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China Region special section: Big trends

Blockchain in China


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stacks of blocks, illustration

Credit: Alaa Abumadi

Blockchain is exploding in popularity because of a disruptive fusion of peer-to-peer communication, distributed storage, cryptographic algorithms, and smart contracts. It has become a new paradigm of building trustful distributed systems by providing reliable data service for untrusted parties.

As a trustful distributed system, blockchain has multiple advantages, including immutability, transparency, auditability, and tamper resistance. Any participant can view the complete block and trace each state's transitions. With the security guarantee inherited from the chain-like structure and the consensus mechanism, blockchain records are resistant to malicious forgeries.17

With its unique characteristics, blockchain offers strong potential for reestablishing public confidence and enabling reliable information sharing and value transfer. The profound implications of blockchain allow new ways of economic cooperation and have influence over social infrastructure. It is quickly becoming a crucial strategic deployment globally. In the future, blockchain may become a new infrastructure to provide credible and essential data services for enterprises and the public.

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China's Perspectives on Blockchain

China underscores the critical role of blockchain technology in the new round of technological innovation and industrial transformation. However, different from other countries, China has its perspectives on the rise of the worldwide blockchain landscape: embracing the blockchain technology while resisting illegal financial activities related to coin-offering fundraising and trading or "virtual currencies."3,18

The People's Bank of China (PBoC) announced "Public Notice of the PBC, CAC, MIIT, SAIC, CBRC, CSRC. and CIRC on Preventing Risks of Fundraising through Coin Offering" in September 2017.18 However, such regulation on cryptocurrency did not bring about a negative influence on blockchain technology. Two weeks after the announcement was published, China's Ministry of Industry and Information Technology launched the Trusted Blockchain Open Lab, which aims to promote the exploration of blockchain technology without becoming involved in issuing cryptocurrencies, or the exchanges that trade them.3

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The Overall Development Status of Blockchain Technology in China

After several years of development, China has laid a solid foundation in blockchain technology with the following characteristics.

Increasing the R&D capabilities of core technologies. By the first half of 2020, China had 1,309 companies providing blockchain services19 and more than 80 blockchain research institutions. Figure 1 indicates most of these companies are concentrated in economically developed areas such as Beijing, Guangdong, and Shanghai,20 which have the most scientific research talents and R&D resources in China. And in the academic field, as shown in Figure 2, the number of Chinese blockchain-related papers has increased to 1,189 as of October 2020.13,20 Academic research on blockchain has expanded from digital currency to finance, commerce, people's livelihoods, government affairs, and other fields, consistent with the domestic blockchain industry's development trend. Due to the emphasis on core technology, many blockchain solution providers have emerged in China.

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Figure 1. Top 10 Chinese provinces with the number of blockchain companies.20

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Figure 2. Total amount of blockchain papers of China 2013-Oct. 2020.13 The bar graph indicates the number of new papers added each year, and the connection indicates the cumulative increase.

Decoupling architecture for better performance. Chinese research institutions and enterprises are working on decoupling the blockchain architecture to improve performance, including decoupling consensus and validation, decoupling execution and state, decoupling transactions, and so forth. This also allows different blockchain R&D institutions to participate in designing different layers and reducing corporate R&D costs. Besides, the trend in decoupling architecture promotes China to the establishment of a unified standardized system, realizing the connectivity of different layers.

Integration with other emerging innovative technologies. To date, various Chinese enterprises focus on promoting the deep integration of blockchain and other emerging innovative technologies, such as cloud computing,21 IoT, AI,22 and 5G,23 into key industries. These rich function combinations can solve the core issues in the traditional industry and further improve production efficiency. With the attempt to integrate block-chain with emerging technologies, China is seeking new forms of infrastructure and creating new economic growth points.

Steadily growing in the number of patents. Chinese companies are accelerating their patent portfolio in blockchain. The number of patent applications in China ranks first in the world. Figure 3 shows that by the end of 2020, the total number of patent applications in China has exceeded 30,000.24 More than 4,100 companies have contributed to those patent applications, which occupies a significant proportion of global blockchain patent applications.25

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Figure 3. The number of patent applications in China 2013-2020. (Due to the lag of patent disclosure, the actual data may be more than indicated here).24,25

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Overview of the Blockchain Industry in China

The Chinese central government points out it is necessary to build a blockchain industrial ecosystem. Efforts should be made to promote the deep integration of blockchain with the real economy.26 Major industrial applications are focused on this target. The main stakeholders include authorities, industrial application companies, technical service providers, and research institutions.

Authorities outline the industrial policy on regulatory systems and application scenarios. In 2020, China's national ministries and commissions, provincial governments, and provincial capital cities issued 217 policies, regulations, and program documents related to blockchain technology.19 The Supreme People's Court has solicited opinions from the public on the review rules and the reinforcement identification of blockchain evidence, as well as the review of the authenticity of data before on-chain.28 Local governments have paid close attention to blockchain technology and actively build pilot areas for block-chain applications.

Blockchain technology companies have increased efforts to address technical supports for industry development. The blockchain industry is proliferating. Since 2019, 57% of the 1,000 enterprises involved in the blockchain business are start-ups; only 23% of the 1,000 are traditional IT companies that establish block-chain sectors.19 The technology companies represented by Qulian Technology provide the underlying technical support and application construction program support for the blockchain industry. Internet giants including Baidu, Alibaba, Tencent, and JD.com also actively develop blockchain technology and expand application layout.

Financial, energy, and other industries deepen the application and integration of blockchain technology. Finance is the first field that has wildly applied blockchain technology since 2015. In 2020, the People's Bank of China has released the first standard specification for financial blockchain.27 The applications in trade finance, supply chain finance, and other scenarios have gradually entered the depth stage. The Forbes Global Blockchain Top 50 2021 listed leading platforms employing distributed ledger technology, including China Construction Bank's BC Trade 2.0 and Industrial and Commercial Bank of China's 30 blockchain applications.1 Meanwhile, in the energy field, State Grid proposed the "one main and two sides" blockchain service,16 to serve renewable energy markets and promote marketization of distributed electricity generation. The in-depth applications, in turn, put forward new requirements for blockchain technology.

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Typical Cases of Blockchain Applications in China

The blockchain applications in China are mainly concentrated on scenarios such as finance, government service, smart cities, and so on.

The trade finance blockchain platform. It was initially launched by the Digital Currency Institute of the People's Bank of China in September 2018 to serve SMEs from the financial, taxation, and regulatory perspectives.29 Five business applications and applications of hundreds of branches of 50 commercial banks have been running on this platform currently. In November 2020, the Trade Finance Blockchain Platform and the HKMA's eTradeConnect Platform completed interconnection with each other, which was the first case of a cross-border collaboration across multiple trade finance block-chain platforms. This collaboration significantly impacts trade finance by realizing cross-border trade finance transactions through the data exchange between two platforms for the first time.


Chinese professionals are making efforts to strengthen basic research.


The cross-provincial housing provident fund platform. The Housing Provident Fund (HPF) is the largest public housing program in China. Cross-provincial Housing Provident Fund Platform is powered by Hyperchain,30 whose validating peers consist of Branches of China Construction Bank and the Ministry of Housing and Urban-Rural Development (MOHURD). The platform supports residents in real time withdrawing their "Housing Provident Fund" in 303 House Fund Management Centers across China without any manual review. The platform committed over 480 million transactions and ran 19.98 million mortgage accounts for the HPF program.31 The core advantage of employing blockchain in this scenario is that it enhanced the efficiency of cross-functional collaboration by establishing interdepartmental linkage. Instead of exchanging data from different systems, the blockchain platform supports the entities' updating and utilizing data in one system. Ensured by the blockchain, posted data must be immutable so the data collected from the platform by individuals and entities could be trustworthy for data users, such as the State Taxation Administration.

Blockchain core system and applications of Xiong'an New Area. Xiong'an New Area is a state-level new area in the Baoding area of Hebei, China. It has been officially regarded as "a strategy that will have lasting importance for the millennium to come."32 Since 2017, Xiong'an New Area has kept exploring the application of blockchain technology. Xiong'an adopts the blockchain applications of non-tax bills, land transfer and management, judicial deposit, supply chain finance, and so on. Xiong'an launched a city-level blockchain core system for applications in 2020. For example, ICBC Information and Technology Co Ltd has teamed up with the government to use blockchain for compensation payments. This system helps reduce the possible intermediate links and avoids diversion or misappropriation of funds. By the end of 2020, more than 160 construction projects and 40,000 migrant workers were paid via blockchain systems.33

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The Core Technologies for the Blockchain Development in China

Aggregating the characteristics of the cases introduced here, a practical blockchain platform, which would serve the Chinese economy, should: bear a large number of accounts and transaction throughputs; provide efficient and reliable storage model and network architecture; optimize contract virtual machine; preserve network security and privacy; and support connectivity among heterogeneous blockchains. Chinese professionals are making efforts to strengthen basic research and so far, the following innovations were achieved.

Scalable and high-performance consensus protocols. Consensus protocols based on permissioned blockchains can be classified into two categories: semi-synchronous and asynchronous protocols. Enterprise-level permissioned blockchains mainly adopt semi-synchronous protocols. Chinese researchers have made some advancements, such as Monoxide,12 Dumbo-BFT,4 Conflux,10 and Pyramid.7 The most optimized algorithms have linear message complexity and fewer commit phases.


Chinese blockchain technologies still have a way to go before they can be sufficient to be applied in different types of scenarios.


Cooperative storage model. To bear massive data storage, a cooperative storage model (for example, Jidar,2 BFT-Store,11 ElasticChain,8 and CUB14) can be employed to reduce the storage overhead and improve scalability. Further efforts are made to support SQL syntax and data on a blockchain platform.

Efficient and reliable network architecture. To boost the blockchain network's scalability, professionals draw support from the relay network to innovate a multilayer network architecture suitable to the block-chain network (for example, Shrec5 and BlockP2P6). Parallel blockchain structures consisting of a system blockchain and several application blockchains have also been proposed.

Network security and privacy preservation. It is essential to guarantee the access control of the blockchain network and privacy-preserving data utility.15 MSP mechanism is widely used in permissioned blockchains to verify identities and manage the membership of a block-chain network. Moreover, advanced technology such as Zero-Knowledge Proof and Multi-Parties Computing have also been equipped to achieve privacy-preserving data utility.

Connectivity among heterogeneous blockchains. As infrastructure, the network should establish value and trust connectivity among those heterogeneous blockchains.9 Relay-chain architecture is the mainstream blockchain interoperability solution. Qulian Technology Co., Ltd, for instance, provides open source and self-adaptive inter-blockchain communication solutions based on the relay-chain architecture for heterogeneous blockchains.

Smart contract and virtual machine optimization. In addition to Solidity, to support the industrial applications, the blockchain platforms provide various contract virtual machines for popular languages, such as Java and GoLang. For example, TEE can launch smart contracts to provide secure and trustworthy execution of private transactions. Meanwhile, smart contract security is also a research hotspot, whose target is to reduce the risks of vulnerabilities, attacks, and problematic constructs of smart contracts.

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Conclusion

As blockchain was included in the latest 14th five-year plan34 of China, the Chinese central government is continuously promoting the block-chain industry's development, by, for example, releasing supportive standards and regulatory policies, and offering talent training. This provides new opportunities for the development of blockchain.

Continuously resolving fundamental technical problems. Chinese blockchain technologies still have a way to go before they can be sufficient to be applied in different types of scenarios. Key enterprises and research institutes must strengthen collaboration to continuously make breakthroughs in core technologies, such as consensus protocols, distributed storage, and P2P network, to further improve the scalability and interoperability of blockchain.

Gradually forming technical standards and systems. At present, the blockchain industry in China has a good foundation for development. The national policy settings will give a solid impetus for blockchain development and the rapid formation of technical standards and systems. By 2020, China has issued three blockchain industry standards, five provincial and local standards, and 34 group standards. The Chinese government is drafting three blockchain national standards to guide application practices.35

Barbaric growth has gone to an end. With the continuous advancement of blockchain supervision and standardization, markets will pay more attention to core technologies' capabilities. The competitive blockchain enterprises will gradually emerge, which marks the latest stage of the industry development. This encourages companies to increase their R&D investment, explore the integration between blockchain and traditional economic modes, and consider the role that blockchain can play in new business models and infrastructure in the future.

The continuous influx of block-chain talents. In recent years, China paid much attention to cultivating blockchain talents, leading to the emergence of increasing numbers of technical talents. As of 2020, more than 40 Chinese universities have launched blockchain majors or related courses,36 and various provinces have also issued more than 30 blockchain talent policies to accelerate their blockchain industry development.37 The competition and opportunities brought by the influx of talents are beneficial for developing the blockchain industry.

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References

1. del Castillo, M. Blockchain 50. Forbes Magazine. (2021); https://bit.ly/3BpY8aP

2. Dai, X. et al. Jidar: A jigsaw-like data reduction approach without trust assumptions for bitcoin system. In Proceedings of the 2019 IEEE 39th Intern. Conf. on Distributed Computing Systems, Dallas, TX, USA.

3. Dong, L. What's the Future of Blockchain in China? World Economic Forum. 2018; https://bit.ly/36Sll7u

4. Guo, B. et al. Dumbo: Faster asynchronous BFT protocols. In Proceedings of the 2020 ACM SIGSAC Conf. Computer and Communications Security, New York, NY, USA.

5. Han, Y. et al. Shrec: Bandwidth-efficient transaction relay in high-throughput blockchain systems. In Proceedings of the 11th ACM Symp. Cloud Computing, New York, NY, USA, 2020.

6. Hao, W. et al. BlockP2P: Enabling fast blockchain broadcast with scalable peer-to-peer network topology. In Proceedings of the 2019 Intern. Conf. on Green, Pervasive, and Cloud Computing, Uberlandia, Brazil.

7. Hong, Z. et al. Pyramid: A layered sharding blockchain system. In Proceedings of 2021 Intern. Conf. Computer Communications.

8. Jia, D. et al. ElasticChain: Support very large blockchain by reducing data redundancy. In Proceedings of the Asia-Pacific Web and Web-Age Information Management Joint Intern. Conf. on Web and Big Data, Beijing, China, 2018.

9. Jin, H., Dai, X., and Xiao, J. Towards a novel architecture for enabling interoperability amongst multiple blockchains. In Proceedings of the 2018 IEEE 38th Intern. Conf. on Distributed Computing Systems, Vienna, Austria.

10. Li, C. et al. A decentralized blockchain with high throughput and fast confirmation. In Proceedings of the 2020 USENIX Annual Technical Conf.

11. Qi, X. et al. BFT-Store: Storage partition for permissioned blockchain via erasure coding. In Proceedings of the IEEE 36th Intern. Conf. Data Engineering, Dallas, TX, USA, 2020.

12. Wang, J. and Wang, H. Monoxide: Scale out blockchain with asynchronous consensus zones. In Proceedings of the 16th USENIX Conf. on Networked Systems Design and Implementation, Boston, MA, USA, 2019.

13. Wang, Q., Su, M. and Li, R. Is China the world's blockchain leader? Evidence, evolution and outlook of China's blockchain research. J. Cleaner Production 264, 121742, 2020.

14. Xu, Z., Han, S., and Chen, L. CUB, a consensus unit-based storage scheme for blockchain system. In Proceedings of the IEEE 34th Intern. Conf. on Data Engineering, Paris, France, 2018.

15. Yan, Y. et al. Confidentiality support over financial grade consortium blockchain. In Proceedings of the 2020 ACM SIGMOD International Conference on Management of Data, New York, NY, USA, 2020.

16. Yang, D. Exploration and Practice of Energy Blockchain. China Electric Power Press, 2020.

17. Zheng, Z. et al. Blockchain challenges and opportunities: A survey. Intern. J. Web and Grid Services 14, 4 (2018), 352–375.

Further Reading

18. People's Bank of China. Public Notice of the PBC, CAC, MIIT, SAIC, CBRC, CSRC and CIRC on Preventing Risks of Fundraising through Coin Offering. People's Bank of China Announcement. 2017.

19. China Academy of Information and Communications Technology. Blockchain White Paper. 2020; https://bit.ly/3zlT9G9

20. Tsinghua University Internet Industry Research Institute. China's Blockchain Industry Ecological Map Report. 2021; https://bit.ly/3xVEi55

21. HUAWEI CLOUD Officially Launches Blockchain Service for Users Around the World. 2018; https://bit.ly/3zlx5vh

22. China's Courts Use Data Analytics and Blockchain Evidence Storage on the Way to First AI-Integrated Legal System. 2021; https://bit.ly/2UzH0Pd

23. China Telecom to Develop Blockchain Smartphones. 2019; https://yhoo.it/36P0n9l

24. Interpretation of Chinese Blockchain Patent Data. 2021; https://bit.ly/3wXN15g

25. Trust Blockchain Initiatives. White Paper on Blockchain Innovation and Intellectual Property Development. 2020; https://bit.ly/36NNdJY

26. Xinhua. Xi Stresses Development, Application of Blockchain Technology; https://bit.ly/3wWoM7B

27. The People's Bank of China. Financial Distributed Ledger Technology Security Specification. 2020; https://bit.ly/3y2N1CI

28. The Supreme People's Court. Provisions on Some Issues of Online Handling of Cases by People's Courts, Draft for Comments. 2021; https://bit.ly/36P3pe3

29. CGTN's Global Business. PBOC Research Arm: Blockchain Platform Shortens Trade Finance Process. 2020; https://bit.ly/36YtA1D

30. Hyperchain; https://bit.ly/3hXagbI

31. The Housing Provident Fund Platform. 2019; https://bit.ly/2W6MQbj

32. Xinhua. China Publishes Master Plan for Xiong'an New Area. 2018; https://bit.ly/3BvHFlA

33. ChinaDaily. Xiong'an Leads in Blockchain Tech Use. 2020; https://bit.ly/3xVGKbT

34. Xinhua. The Development Plan of the 14th Five-Year Plan National Strategic Emerging Industry. 2020; https://bit.ly/2TwAHLW

35. Blue Book of China Blockchain Standards. 2020; https://bit.ly/3BnCF2l

36. People's Daily. The First Blockchain Undergraduate Program in China. 2020; https://bit.ly/2W1gbUl

37. People Capital. China's Blockchain Policy Status and Trend Analysis. 2019; https://bit.ly/3zjNFMc

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Authors

Liang Cai is a professor and executive deputy director of Blockchain Research Institute at Zhejiang University, Hangzhou, China.

Yi Sun is a professor at Institute of Computing Technology, Chinese Academy of Sciences, Beijing, China.

Zibin Zheng is a professor at Sun Yat-sen University, Guangzhou, China.

Jiang Xiao is an associate professor at Huazhong University of Science and Technology, Wuhan, China.

Weiwei Qiu is the chief architect at Hangzhou Qulian Technology Ltd., Hangzhou, China.


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