China's digital developments
This is a comprehensive update of the newest digital developments in China. I have been following the development of Chinese digital economy for more than two years. It is a consistent follow-up on two previous articles:
The Blockchain-based Service Network (BSN)
The BSN is a cross-cloud, cross-portal, cross-framework global infrastructure network used to deploy and operate all types of blockchain applications. It provides a shared blockchain resource environment with the twin goals of reducing the cost of technology adoption and supporting interoperability between different blockchain applications (DApps).
The BSN has been established by National Information Center of China, China Mobile, China Union Pay, and Red Date Technology. It is a global blockchain infrastructure that aims to integrate major permissioned and permissionless chains into its ecosystems, working with cloud service providers and other technical partners to provide a unified blockchain resource environment. The first goal of the BSN was to build an infrastructure for permissioned and permissionless blockchains, targeted to host consortium and private DApps.
The State Information Center is a decision-making consulting agency and an e-government public service platform. Among other things, it manages the Credit Information Sharing Project. Established in 1987 under the National Development and Reform Commission, it later assumed the task of managing the national e-government extranet.
China Mobile Limited provides mobile voice and multimedia services through its nationwide mobile telecom network. It is the largest mobile telecommunications corporation by market capitalisation, and also the world's largest mobile network by total number of subscribers.
UnionPay is the largest card payment organization in the world offering mobile and online payments. It also links all the ATMs of all banks throughout the country. All POS-originated payments transactions are routed through Union Pay before being forwarded to commercial banks.
Red Date Technology is the technical partner of BSN: its CEO Mr. Yifan He is also the executive director of the BSN Development Association, the foundation behind the BSN.
The major technical components of the BSN
The general idea behind the BSN structure is to make people deploy a DApp while paying only for the resources they are using. Permissioned service pricing is essentially based on thruput requirements, mainly transactions per second. As the common infrastructure is shared among all the DApps, rates as low as 10 transactions per second can be quoted. Permissionless service pricing is based on the number of requests actually processed.
Public City Nodes
The PCNs are the basic building units of the BSN, and follow roughly the three Chinese administrative levels: the province, the prefecture and the counties and districts. PCNs are deeply rooted at the second and third level of that hierarchy: they get computing power, storage and bandwidth from providers of cloud resources. Each PCN hosts a complete blockchain operating environment and is remote-controlled by the Network Operating Center by a PCN Manager. The PCN Gateway handles all the data traffic between the outside of the BSN and the customer-built blockchains (DApps) deployed on the BSN. All this infrastructure is shared by a number of peer nodes, each one of them hosting multiple DApps.
Consensus cluster service
In Proof of Stake architectures, nodes that put up a stake in the PoS are called consensus nodes as they usually do not generate user transactions but are just verifying the blocks and getting the rewards. The BSN has no consensus nodes: it interfaces to only one uniform consensus node cluster service that is developed, built, operated, and maintained by China UnionPay.
BSN Portals
BSN only provides a set of APIs to communicate with the Network Operation Center. However, in order for BSN to offer blockchain-as-a-service, customers need to create and configure their own DApps. The BSN Empowerment Platform is a general template offered to software companies for customizing their own portals. Blockchain Backbone Network Portals are usually defined at provincial level. Nation-wide, Industry-Specific enterprise portals have also been created to support vertical integration use cases. Portals receive wholesale pricing from BSN and can set their own retail prices, provided they don't undersell the service.
Frameworks
Frameworks are engines for creating decentralised systems by implementing very small portions of code, called user exits or hooks. Examples of mainstream permissioned frameworks are Hyperledger's Hyperledger Fabric SM2, Fisco BCOS (Financial Blockchain Shenzhen Consortium), Xuperchain (Baidu), etc. Many state-of-the-art blockchains are built on similar architectures. Clearly, interoperability between two blockchains based on the same framework is easier to achieve than between two totally different platforms.
Interchain Communications Hub (ICH)
The ICH is the core of interoperability services, supporting distributed transactions. Powered by the IRITA Hub product, the ICH is able to support access to Chainlink oracles and to a collection of heterogeneous chains running Poly Enterprise protocol. The latter is a interoperability protocol developed by Onchain that allows heterogeneous cross-chain transactions by enabling the transfer of?assets and generic information.
Certification Authority management
The unified CA service provides unified issuing and management of all the types of certificates, like client, server, email. It also supports the cryptographic algorithms allowed by present-day Chinese legislation. The CA service can be integrated with the key systems of clients’ intranets and supports either software or hardware encryption.
National and international targets for the BSN
BSN China was launched on October 15th, 2019 and covers 6 provinces. Its EOY 2021 targets are:
BSN International, launched on April 25th, 2020 acts as a blockchain interoperability gateway for reaching BSN China blockchains from abroad.?It has announced support for many non-permissioned networks:
its EOY 2021 targets are:
- 50 public city nodes
- 10 portals
Blockchain-stored data as evidence in copyright infringement cases
To introduce the issue of consortium blockchains, a discussion of copyryright infringement is necessary. Such cases are not uncommon in China and a whole legal sector has developed to follow them. Especially news copyright infringement cases are extremely frequent and difficult to rule on.
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The Hangzhou Internet Court was established in 2017 for dealing in three types of disputes:
On June 27, 2018 the Hangzhou Internet Court issued for the first time a ruling on a news copyright infringement case, based on “the review of electronic evidence stored by the blockchain”. This case is usually referred to as Hangzhou Huatai Yimei Culture Media Co., Ltd. (“Huatai”) v. Shenzhen Daotong Technology Development Co., Ltd. (“Daotong”).
To obtain evidence of the alleged infringement, Huatai had hired Baoquan Net, a corporation established in 2016 that pioneered blockchain-based data preservation services in China.?
Technically, Huatai requested Baoquan to capture the infringing webpage via an application programming interface. Baoquan application managed the full workflow, capturing the screenshots and source codes of the page, calculating their SHA256 hash values, and uploading the evidence to the FACTOM and Bitcoin blockchains. As the whole procedure was conducted under the Alibaba Cloud environment, it was also recorded by its real-time data logging services.
In order to support its ruling in favour of Huatai, the court acknowledged three main issues:
On September 7, 2018, three months after the Huatai v. Daotong case, the Supreme People's Court issued a key document stating:
A consortium blockchain DApp for copyright infringement cases
As the most natural organization in China is the service-chain consortium (often referred to as an alliance), an appropriate blockchain architecture had to be developed. A consortium blockchain DApp is a permissioned blockchain, with the added limitation that each member of the consortium can manage only its own users.
In 2018, the Hangzhou Internet Court announced the launch of the first judicial blockchain platform in China, a complete blockchain judicial alliance system, based on three layers:
user layer hosting user-accessible sites supporting dispute origination, like https://www.baoquan.com/
technical competence layer including all the resources for the technical support of the system
judicial alliance layer including the administrative and justicial offices needed to assess evidence and issue a ruling:
The Open Permissioned Blockchain (OPB) Initiative
Due to the stringent regulations over cryptocurrencies and cyphers by the Chinese government, public chains cannot directly provide services in China. To allow public chain services to enter China legally, BSN has launched the Open Permissioned Blockchain (OPB) initiative. The approach is to modify permissionless chains into permissioned ones, satisfying the requirements of high-level security, privacy, and supervision. At the moment, there is no Chinese law explicitly forbidding the detention of cryptocurrency. On the other hand, in order to actively use these networks, Chinese companies would have to buy crypto, which is considered illegal (see below).??
As the BSN itself, the OPB is to be operated in China by the BSN Development Association and its partners. AWS China has been named the Primary Cloud Provider for the OPB Initiative. Also, the BSN Development Association will cooperate with public blockchain providers on a technical level, that will help to build and operate the various platforms and gateways. According to Mr. Yifan He, open permissioned frameworks maintaining the features of privacy and security will become the mainstream, especially as DC/EP is going to become the only "legitimate" digital currency in China. Open permissioned chain services are expected to leverage the new CBDC for all accounting and payment operations. BSN Open Permissioned Blockchain will support among others:
After the technical transformation of each framework, in order to avoid confusion with their international counterparts, the corresponding open permissioned chain will be renamed after a Chinese city. For the first year, all BSN Open Permissioned Blockchains will be free to use for developers, after which developers will need to pay for operational expenses incurred by DApps, such as gas fees, with RMB via Union Pay.
Are the circulating digital yuans a real CBDC?
When batches of digital yuan are first issued by the Peoples' Bank of China, every one of them is protected by a first layer of asymmetric cryptography. At this stage, the digital yuans are a proper Central Bank Digital Currency, as they are clearly a liability of the PBoC.
In order to get hold of the digital currency, Commercial Bank has to establish a non-interest-bearing deposit with the PBoC on a 1:1 basis. Before the digital currency enters public circulation, Commercial Banks add a second layer of asymmetric cryptography. This technique enables tracking which guarantees deposit is backing each and every token.
As a consequence of this two-tier issuing process, any circulating digital currency should be considered the liability of the Commercial Bank which re-issued it and not of the PBoC. We should think that the digital currency in public circulation is a tokenized form of money, just as Tether, but with the capital difference that the guarantee deposit is held by a very special custodian, the Peoples' Bank of China.
Are crypto legal in China ?
Contrary to the usual notion, cryptocurrency can be obtained and held in China through legal means. In the rulings from many local courts, cryptocurrency has been recognized as a commodity, and its property is protected by law. For example, the acquisition of cryptocurrency by mining or its purchase from mining companies does not violate the provisions in Announcement 94 and Document No. 289 (which regulate the crypto issue in China). For the same reasons, while cryptocurrency is not legal tender, it can be used as a means of payment as any other commodity. However, the act of buying cryptocurrency while paying for it in fiat money is illegal (for both the buyer and the seller). At first, it was declared to be a foreign exchange offence. Presently, it is being prosecuted as money laundering and illegal fundraising, resulting in account seizure and other legal liabilities.
On October 23, the 2020 Industrial Blockchain Summit of China was held in Beijing. On that occasion, Mr. Yifan He declared that China will not recognize cryptocurrencies as legal tender in the next 5–10 years. The main focus, he acknowledged, is to issue the digital RMB, a solution that could increase the velocity of money by at least 3–5 times, improving the efficiency of the financial system.
Are there any links between BSN and DC/EP?
The DC/EP project, aimed at releasing the digital RMB is directed by the People's Bank of China through its Research Institute on Digital Currency. The chain-of-responsibility of BSN is totally different, and can be tracked to the Ministry of Industry and Information Technology. A document released by Mr. Mu Changchun (serving as the People Bank of China's Deputy Director and as the Director of the Research Institute on Digital Currency) states explicitly that the PBoC will not use blockchain to rebuild the traditional payment system, as this is seen as a contradiction with the role of the PBoC in the Chinese economy.
However, another working paper from the institute, still with Mr. Mu Changchun as the lead writer, disclosed that the PBoC has already applied for a large number of blockchain-related patents, ranking the top among all other global central banks. Also, the presence of Union Pay in both BSN and DC/EP makes clear that some links cannot be excluded.
BSN plans to build in five years the Universal Digital Payment Network (UDPN) a digital currency payment network based on a number of digital currencies (both CBDCs and stablecoins), cooperating with international banks and technology companies.
The main goal of this digital payment network is to support payment orders issued by the DApps hosted on the Blockchain Service Network. The beta version of this global payment solution is expected during the second half of 2021.
Author, Educator, Perpetual Student, Professional Identity Authority, Fitness Enthusiast, Optimist
3 年Congratulations Rosa and thanks for sharing!
CEO Financial Services
3 年Great work Rosa a very good summary!!
Avvocato - Studio Giuliano e Di Gravio - Prof. a c. in "Diritto delle nuove tecnologie"
3 年Rosa Giovanna, very interesting insight!
Payments | FinTech | Digital Assets
3 年Thanks for sharing, Rosa. Very interesting read. Won’t the issuance of the CBDC and re-issuance by commercial banks make it pretty close to our general definition of sCBDC? Not that it is problematic or anything, just for the sake of understanding.
Chairman @Digital Euro Association | COO @etonec | CEO @Hakata | Global Keynote Speaker, Lecturer & Podcast Host | Digital Currencies & Digital Identity
3 年Rosa Giovanna Barresi very insightful. Thanks for sharing :-)