Yesterday President Donald Trump signed an executive order banning the use in the U.S. of China’s biggest social app WeChat, including “any transactions” with parent Tencent which will be defined in 45 days when the ban comes into force. We explore the potential impact on China’s global blockchain ambitions and the multi-platform Blockchain Service Network in particular, which is due to have a global launch on Monday.
Tencent owned WeChat is China’s largest social network with more than a billion users and WeChat Pay is China’s second largest mobile payments network. On average, a billion payment transactions are processed daily by Tencent’s FinTech division.
Blockchain is relevant for several reasons.
WeChat, Tencent and blockchain
Tencent is a founding member of a consortium developing the open source blockchain protocol FISCO BCOS, which it described as China’s answer to enterprise blockchain Hyperledger Fabric. Its affiliate, online bank WeBank is a critical participant in FISCO BCOS and the Blockchain Service Network (BSN). Tencent was the founder of WeBank, but as it currently owns just 30% for the purposes of Trump’s ban, it would not be classified as a subsidiary.
The BSN network provides low cost hosting and a minimal friction onramp to blockchain with both Chinese and global BSN network infrastructure. FISCO BCOS was the first of many blockchain protocols used in the BSN, and the only one currently in production.
The global launch of the BSN this coming Monday was described in the Chinese press as “part of China’s plan to become the only global blockchain enterprise infrastructure provider. This part of the effort is similar to China’s active global expansion of other major emerging technologies such as 5G and artificial intelligence.” Three weeks ago, the UK banned telecoms firms from buying new Huawei 5G equipment.
Blockchains enable companies to share data, although most don’t use it to store sensitive information. However, secure p2p communications channels are included within many blockchain solutions and those tend to involve the transmission of more sensitive data. Fears over industrial espionage were used to justify Trump’s ban on Huawei.
With the bans on Tiktok and WeChat, what’s stopping more firms from being added? While Alipay has not been included, in 2018, the Trump administration prevented parent Ant from acquiring Moneygram over national security concerns.
The Blockchain Service Network
The Blockchain Service Network describes itself as a “cross-cloud, cross-portal, cross-framework global infrastructure network used to deploy and operate all types of blockchain applications.” It intends to set up nodes in more than 80 Chinese cities.
Its rather short technical white paper says “the main goal of the BSN has always been to create a public infrastructure similar to that of the internet and to provide a ‘onestop shop’ style blockchain-based service.” Hence the global version would be the global internet.
The founders of the BSN were China’s State Information Center, various subsidiaries of state-owned China Mobile, China UnionPay and start up Beijing Red Date Technology. Numerous private companies have now joined.
China UnionPay is the country’s answer to Visa and MasterCard, and heavily allied with the central bank. Two years ago, for the People’s Bank of China to gain greater oversight over mobile payments, it required WeChat Pay and Alipay to connect their bank card processing operations to UnionPay, as opposed to working directly with individual banks.
Meanwhile, Red Date Technology has played the role of the fast moving startup and driven the public facing activities.
The domestic branch of the network currently supports the FISCO BCOS blockchain, a beta version of Baidu XuperChain from China’s biggest search engine, and an adapted beta version of Hyperledger Fabric that uses local cryptography, to secure access and other aspects of the blockchains.
Critically, the international network will allow for other local cryptographic implementations.
The point about the short technical white paper is an important one because there are many questions to be answered, particularly about security. Companies from outside of China will be wary of interacting with the Chinese BSN network over concerns about key handling, as evidenced by Apple’s change to how cryptographic keys are hosted for Chinese customers. Even if the keys are safe, access to a computer’s memory can expose data, and interception could happen before data is added to the blockchain.
And it’s claimed that the International BSN network and domestic ones are linked, so given the concerns about keys, the question is how? And more importantly, can the infrastructure be audited to a satisfactory standard by those who have concerns?
There are many other technical questions, such as how is interoperability between different blockchains being implemented? Because the simpler solutions tend to be centralized. We suspect the answer is the technology from public blockchain Cosmos because IRISnet is included.
Meanwhile, other planned permissioned blockchain protocols include CITA, Wutong Chain, Brochain and JDChain.
Public blockchains
Several public permissionless blockchains had been planned, but it was recently announced that these would only be available on the international network. The three international blockchains are Ethereum, EOS and Tezos and three Chinese founded blockchains, Nervos, NEO, and IRISnet.
China has a complex approach to permissionless blockchains, mainly because it wants to control currencies and payments. However, China is the biggest host of nodes for public blockchains Bitcoin and Ethereum. There’s an awareness that the technical exploration of public blockchains is important because most of the numerous blockchain news outlets and events in China focus on permissionless blockchains despite the domestic ban.
The Trump impact on blockchain
It’s worth exploring the specific impacts Trump’s ban might have.
Digital Asset recently entered into an agreement with WeBank to integrate its DAML smart contract language with FISCO BCOS. In its current form, the Tencent ban wouldn’t impact the deal.
From the early days, Hyperledger has actively pursued China, and Tencent Cloud is on its member list. A broadened ban could negatively impact the organization.
Notably, enterprise blockchain firm R3 has a strong presence and adoption in many other Asian countries, especially Japan, Singapore and Thailand. But it has not pushed into China, in part owing to concerns over intellectual property.
If Trump were to broaden the ban, the development of FISCO BCOS as a Chinese offering would be vindicated. And existing fears over such a ban have already accelerated China’s focus on researching the deeper technical aspects of blockchain. Plus, the initial overseas focus tends to be Asia, as demonstrated by WeBank’s recent rollout of FISCO BCOS in Singapore.
The West has often complained about Chinese appropriation of intellectual property, but China has led in applying for patents for blockchain. Meanwhile, much of the globe has focused on open source blockchain technology, although defensive patents have protected some of that.
But don’t be surprised if Chinese firms seek to enforce these patents aggressively.