

Next step

BSN Spartan was developed by Hong Kong-based Red Date Technology Ltd, which Beijing tapped to design and build China’s domestic blockchain infrastructure.

Red Date, which the company said has about 200 employees, built a track record in China helping design so-called “smart cities.” It handles R&D, maintenance and day-to-day operations for BSN, according to Hong Kong’s WHUB startup website.

“I want to emphasize the point that the BSN is going to be challenged by its image,” said Yaya Fanusie, an adjunct senior fellow at the Washington-based think tank Center for a New American Security and a former analyst at the Central Intelligence Agency. Discard.

“BSN has had this Chinese government brand. My feeling is that Spartan is really just a rebrand,” said Fanusie, who also testified before a US congressional panel last year about BSN.

The BSN is China’s attempt to “build the infrastructure for Web 3.0, the next level of the Internet or the next evolution of the Internet,” he said.

“The founders and the Chinese government really want to see infrastructure that the rest of the world uses but that is under Chinese control, or at least where the Chinese state has influence over that infrastructure,” Fanusie said in Discard interview.

The BSN has powerful supporters in China, including the National Development and Reform Commission (NDRC), which sets and implements national economic policy. The NDRC also implements the Communist Party’s Central Committee’s policies and decisions on development and reform, according to the commission’s website.

Other BSN partners include China Mobile Communications Group, a state-owned telecommunications company that is the largest in the country; and China UnionPay, a financial company that is also state-owned.

Not so?

However, Tim Bailey, vice president of global sales at Red Date Technology, said the Chinese government has no involvement in BSN’s international network.

Bailey, who spoke with Discard on September 14 from Ireland, while on a roadshow to showcase BSN Spartan, said the new network is solely funded by Red Date’s Hong Kong unit. It will be managed by the BSN Foundation in Singapore, with members including Red Date and a number of “global firms” to be announced soon.

“Red Date will certainly be the only Chinese company among the first 10 members [of the foundation]. The others are all global companies, Bailey said. “We believe it is very important for BSN Spartan to be accepted as a global network that the management is also global.”

Bailey added that BSN Spartan’s code is open source. “It is completely open and transparent. The approach we try to take is to be very open about what we do.”

US backlash?

The launch of BSN Spartan reflects China’s ambition to build the infrastructure for Web3, but there has been little pushback from the US government so far, Fanusie said.

“I would say the BSN is a very, very small niche political interest,” Fanusie said. “Those in government who are concerned about technology and the competition with China are looking at it,” Fanusie added. “But it’s not the highest priority matter yet.”

Fanusie said some politicians are seeing the concerns that the US government had with global telecommunications provider Huawei Technologies Co. and 5G infrastructure development repeated with BSN and blockchain.

Huawei was a leader in developing 5G mobile networks until the United States and many of its allies banned use of the equipment in their telecommunications systems, citing the company’s links to the Chinese government as a national security concern.

“If the BSN right now is maybe a little footnote, it’s just going to be potentially more of a headline because it relates to clear national security concerns that the United States has with China,” Fanusie said.

Crypto BSN?

The BSN Spartan Network supports three public chains — Ethereum, Cosmos and PolygonEdge — in “non-crypto versions” that are hard forks of their original public chain framework, BSN said in its whitepaper released in September.

Such a non-crypto foundation, which is in line with China’s stance after it banned crypto trading last September, could appeal to some businesses that want to test blockchain capabilities but are intimidated by crypto’s price volatility, according to BSN.

However, that doesn’t mean developers can’t issue tokens or cryptocurrencies with their layer 2 applications on Spartan, said Yifan He, an MIT graduate and CEO of Red Date. Discard in an interview for an upcoming Word on the Block episode.

“We also welcome the crypto industry [players] to build layer 2 crypto on the Spartan Network,” he said.

Bailey added that the BSN team believes that if a developer or a business wants to use public chain technology, they should not be involved in cryptocurrencies. “But we also believe that if a developer or an organization wants to create a cryptocurrency, that’s fine. They can do it at layer 2 at the application level.”

While BSN Spartan takes credit card payments via fiat currency for gas fees, it also allows anonymous payments made with the US dollar-pegged stablecoin USDC, according to BSN.

“They’re trying to appeal to both sides,” Fanusie said. “They offer stablecoin [as a payment option] because they don’t want to shut people down globally.”

Expansion path

He and Bailey went on one road show to promote BSN Spartan soon after its debut on September 6 in Hong Kong. Destinations include Ireland, London, Istanbul, Dubai, Bahrain, Saudi Arabia and Singapore, according to Bailey.

BSN aims to be a global network, but wants more buy-in in the region near China, Fanusie said. “Why? Because there are more direct ties to Chinese technology investment.”

“You have Chinese entrepreneurs in Singapore and other places in East Asia and Southeast Asia. Those areas are probably areas where I think the China connection might be less of a hindrance,” Fanusie added.

Companies in nations that have worked with China’s Belt and Road Initiative would make sensible prospects for BSN, according to Kapron.

It would be easy for countries, such as some nations in Central Asia, that have already made decisions to work with China to use the BSN, Kapron said.

“But for countries that are not so politically intertwined with China in those ways or have so many partnerships, the question is a little more difficult.”