December 6, 2022

China blockchain explainer: What is BSN?

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

Yuichiro Chino | Moment | Getty Images

Chinese President Xi Jinping has declared that his country needs to “seize the opportunities” presented by blockchain technology.

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

Since then, without much publicity and fanfare, China has been building a platform that aims to facilitate the deployment of blockchain technology for companies. It’s called Blockchain-based Service Network (BSN).

Here’s what we know so far.

First, what is blockchain?

We think blockchain technology is so powerful it will change the entire internet and almost all the entire IT system architecture.

Yifan He

CEO, Red Date Technology

Permissionless blockchains — also known as trustless or public blockchains — allow anyone to join and potentially make changes to the blockchain, so long as they are running a particular software or a device.

In contrast, permissioned blockchains are usually private and only allow certain participants to be involved in their use.

Why use blockchain?

Proponents of the technology say that blockchain can help bring transparency and speed to typically slow and expensive processes, such as cross-border money transfers.

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

“We think blockchain technology is so powerful it will change the entire internet and almost all the entire IT system architecture,” Yifan He, CEO of Red Date Technology, told CNBC.

Red Date Technology is one of the founding members of China’s Blockchain-based Service Network.

“Blockchain technology in general is very important for China, as government officials see it as a low barrier to entry technology sector, and want Chinese companies to push the envelope on using blockchain applications to solve real world problems,” Paul Triolo, the technology policy lead at consulting firm Albright Stonebridge, told CNBC.

What can China’s BSN do?

One key point about BSN, however, is that it doesn’t make its own blockchain.

There is no cryptocurrency attached to BSN’s platform. That’s because China has effectively banned cryptocurrency-related activities and made them illegal.

Jehan Chu, managing partner at Hong Kong-based Kenetic, a venture capital firm and investor in Red Date Technology, told CNBC that governments and large-scale companies don’t want or need a cryptocurrency attached to their infrastructure.

“This is where non-crypto use case comes in and BSN offers a compelling infrastructure,” Chu said.

Non-crypto blockchains could be appealing to large firms that don’t want to be exposed to the risky and volatile nature of digital currencies.

Who is behind BSN?

Challenge of going global

BSN has ambitions to go global. However, its links to the Chinese government could make it difficult.

“Part of the interest in BSN is that it is such an ambitious undertaking. This ambition also means that it has come under heavy scrutiny because of the Chinese government connection,” said Triolo from Albright Stonebridge.

He added that BSN “is trying to separate the BSN International portion from the domestic efforts, and [trying] to distance from Chinese government backing.”

The challenge is not lost on He, the CEO of Red Date Technology.

“It’s a huge, huge challenge,” he acknowledged when asked about the plan to go global and the perception of being linked to the Chinese government.

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

Read more about tech and crypto from CNBC Pro

Meanwhile, the centralized nature of BSN’s blockchain efforts could also be a challenge globally.

“There is a fundamental incompatibility between China’s stated ambition of supporting a domestic blockchain development ecosystem and the decentralized nature of blockchain technology,” Garrick Hileman, head of research at Blockchain.com, told CNBC.

“Unless China can somehow find a way to become comfortable with the disruptive power and loss of centralized control inherent with embracing blockchain, then China has zero chance of becoming a global leader in this strategically important technology sector.”

Red Date’s CEO also admitted that not having crypto on their platform is a challenge. He said “a lot of people are not interested” in the non-crypto blockchain offering.

Blockchain vs. China’s ambitions

https://www.cnbc.com/2022/05/16/china-blockchain-explainer-what-is-bsn-.html