China has been quietly building a blockchain platform. Here’s what we know

Chinese President Xi Jinping has declared that his country needs to “seize the opportunities” presented by blockchain technology.

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

Since then, without much publicity and fanfare, China has been building a platform that aims to facilitate the deployment of blockchain technology for companies. It’s called Blockchain-based Service Network (BSN).

Here’s what we know so far.

Blockchain first came to prominence 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 runs it. Instead, it’s maintained by a network of participants running specialized computers.

Since then, there have been many different definitions of what a blockchain could look like. Some companies or governments might refer to it as distributed ledger technology. Much of that derives from whether the blockchain is public or private.

Permissionless blockchains — also known as trustless or public blockchains — allow anyone to join and potentially make changes to the blockchain, so long as they are running a particular software or a device.

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

Proponents of the technology say that 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 execute automatically if certain conditions are met. Proponents see these as being key in areas such as trade finance.

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

Red Date Technology is one of the founding members of China’s Blockchain-based Service Network.

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

BSN’s product is aimed at companies, in particular, those operating cloud computing infrastructure. That could be a large public cloud player like Amazon or Microsoft, or it could be a firm that runs its own private cloud or intranet.

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

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

For companies that want to use several blockchain applications in their organization, BSN’s product would allow them to do that via the cloud vendor they use rather than installing a bunch of new servers to build a blockchain product. The idea is that a business or government can use BSN’s platform to easily deploy blockchain applications, without incurring a high cost.

The demand now is low, according to Red Date’s He, but he is bullish on the long-term future of the product.

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

One key point about BSN, however, is that it doesn’t make its own blockchain.

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

Jehan Chu, managing partner at Hong Kong-based Kenetic, a venture capital firm and investor in Red Date Technology, told CNBC that governments and large-scale companies don’t want or need a cryptocurrency attached to their infrastructure.

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

Non-crypto blockchains could be appealing to large firms that don’t want to be exposed to the risky and volatile nature of digital currencies.

Start-up Red Date Technology, which is headquartered in Hong Kong, is one of the founding companies behind BSN.

But the project is also backed by entities 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, is also backing the project.

BSN has ambitions to go global. However, its links to the Chinese government could make it difficult.

“Part of the interest in BSN is that it is such an ambitious undertaking. This ambition also means that it has come under heavy scrutiny because of the Chinese government connection,” said Triolo from Albright Stonebridge.

He added that BSN “is trying to separate the BSN International portion from the domestic efforts, and [trying] to distance from Chinese government backing.”

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

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

He said the international version of the platform will be open-source, allowing participants in the public domain to inspect the code for any potential backdoors.

Meanwhile, the centralized nature of BSN’s blockchain efforts could also be a challenge globally.

“There is a fundamental incompatibility between China’s stated ambition of supporting 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 with embracing blockchain, then China has zero chance of becoming a global leader in this strategically important technology sector.”

Red Date’s CEO also admitted that not having crypto on their platform is a challenge. He said “a lot of people are not interested” in the non-crypto blockchain offering.

For the last few years, the U.S. have been engaged in an intense tech rivalry.

China has focused on what it calls “frontier” technologies including quantum computing and semiconductors. Blockchain is another area of importance.

Chinese tech companies have also placed a lot of emphasis on international expansion, a move supported by Beijing in the context of the global tech battle with the U.S.

“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 allowances for regulatory approaches in different jurisdictions,” Triolo said.