Blockchain Development in China 2017 – 2018
As one of the most popular topics currently on the Internet in China, the term “Blockchain” have rapidly gained its attention.
Blockchain uses the technology of cryptography to create a decentralized ledger for records, such as transactions, but without the help of a third-party institution, like the bank. These records are stored across the network of personal computers, making it decentralized and distributed where everyone can use it and assist in operation, thus the system is highly unlikely to be corrupted or to crash because it is not only on one server.
Since the start of 2018, the competition in the blockchain industry have skyrocketed. From digital assets to smart contracts, from certifications to supply chain management, blockchain has become new “it” for all the industry. Also, with the active involvement of BAT – an acronym for the three largest corporations in China, Baidu, Alibaba and Tencent –and financial corporates, a surge of entrepreneurs have begun investing in this technology, full casing the potential of blockchain in China.
In 2017, China registered 225 blockchain patents, ranked first competing worldwide (United States – 91 patents, Australia – 13 patents). Comparing the numbers from 2016, where China had 59 registered, China have quadrupled in numbers. China begun with two patents in 2014 to a total of 428 in July of 2017, in contrast with U.S., where they began with 150 in 2014, and 390 in July of 2017, the rate of increase has surpassed U.S. by a wide margin.
Looking at the data from the past five years, the top five registered patents include IBM with 54 patents, Gemalto with 34 patents, Intel with 34 patents, Thomson Licensing with 31 patents, and Amazon with 27 patents within the U.S.
Despite the numbers in patents from China, China fall short in the technology for cryptocurrency and bitcoin in comparison with overseas.
With the continuous promotion of the government, the fierce competition in the blockchain industry also have well-known internet and technology companies competing.
With the publishing of “Worldwide blockchain patent ranking 2017”, in the top 100, China occupied 49% of the numbers, U.S. occupying 33%. Alibaba ranking first with 49, and Tencent with 11 patents.
Thanks to the disclosure by the government, companies are now steadily investing their interest in the blockchain technology.
Using the advantage of electronics and retailing, Alibaba is able to be involved in a variety of industry such as non-profit organizations, medical field, and more, leading to greater benefit out of blockchain
In July of 2016, the subsidiary company named Ant financial under Alibaba have begun a non-profitable project called “Help impaired children regain voices”. In March 16, 2017, all transactions from Alipay have been recorded into the block from Ant Financial, making every transactions tracible, being the first to make use of blockchain with non-profit event. According to data, between March 16 to May 19 of 2017, there were 37 organizations and 304 projects involved with Ant Financials’ blockchain platform. Over 9.3 million donators, and over 48 million dollars in RMB.
In March 24, 2017, Alibaba and PriceWaterhouseCoopers (PWC) announced their partnership to create a tracible and transparent block for food chain supplies, and fight against food fraud. This collaboration will first begin in Australia and New Zealand, the two largest dairy exporters and food chain, aiming to expand to the international market.
In August 19, 2017, Alibaba partnered with municipal of Changzhou as one of the first to incorporate blockchain into the medical field for a test drive.
The official blockchain statement from Tencent was published in April of 2017, inventing the Trust SQL platform. Providing the blockchain technology in finances, logistics information, legal deposits, public search, and Fit group and more fields to expand.
In comparison to Alibaba, Tencent draws support from social platforms. For example, with the support of popular social media software and payment tools, Tencent established the first internet bank “WeBank” in China. In July of 2017, WeBank collaborated with Juzix developing the platform called “Blockchain Open Source” (BCOS), servicing corporate level companies. Based on the understanding of national condition of China and business model, BCOS became national’s safest and secure blockchain platform for business purposes.
Under the impact of Alibaba and Tencent, Baidu have lacked behind in the involvement of blockchain.
In June of 2016, Baidu invested in a global blockchain technology development company called Circle, focused on Bitcoin storage and currency exchange services.
In mid-2017, thanks to the resources of the search engine, Baidu have begun its involvement in the blockchain financial field.
In August of 2018, Baidu Financial have participated in the first domestic use of blockchain technology at ABS, estimated 4 billion RMB, signifying the success of blockchain technology for Baidu in the market and ABS market.
In December 2017, Baidu officially joined the Hyperledger by the Linux Foundation, while becoming the one of the core executives in AMEX, CME Group, IBM, Intel, JPMorgan Chase and other leading companies in finance, medical, cyberspace, airline industry.
Aside from the BAT, there are also JD.com, 360, Huawei, Netease, Renren, Xiaomi and other leading internet companies whom continues to progress and invest in blockchain projects, contesting for a place in the industry. For example, in August of 2017, Shenzhen Xunlei Networking Technologies Co., Ltd. Released “One Thing Cloud” incorporated with blockchain technology into a distributed system among computers. Launching a block-chain secured sharing platform in early Janurary of 2018.
Furthermore, other non-internet companies have attempted to get involved in the blockchain technology, such as Best in Nature. During the Chinese New Year promotion of 2018, Best in Nature incorporated blockchain into decentralized social platforms such as Wechat and more, allowing participating users to share a link to other contacts. Participating users who have fulfilled the requirement of the promotion can receive a new year’s package from Best in Nature.
Moutai and Inspur partnered up into a joined venture, using the blockchain technology to promote the usage of Moutai data platform and creation of SmartMoutai. At the same time, imbedding the blockchain technology into the authorized Moutai products to prevent any fraud will launch within this year.
Wuliangye Yibin on the other hand have collaborated with IBM to upgrade the entire management system for data and business innovatives, such as supply chains, using IBM’s leading blockchain technology.
The distributed and decentralized aspect of blockchain with the function to track back have increased the efficiency, accuracy, transparency to data as one of the possible causes for imbedding of blockchain.
Frequent Financial Activities
The involvement of large internet companies and small companies within the blockchain industry have caused the quick attention to the investment for blockchain projects.
According to Outlier Ventrues analysis, as of February of 2018, there is a total of 1286 blockchain projects worldwide. With 4.6% from China ranking third on the list , with U.S. ranking first with 36.0% and England with 14.3%, falling short by a large margin.
Blockchain projects in China have only begun to accelerate at the start of 2013. However, the numbers have begun shrinking at the start of 2017 due to the regulation changes, but with an increase in investments and amount within the several years. According to 36 Kr Research Lab and Jingdata, the total funding within blockchain industry in China have surpassed 12.7 billion RMB, with 54 investment involvements. Only within the first month of 2018, investment amounted to 6.8 billion RMB with 19 involvements, surpassing the total amounts in investment and companies of the entire year of 2016.
With the innovative technology of blockchain and involvement of large internet companies in China, the usage of blockchain have shown a high amount of activities by the users.
For example, blockchain was incorporated into the property renting services in Xiong An and Guizhou. Cainiao under Alibaba utilizes “blocks” to send and track data. Sunshine Insurance Group launched blockchain for insurance card. XFinTech completed the first asset transfer transaction using block chain. The blockchain traceability project called “Black Pig 360” in Chongxing, and more.
The active involvement and experiment of blockchain within China have received attention from investors. From 2014 to July to 2017, private equity investment is divided by 8 major sectors, into mining, wallet, cryptocurrencies, infrastructures, exchange centres and related service for blockchain. The occupancy of data service, finance and certification confirmation account for up to 79%, shaping the blockchain industry in China.
Current Obstacles in China
Blockchain involves P2P network, distributed storage, cryptography, and other multi-domain technology, but it is recognized that the current technology requires more improvement. Such as the variety of consensus mechanism is limited to adapt to future diversified business scenarios, and distributed storage capacity is too small, which may lead to network congestion, security vulnerabilities and database problems.
Under the current conditions of underdeveloped technology, causes database problem and difficulty in programming. Over time, system repair and migration will be one of the major problems, hindering the business production.
In the current prospect, the blockchain technology in China is half-developed, able to support the current business scenarios. However, considering the large population of China and future complex business scenarios, any business products involves a load of traffic and population, thus, the current blockchain technology is not able to meet the demands of the country.
One of the disadvantages of blockchain is due to the decentralized and distributed aspect of it, regulating subject varies in cases, leading to unclear regulatory policies.
Blockchain provides convenience for international transactions, the obstacles remain at the different regulation opinions from country to country, causing the lack of regulation at this current period. Under this circumstance, may lead to the utilization of blockchain in illegal sectors, safeguarding informal sectors.
Using cryptocurrency, Bitcoin, as an example, bitcoin is anonymous, untraceable, making it one of the most used currency for informal sectors worldwide.
In May of 2017, Wannacry ransomware, to encrypt all files on the corrupted computer, extorting $300 USD value of bitcoin from victim.
In other countries, Bitcoin can also be used for drugs, firearm and other illegal businesses.
Effects of the ICO Banishment
With the popularity of blockchain technology, Initial Coin Offering (ICO) as the cryptocurrency distribution channel also gained popularity in the investment community. One of the cases of ICO, Ethereum demonstrated great success. When Ethereum launched in 2014, its value multiplied by 1000 times, and return rate is also multiplied by 600 times.
The high wealth appreciation demonstrated, low financial threshold, drafted statement to obtain a large sum without extended time, government taxation and review from ICO have caused for its popularity among investors. However, ICO also holds high risk and consequences, such as frauds, money laundering, affecting the regulatory policies, leading to its banishment in September of 2017.
The complete banishment of ICO also setback the community with the loss of money and employment. After the banishment domestically, the ICO team begun invested in other countries like, Singapore, Canada for further development and expansion.
Since the beginning of 2017, revision to regulatory policies on cryptocurrencies, including U.S. and South Korea have brought uncertainty to virtual currency companies to migrate oversea.
Blockchain have been recognized as the future development focus for Internet in China, this industry has created and provided many opportunities, as well as challenges. Overall, the industry is still in its early stages of development.
Although the example of ICO on regulatory policies in China have caused an uproar in China, it also led to questions for all industry to consider on possible ways to incorporate blockchain technology in the current market for blockchain to perform its full potential.