China Blockchain Explained: What is BSN?

China has made blockchain technology a strategic priority. The Blockchain-based Service Network, or BSN, is part of its efforts to enhance its capabilities in this sector.

Yoichiro Chino | moment | Getty Images

Chinese President Xi Jinping He declared that his country needed to “seize the opportunities” offered by blockchain technology.

In a speech in 2019, the Chinese leader said that blockchain was an “important breakthrough in independent innovation of core technologies.” As a result of this rhetoric, blockchain has been elevated to a national priority for China, among other technologies – such as semiconductors – in which the country is trying to boost its capabilities.

Since then, without much publicity and hype, China has been building a platform aimed at facilitating the deployment of blockchain technology for businesses. It’s called Blockchain-based Service Network (BSN).

Here’s what we know so far.

First, what is a blockchain?

Blockchain first emerged as the core technology of cryptocurrency Bitcoin. It is the distributed ledger of activity that records transactions on the Bitcoin network.

It is decentralized and no single entity owns or manages it. Instead, it is maintained by a network of participants who operate specialized computers.

Since then, there have been many different definitions of what a blockchain could look like. Some companies or governments may refer to it as distributed ledger technology. Much of that derives from whether the blockchain is public or private.

We believe that blockchain technology is so powerful that it will change the entire Internet and almost the entire architecture of the IT system.

Yifan He

CEO of Red Date Technology

An unauthorized blockchain – also known as an untrusted or public blockchain – allows anyone to join a blockchain and make potential changes to it, as long as they are running a particular software or hardware.

By contrast, licensed blockchains are usually private and only allow certain participants to participate in their use.

Why do we use the blockchain?

Proponents of the technology say that blockchain can help bring transparency and speed to usually slow and costly processes, such as transferring funds across borders.

Another important aspect of blockchain technology is the so-called smart contracts. These are contracts, written in code, that are automatically executed if certain conditions are met. Proponents see these elements as essential in areas such as trade finance.

“We believe that blockchain technology is so powerful that it will transform the entire Internet and almost the entire infrastructure of the IT system,” Yifan He, CEO of Red Date Technology, told CNBC.

Red Date Technology is one of the founding members of the Blockchain-based service network in China.

“Blockchain technology in general is very important to China, as government officials see it as a low barrier to entry in the tech sector, and they want Chinese companies to push the envelope to use blockchain applications to solve real-world problems,” Paul Triolo, head of technology policy at consultancy Albright Stonebridge, for CNBC.

What can PSN do in China?

The BSN product is aimed at companies, in particular, those running cloud computing infrastructure. It can be a large public cloud launcher such as Amazon or Microsoftor it could be a company that runs its own cloud or intranet.

BSN considers itself a “one-stop shop” for deploying these blockchain applications in the cloud, a process that can be costly and time-consuming.

The Chinese company’s other selling point is that it is trying to solve a difficult problem in the industry: interoperability — or getting different blockchains to work with each other. For example, if two banks have apps built on different blockchain platforms, they may not be able to work with each other. But applications built via the BSN infrastructure will be interoperable as the company interconnects different block chains.

For companies that want to use multiple blockchain applications in their enterprise, the BSN product will allow them to do so via the cloud vendor they are using rather than installing a set of new servers to build the blockchain product. The idea is that any company or government can use the BSN platform to easily deploy blockchain applications, without incurring a high cost.

Demand is now low, according to Red Date’s He, but is optimistic about the product’s long-term future.

“I believe that within 10 years, all clouds will have a standard blockchain environment to handle all blockchain-related applications,” said the CEO.

However, one of the main points about BSN is that it does not make its own blockchain.

There is no cryptocurrency associated with the BSN platform. This is because China has effectively banned Cryptocurrency related activities and make it illegal.

Jihan Chu, managing partner of Hong Kong-based venture capital firm Kenetic and an investor in Red Date Technology, told CNBC that governments and large companies do not want or need cryptocurrency tied to their infrastructure.

“This is where the unencrypted use case comes in and BSN provides a compelling infrastructure,” Chu said.

Unencrypted blockchains may be attractive to large companies that do not want to be exposed to the risky and volatile nature of digital currencies.

Who is behind BSN?

Global Challenge

BSN has ambitions to go global. However, her connections to the Chinese government may make it difficult.

“Part of the interest in PSN is that it is an ambitious project,” Triollo of Albright Stonebridge said. “This ambition also means that it has come under heavy scrutiny because of the Chinese government’s involvement.”

He added that BSN is “trying to separate the BSN International segment from the local effort, and [trying] Stay away from the support of the Chinese government.”

The challenge was not lost on Hu, CEO of Red Date Technology.

When asked about the plan to go global and the perception of linking with the Chinese government, he admitted, “It is a huge and huge challenge.”

He said the international version of the platform would be open source, allowing participants in the public domain to scan the code for any potential backdoors.

Read more about technology and cryptocurrency from CNBC Pro

Meanwhile, the centralized nature of BSN’s blockchain efforts could pose a global challenge.

“There is a fundamental mismatch between China’s stated ambition to support an indigenous ecosystem for blockchain development and the decentralized nature of blockchain technology,” Garrick Hellman, head of research at Blockchain.com, told CNBC.

“Unless China somehow finds a way to make itself comfortable with the disruptive power and loss of central control inherent in blockchain adoption, China will have no chance of becoming a world leader in this strategically important technology sector.”

The CEO of Red Date also admitted that the lack of encryption on their platform is a challenge. “A lot of people are not interested” in the offer of an unencrypted blockchain, he said.

Blockchain vs. China’s Ambitions

Over the past few years, the United States has been engaged in intense technology competition.

China focused on what it calls ‘Borderline’ Technologies Including quantum computing and semiconductors. Blockchain is something else area of ​​interest.

Chinese tech companies have also focused a lot on international expansion, a move Beijing supports in the context of a global tech battle with the United States.

“The significance of the Blockchain Services Network is that it is an attempt by the Chinese government to support the development of blockchain ecosystems on its own terms, while allowing for regulatory approaches in different jurisdictions,” Triollo said.

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