China’s crypto landscape: How CBDCs drove blockchain adoption in 2020

2020 has been a year full of challenges for the world, but for a country like China with such a large population base and rapid development, it has also been a year of opportunities.

On Oct. 24, 2019, China officially upgraded its blockchain technology to be a national strategic priority. One year later, the development of China’s blockchain industry has been at the forefront of the world in many ways.

The number of China’s disclosed blockchain projects ranks highest

According to a research report from Gyro Research, a Chinese blockchain media company, from Oct. 24, 2019 to Sept. 1, 2020, the number of global blockchain projects was on a downward trend. Approximately 345 new blockchain projects around the world were disclosed — a decrease of 163 compared with the same period the previous year. China ranks first with 252 projects, which is about 73% of the world and a 12% increase year-on-year, and its number of use cases far exceeds the United States, which ranks second with 27.

Meanwhile, it’s clear that China’s blockchain policy plays a significant role in this area. The increasing number of projects peaked after the release of the policy. Among the 252 projects, 56 were added in November 2019 after the policy was released, and 48 were disclosed in December 2019, after which the number of projects gradually flattened out.

From the perspective of regional distribution, Beijing, Shanghai, Shenzhen, Zhejiang and Guangdong are the five major Chinese provinces that actively promote the implementation of blockchain. According to the incomplete statistics from Gyro Research, technology projects are mainly concentrated in the fields of government affairs, public services and finance.

In addition local governments, some publicly listed companies — such as Tencent, JD.com, Xiaomi, Huawei, Baidu, etc. — are also actively promoting the design and adoption of blockchain technology. Speaking on the status of blockchain adoption this year and the plan for next year, Claude Jiang, general manager of Xiaomi Digital Fintech, told Cointelegraph:

“This year, we have already launched government industry and finance platforms in Tianjin, Chongqing, Guangzhou, Ningbo, etc., and made a variety of innovative industry-side financing products based on blockchain technology. Next year, based on these products, innovative industry support will be provided to the industrial structure to help the industry make use of blockchain and other technical capabilities to complete digital and intelligent upgrades.”

Blockchain-based Service Network promotes blockchain adoption in China

On April 25, the national-level blockchain platform “Blockchain-based Service Network,” or BSN, was put into worldwide commercial use by the State Information Center, a Chinese government institution. 

According to its official introduction, the BSN is a cross-cloud, cross-portal, cross-framework global infrastructure network used to deploy and operate all types of blockchain-based decentralized applications. It is going to become the only global infrastructure network that is independently innovated and access-controlled by China.

One of the biggest obstacles to the implementation of blockchain technology is the cost to build a platform. There are many blockchain platforms, and in the future, the same data-island problem as is seen with the traditional internet may also arise. Currently, the BSN ecosystem covers the underlying architects, developers, cloud service providers, portal providers, and operation and maintenance parties, and the ultimate goal of the BSN is to become an internet that unifies the fragmented blockchain market.

So far, there have been 136 public city nodes deployed on the BSN. Among them, 98 are already-connected Chinese nodes, 30 are under construction and 8 are overseas. In terms of the network’s framework, there are four alliance chains, 12 public chains and two cross-chains. The cloud service providers include China Mobile, China Telecom, China Unicom, Baidu Cloud and Microsoft Azure. Twelve well-known public chains have been integrated, including Ethereum, Tezos, EOS, Solana, Algorand, Polkadot, Nervos, Neo, IRISnet, ShareRing, Bityuan and Oasis.

When reviewing the achievements made by the BSN in 2020, Yifan He, CEO of Red Date Technology — the operating entity of the BSN — told Cointelegraph:

“Next year, China’s blockchain industry will flourish. However, because blockchain technology is still in its early stage, in addition to vigorously promoting the possible applications, we also hope to see more companies follow and participate in infrastructure and the underlying technology. Next year will be the first year of the central bank’s digital currency, which will be one of the main driving forces in promoting the development of the blockchain industry. I also hope that companies in the industry will pay more attention and have discussions.”

China’s DCEP: From theory to practice

On Dec. 12, Suzhou, one of the four pilot cities for China’s Digital Currency Electronic Payment, or DCEP — otherwise known as the digital yuan — officially launched the project by giving away digital yuan “red envelopes.” Four payment scenarios have been implemented, including dual offline payment, offline payment, online payment and cash on delivery. 

It was in 2014, when Zhou Xiaochuan, governor of the People’s Bank of China at the time, proposed the idea of building a digital currency. The central bank also established the world’s first official institution engaged in legal digital currency research and development, the Digital Currency Research Institute.

After six years of research and repeated practice, on Aug. 14, the Ministry of Commerce announced that the digital yuan would be piloted in 28 provinces and cities.

Because the vast majority of Chinese residents are already accustomed to electronic payments through Alipay and WeChat, the large-scale promotion of the DCEP may be quite easy in the future. However, the introduction of the DCEP is unlikely to cause any interference in China’s current electronic payment system; it will simply allow Chinese residents one more option. The DCEP’s offline payment experience could make Chinese people and companies pay more attention to blockchain technology, promote more corporate research and adoption of blockchain, and accelerate the development of the entire industry.

Regarding the development of China’s DCEP in 2021 and in the future, Huobi University president Jianing Yu said:

“We can see from the current pilots that the payment function of E-CNY has been relatively complete. It can support both online and offline payment scenarios, and even can finish transactions without internet. But the real meaning of E-CNY is more than that. In the future, the usage of E-CNY will extend to more retail scenarios, and it can embrace the challenges from advanced technology. In the 5G era, driverless cars, Internet of Things equipment, Industrial Internet will be widely used, and the demand for transactions among things will continue to increase, but the current currency and financial system cannot meet those future needs. In this situation, RMB must update to meet those potential demands for trade and finance."

He also said: "E-CNY is a kind of currency facing the future. Digital Era is the future, every asset including personal ID will be digitized. The popularization of E-CNY will accelerate the process of identity digitization and asset digitization, which will further expand the field of digital economy. E-CNY will bring a brand new business opportunity and empower for 'New Smart Business' transformation in the future."

Strengthened regulation by the Chinese government

On Oct. 23, the People’s Bank of China publicly solicited opinions on a revised version of the Law of the People’s Republic of China on the People’s Bank of China. It is worth noting that in the new “draft for comment,” there are some provisions related to digital currency.

This may be the first time that China has included relevant provisions related to digital currency in the scope of the law. On the one hand, making it appear in the public eye in the form of a draft for comments affirms the legal status of the DCEP; but on the other hand, it implies that digital currencies in any other shape or form are not legal in China.

As the U.S. Department of Justice and the Commodity Futures Trading Commission intensify regulation of the crypto market, global regulation is also strengthened, and China is no exception. For some digital currency exchanges that are registered overseas while having physical operations in China, relevant regulation has been further developed.

China is one of the fastest countries when it comes to adopting new technologies. Chinese consumers are more likely to accept new technologies, and this willingness may give China an advantage. The significant population base and “netizens” base, the popularization of mobile internet and payments, a large number of talented developers, and government support for technology adoption are all factors that may contribute to the progress in China’s blockchain industry.

Especially in 2020 while the pandemic is going on, government demand for blockchain technology adoption in public services such as medical care, charity, epidemic prevention and traceability is much more urgent, which to a certain extent has promoted the development of China’s blockchain industry.