In blockchain, China may have found a hit

By Shuyao Kong

Studying blockchain technology has become a communistic and national movement in China after Chinese president Xi Jinping’s public endorsement on CCTV. From civil servants, to business wo/men, to students, to stay-at-home moms, the public is encouraged to study Introduction to Blockchain, on “Xuexi Qiangguo” (学习强国), an app designed to teach Xi’s thoughts, users are now encouraged to study 

Quickly following Xi’s recent national call-to-action was an announcement from Huang Qifan, vice chairman of the China Center for International Economic Exchanges. The statement alluded to the imminent birth of China’s national cryptocurrency: the DCEP

Old wine in a new bottle? 

Yet, despite overwhelmingly positive responses from the market,  with a surge in bitcoin price and Chinese blockchain-related stocks, hardly any of the published rhetoric is new. 

Blockchain technology has long been on the national agenda. Projects ranging from ConsenSys’s collaboration with Xiongan, the future capital of China, to Wanxiang’s 30 billion smart city initiative, and five years of discussions about issuing a national cryptocurrency mean that exactly none of the recent announcements ought to come as a surprise.

So why then is the Chinese government making such a public splash all of a sudden?

A new weapon to claim tech supremacy 

If we zoom out and look at the overall technology space in China, we can see that the country has been playing a catch-up game. It’s been dependant on many foreign technologies, with chip making the most obvious example. Fearing that one day the trade war between China and the US would reach an unagreeable situation, the Chinese government recently announced a $29 billion investment in chip Innovation, to help close the gap. 

Blockchain came at a time when China is looking for a technology breakthrough to lead. The timing is perfect for two reasons: Though western countries have longed claimed the crown insofar as technological innovation is concerned, they’ve been somewhat late to endorse blockchain technology, especially at the national level. By publicly advocating for the tech, China demonstrated that it, too, has the ambition and capability  to lead. 

Second, DCEP came when Facebook’s Libra was getting bruised by all forces—the U.S. Congress and other governments around the world, and worst among all its own founding teams. Facebook’s declining legitimacy begs the question of what a global currency would look like, given governments’ aversion. China stepped in and contrasted itself from Libra by demonstrating that only central bank-backed currency are born with legitimacy and usability. 

Not a real blockchain but 

As renowned economist Chuanwei Zou opined on Caixin, DCEP is by design different from Libra. It is an UTXO ( Unspent Transaction Output)- based, centralized ledger that runs no consensus mechanism. 

Given the prevalence of Wechat Pay and AliPay, cash has become a rare commodity and P2P transaction within a certain limit is ubiquitous in China. So why DCEP? 

The initial beneficiary of DCEP isn’t your everyday citizen. Rather, by digitally issuing currency through a central bank, to commercial banks, large fintech players, and consumers, the government will have complete control over its citizen’s source and use of money. With blockchain comes tracking, and with tracking comes zero anonymity. 

But this conclusion shouldn’t have come as a surprise, given China’s recent focus on developing tech, particularly 5G and AI, to better monitor its citizens. 

Another major beneficiary of DCEP is companies and state-owned enterprises that focus on investing or building projects internationally. Specifically, China’s announcement of One Belt One Road initiative gave birth to a dozen mega-investments to developing countries along the old Silk Road. If DCEP becomes the official currency in international trade and investment, the decades-old supremacy of SWIFT and the dollar-dominated global economy will be challenged. 

The internationalization of RMB might be the real value of DCEP. 

Blockchain with a “Chinese Characteristics”

Just like twisting Socialism with a Chinese Characteristics, China defined its own blockchain by twisting Satoshi Nakamoto’s original design and principles. 

It’s hard not to be impressed with the breadth and depth of all blockchain-related projects registered with the Chinese government. Though many of them rely on a permissioned blockchain, they actually work on a functioning platform that transacts real data (such as this personal data management tool by the provincial government). 

By comparison, so many western protocols exist solely on paper. Though no one knows when the Paper Tiger ( 纸老虎) turns to a real tiger, China’s blockchain has already begun to purr. 

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