China’s government has made the development and use of blockchain technology a national priority. To understand the impact this will have on global trade, one only needs to look at the country’s embrace of open-market economic reforms to forecast what is about to happen.
Once China’s leadership decides something is a priority, it is only a matter of time until the impact reverberates across the globe. China opening its economy changed the balance of world trade and finance, and prioritizing blockchain technology will be another core factor catapulting Beijing ahead as a leading global superpower.
What this means for Western nations is a shift in power to the Far East that is accelerated by the coordinated implementation of technology as the rails of that transfer.
Digital revolution 3.0
Just as the Internet allowed for information to progress from antiquated paper and physical delivery systems to digital form with immediate delivery, blockchain technology allows for assets to make the same leap from paper to digital.
Assets, including money, are now represented digitally, with global instant settlement 24/7 on an immutable ledger. Wall Street is beginning to understand this Cambrian explosion of possibilities, as the total value of digital assets exceeds more than $2 trillion. A similar moment in time occurred back in the late 1990s, when Wall Street and the Clinton Administration woke to the monumental growth that was anticipated over the decades to come through their embrace of the internet for e-commerce.
Yet, whatever possibilities were ambitiously imagined back then for enterprises, such as a Seattle-based tech startup selling books online, looking back we can see the internet over-delivered on even the most optimistic of expectations.
How it started
China officially woke to the possibilities of blockchain when President Xi Jinping announced in late 2019 the nation would make blockchain technology a national priority. After that, it expedited the development of the Blockchain Service Network (BSN) and a renminbi-pegged Central Bank Digital Currency (CBDC).
One of the main aims of China’s national blockchain infrastructure is to build an open-source protocol that enables enterprises to access, build and adopt blockchain technology into their commerce, be they domestic or international.
The BSN was launched just under a year ago with the backing of China’s State Information Center, China Mobile, China UnionPay and Red Date Technology, which oversees the development and operation of the national network.
Domestically, the BSN has already grown to over 120 public city nodes attracting development and use by small to large scale enterprises, and government.
Internationally, the BSN has expanded through partnerships with a handful of the leading global blockchain protocols and consulting firms including Ethereum, Polkadot, the former JPMorgan unit Quorum (now part of ConsenSys) and even Ernst & Young.
Most recently, BSN announced its partnership with Casper Network, a new blockchain developed in part by Ethereum researchers and other academics and industry leaders that launched its mainnet in March of this year. The partnership allows for the development of permission-based (curated) and permissionless (open) blockchain for enterprise in China as well as internationally, a segment that is poised for rapid adoption and scale as global blockchain infrastructure becomes linked and interoperable.
These integrations will enable a new global blockchain infrastructure that also solves for many of the congestion and high transaction fee issues plaguing the most used blockchain (Ethereum). These pain points have been most exposed by decentralized finance (DeFi) applications and they are driving some major users away. This could be similar to when mobile phone users who were accustomed to their BlackBerry handsets eventually ditched them in favor of various brands of touchscreen smartphones.
Where we are headed
Paper-intensive international trade finance and logistics are now being conducted on blockchains and eventually, with the advent of the digital RMB, payments and settlements, will become digital, instant and cost efficient, eliminating frictions from centralized, paper-based systems (that are as archaic as mailing a postcard home versus sending an SMS message, or T+2 in public equities markets versus the T+0 settlement of bitcoin).
The BSN will soon become one of the largest and fastest-growing enterprise blockchain ecosystems in the world and, perhaps most importantly, the largest in China. This comes at a time when the world’s most populous country (and the dominant global exporter) is on the verge of becoming the world’s largest economy.
With directives coming from President Xi, enterprises and government in China are not shy about adopting this nascent technology. Thus, much of the initial scale of enterprise usage of blockchain will likely occur in China while, internationally, those linked with China’s massive cross-border trading systems will turn major routes of commerce and finance into a “Digital Silk Road.”
This comes at a time when just this week President Biden's 100th day address to Congress confidently spoke of the United States' goal to reassert itself as the leader in other future technologies such as AI, biotech, clean energy and electric vehicles yet, glaringly, missed the opportunity to reference blockchain.
We know the digital economy is inevitable. The world’s journey to this path has been expedited by the events of the past year, and adoption has accelerated. It is doubtful there will be a larger or more pervasive nationally backed blockchain than China’s BSN, which has a significant head start on anything being developed in the western world – at least for the next decade.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.