If there’s ever a “Chinachain” for business, sanctified and supported by the state, the BSN ( Blockchain Service Network) could be it. Supported by mega, state-owned enterprises such as China Mobile, China UnionPay, China Merchants Bank, the BSN was born with “a golden spoon” in its mouth (a common expression in China as well as in the west.)
According to its white paper, the BSN is “a licensed, consortium blockchain” supported by a network of players. Most of these players are huge telcos and banks, which helps explain why BSN is set to launch this April with hundreds of cities onboard as its nodes.
But will the BSN accelerate China's blockchain-not-crypto adoption? The answer is yes—and no.
Yes, in the sense that a joint network from top, state-owned enterprises will help to consolidate and focus everyone's efforts. Rather than each telco or bank developing its own chain, the BSN will create a common platform upon which all the members can jointly develop, experiment and share use cases.
Secondly, the BSN aims to attract small to medium-sized businesses, and get them to deploy blockchain applications. A wide network of influential players/nodes allows SMEs to more easily plug in and deploy their own applications on the network. For instance, since the network includes banks, instant settlements could be an advantage that BSN provides to smaller companies. Other, permissioned blockchains, won’t offer that benefit.
But, the network could be a big failure, too. That’s because it’s really little more than a licensed collection of databases. Compared to blockchain nodes that are operating in an autonomous and decentralized fashion, the BSN's nodes are controlled by state entities and therefore will be subject to the state’s will. If the state decides to reverse a settlement, for instance, all nodes will have to follow the order. That could have a chilling effect on the members, who will be nothing but puppet nodes. Worse, since the BSN is a national effort, members can’t quit.
Since the BSN lacks decentralization, it could easily be little more than a massive database that, despite connecting to hundreds of cities, lacks a real use case that make those cities smart. The BSN could easily be another BS Network.
Three other big things that happened last week
#1: Chinese miners in Iran: to leave or not to leave?
China is big on mining—and not just in China. They are all over the world, including the latest global hotspot: Iran.
According to Jinse Caijing, one of China’s biggest crypto media sites, the US-Iran crisis is forcing Chinese miners to decide whether to stay in Iran, or leave the country. Many Chinese miners moved their farms to Iran in 2019 when bitcoin’s price was flirting with $3,000 and Iran’s electricity was cheaper than mainland China’s.
Yet the latest crisis, coupled with the recent rise in Iran’s electricity prices, caused many Chinese miners to sell their machines to local miners. Iranian’s gladly took over the machines since the rial has been depreciating, while bitcoin turned into a safe haven for locals.
What we see here is a fascinating movement of bitcoin: as Chinese miners arbitrage cheap electricity, bitcoin makes its way to a market that needs it the most.
#2. Hong Kong clarifies regulatory rules for exchanges
Hong Kong’s Securities and Futures Commission tentatively approved five crypto exchanges for inclusion in its regulatory sandbox. Once they receive final approval, these exchanges will be able to operate legally, though subject to a list of strict rules, ranging from technical to investor-asset requirements.
One particular requirement is eye-catching. The SFC will only approve exchanges that are headquartered in Hong Kong and whose “decision-making power” is based there.
The SFC’s insistence on localization could be a tactic to further control these exchanges, and help prevent fraud. That may be normal for most financial regulatory bodies, yet it’s novel in Hong Kong, which had a reputation for keeping a “half-open eye” on the exchanges.
It could also be a way to attract finance and tech talent, who used to flock to Hong Kong for high-paying jobs, but lately have been heading to mainland China. Now that exchanges are regulated, the compliance risk is reduced in the sense that it’s defined. That could draw crypto entrepreneurs who suddenly have the option to work in Hong Kong. In mainland China, the laws regarding exchanges are still opaque.
#3: Bitmain drops the boom on AI
Since Jihan Wu’s return to Bitmain, the renowned mining chip provider is not short on drama: Jihan’s Weibo battle with Micree Zhang, Bitmain’s co-founder; Jihan removing himself as Bitmain’s legal representative; and now, Jihan’s announcement that he will layoff two thirds of Bitmain’s AI division.
Down from over 300 hundred people to barely 100, the AI division is taking the brunt of Bitmain’s recent restructuring. Many employees have protested the layoffs and claim that they are being treated unfairly.
Bitmain’s trouble is well-known: powerful competitors, bearish market, and internal management drama. Compared to other startups that enjoy abundant VC funding, it operates in an asset-intense and extremely volatile market. But the massive layoffs could help the mining giant to shed some extra weight and dance again.
Do you know?
“Eating melon (吃瓜)” is one of the hottest expressions of 2019. Its meaning comes from “watermelon-eating bystanders”—that is, people who prefer watching an event and gossiping about it, rather than participating in it. The term is also being used as a way to describe what’s hot. For example, an “eating melon guide to the year in crypto” could be a guide to new trends in the crypto world.
[ Da Bing is a weekly round-up of the most important crypto-related news that happened in China last week.]