“De-intermediarized”: What the world can learn from Blockchain with Chinese Characteristics
No 3rd party intermediaries, complete transaction transparency, and independence from any central regulator — Blockchain is the trust machine: it algorithmically manufactures consensus. But what kind of trust will be effective and respected?
From the very onset of the 2008 Bitcoin white paper author, this decentralized digital ledger technology has been heralded as the libertarian panacea. In China, however, blockchain technology and development has been nurtured in a completely different light. In China, a unique culture leads a new attitude towards blockchain: de-intermediarization, not decentralization. What kind of trust has been built here, and what can the rest of the world learn from it?
The scene at which blockchain and cryptocurrency developed in China has built an intrinsically different framework for developing and expanding blockchain and cryptocurrency technology. Bitcoin’s rise coincided with the Middle Kingdom welcoming a new wave of wealthy, and growingly sophisticated, consumers. With limited domestic investment options in stocks and property, and capital controls around Renminbi exchange, Bitcoin became an ideal investment vehicle. “They (wealthy Chinese citizens) want to send their children to school in Canada, the US, Australia. Wealthy families, new and old money — it’s not a lack of trust in the local system, it’s just a need to diversify their investments.” Zennon Kapron, a Shanghai-based Canadian bitcoin enthusiast described. Bitcoin and blockchain were established in China in hopes to create new economic opportunity provided by a prospering country, and not to undermine the state.
Ostensibly, the 2013 blocking of Bitcoin as a legal tender and 2017 ban on domestic cryptocurrency exchanges can be seen as major setbacks and government power plays suppressing blockchain technology development. However, the Chinese government’s intimate relationship with tech industries in China is exactly how it has brought about domestic technological success. Beginning in the Reform Era with state-owned enterprises and the household-responsibility system, Chinese industrial growth has long been catapulted by a dual private and state sector. Today, tech companies offer the innovation and creativity, and the government provides protectionist guards from foreign competition, nationwide promotion, and favorable regulation — as long as they stay within the bounds of the party’s vision for sustainable, stable growth.
Blockchain and cryptocurrency are no exception. From the China Central Television’s recent educational broadcast, to the declaration of blockchain as a part of the People’s Bank of China’s five-year development plan, China, from the central state to industry leaders, is taking a proactive stance on blockchain. China constructs regulations and practical standards, and at the same time educates, in order to build out a platform that is safe and sustainable for laymen. China is building institutional trust. With this in mind, even much of China’s cryptocurrency community is at least sympathetic to the 2017 ban, in order to protect average investors from fraudulent initial coin offerings. Regardless of whether or not this ban will be lifted as cryptocurrencies mature and the public becomes more educated, this active approach towards blockchain development has proved effective. China is leading the charge to build out an all-encompassing platform for new innovation— filing more than half of all 406 international blockchain related patents. With recently publicized Blockchain-oriented government partnerships with Alibaba (Ant Financial), Tencent, and a growing list of domestic tech giants, blockchain’s growth in China doesn’t seem to be slowing anytime soon.
In order to create a more sustainable blockchain infrastructure for all, tech and governments, as in China, need to shift towards introducing governance and regulation as a part of blockchain. In order to allow blockchain’s decentralization to be valuable, institutions must play an active role in public education and regulation, so that everyone can buy-in. Decentralization refers to the technical implementation of removing a central server, and prevention of failure from any individual malicious actor. However, to build a platform for transparent, intermediary-less exchange and reliable identity, key players need to understand that the trust starts before the technology — trust is collective, and trust doesn’t exclude. Technology leaders need to innovate in tandem with governance to motivate technological advancement, mitigate public risk, educate, and establish public standards. Xu Hao, in CCTV’s educational broadcast says it best:
“The essence of blockchain is ‘de-intermediarization.’ There is no way to get rid of the center.”
I’ll be writing more about interesting Chinese tech and trends soon. If you want to stay in the loop for more East meets West tech crossovers, follow!