Sieren's China: Blockchain Valley

It was bound to go wrong - last week, at a conference on blockchain technology in the southern province of Hainan, the organizers had chosen Chairman Mao as their mascot. An actor dressed in a Mao suit and impersonating the late Chinese leader's Hunan accent explained the advantages of this new technology.

State media were outraged, calling the impersonator's performance "shameful" and "disrespectful."  In China, the law prohibits the instrumentalization of a political leader, dead or alive, for commercial purposes. The organizers were forced to apologize. Some commentators think that the stunt could even incur lasting damage on blockchain technology in China.

Yet, Mao himself might even have liked the technology, which at least in theory promotes equality of the masses like hardly any other invention. In simple terms, the blockchain is a decentralized database. Information is not stored on one server or by one company but distributed across many computers that gives access to all participants at all times.

There is no central administrator for the chain blocks, which makes it less prone to corruption and falsification. In practical terms, the government approves of the decentralized system so long as it can monitor and control what is happening. 

So far, the best-known application for blockchain technology is the cryptocurrency Bitcoin. But in Beijing this has fallen into disrepute because it could be used to transfer money out of China, which has strict capital controls.

Digital ledger for data

The potential of blockchain technology, however, is not limited to financial transactions. It could be used to make the management of contracts, shares, official documents, copyrights, supply chains and even voting more transparent and efficient. A blockchain can be described as a digital ledger for data. As soon as a transaction between a sender and a recipient takes place, a new status quo is recorded. Each transaction is authorized by the participants in the respective data chain.

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If Tom transfers money to John, then hundreds of witnesses can confirm that the transaction really took place without having to know either Tom or John. The system is a little cumbersome but much less prone to fraud. Technology expert Axel Apfelbache once explained it thus: "It's the condom of the internet – enabling secure transactions between people who do not know each other without the intervention of a third party." 

But this analogy is somewhat absurd because the condom is a third party. But the point is that banks, credit card companies and stock exchanges, which are reliable mediators that come at a cost, could eventually become superfluous if the blockchain, which is free, is equally reliable.

One day, the blockchain could also replace trading platforms as well as land registries, trade registers and notaries. Some predict that companies such as Uber or Airbnb will disappear because there will be more direct contact between providers and users. Who knows whether this really will happen?

For China with its massive population, the technology is particularly interesting. Massive amounts of data can be managed de-centrally and securely at little cost, whether in terms of equipment or staff. The Chinese government will of course want to be able to keep a close eye on everything. Developers are still working on certain issues to make this possible.

Right now, it is difficult to manage the rights that give permission to access data. Moreover, the information chains are getting longer, which does create transparency and combats corruption, but does not make it easier to deal with the huge quantities of data.

Sense of excitement in 'Blockchain valley'

The government prefers to focus on the strengths rather than the weaknesses. In a recent speech at the Chinese Academy of Sciences, President Xi Jinping said that blockchain technology was a groundbreaking development.

Three years ago, blockchain technology was included in the 13th five-year plan setting out developments for 2016 to 2020. China's IT ministry wants to standardize application development. Only Australia is acting in a comparatively foresighted manner. 

In March of this year, it was announced that an "International Blockchain Investment Development Center" would be set up in China to set up future industrial standards. The same month, it transpired that the Bank of China had submitted a patent to solve the problem of storage without putting traceability and immutability at risk.

An industrial park to develop blockchain technology opened in the eastern city of Hangzhou in April, promoted by a $1.6 billion innovation fund. Thirty percent of the funds are from the local government. Young experts are being lured to "Blockchain Valley" with advantageous rents and research grants. China has collected some 400 patents connected to blockchain technology over the past two years – more than any other country. The US is behind with 110, while Australia is even farther behind with 40.

Important Chinese companies, such as e-commerce firm JD.com, PC maker Lenovo or search engine Baidu, have also invested heavily in blockchain technology. The online insurance giant ZhongAn, which was set up by Alibaba founder Jack Ma, Tencent CEO Pony Ma and the chairman of Ping An Insurance, Ma Mingzhe, has also started working with over 100 hospitals so that blockchain technology can be used to securely process patient data. Chen Wei, head of ZhongAn's tech unit, recently said that blockchain technology could play a huge role in transforming China's insurance sector.

Read more: Bitcoin's blockchain technology now employed to trade gold

It can also be used in the development sector. The Bank of China recently announced that it would apply blockchain technology to combat poverty in the Himalayan province of Tibet. It will be used to make the distribution of funds more efficient. Zhang Shoucheng, professor of physics at Stanford University in the US and founder of venture capital company Danhua Capital said on CCTV that the world was entering a "new era" with blockchain technology.

Dangers and opportunities

What remains unclear is where the technology will establish itself fastest and in what areas it will pay off for investors. At the moment, most blockchain projects fail. In a recent report, the China Academy of Information and Communications Technology (CAICT) said that the average lifespan was about 15 months.

Could this be a lot of hype about nothing? "The development of blockchain technology may become an important step for China to grasp international competition," Yu Kequn, director for the National Center for International Security Technology, recently said. "May." 

But unlike in Europe, in China people seem more prepared to be adventurous and take the risk, which is part of their culture. The Chinese word for crisis is made up of the words for danger and opportunity.

DW's Frank Sieren has lived in Beijing for over 20 years.