The Shenzhen stock market bull / Image credit: 123RF
In April, China saw perhaps its most high-profile #MeToo moment to date. Peking University undergraduate Yue Xin published an open letter detailing the harassment she faced from school authorities as she inquired about something that happened 20 years ago: Gao Yan, a literature student at PKU, committed suicide after being raped by a professor.
The letter sparked a public outcry. Government censorship of the letter and the discussion around it swiftly followed. Here’s the twist: Student activists then uploaded the letter onto the Ethereum blockchain, where it’s untouchable even by the government.
This is the first well-documented instance of the blockchain being used to evade censors in China. It’s a window into the dilemma that blockchain presents to the authorities in China, which aspires to become the global leader in tech while simultaneously imposing strict controls over information.
China’s tightrope walk
By definition, blockchain networks are transparent. Their data isn’t held on centralized servers, and they are nearly impossible to hack.
When it comes to governance, blockchain systems have tremendous potential. They could limit corruption, reinforce good behavior, ensure food safety, and eliminate all kinds of fraud. For a massive country like China, finding reliable information has often been nearly impossible, even for the country’s top government leaders. Blockchain could make that a thing of the past.
Here’s the other side of the coin, however. While the Chinese government is limited by their lack of access to information, it also benefits from opacity and control. In fact, opacity is central to its system. The ruling communist party has used their monopoly over information channels to tell their version of history. The idea was cleverly made fun of in a Simpsons episode in which the family visits Beijing and see this:
While China’s information control has been maligned by foreigners, it should be acknowledged – whether because of or in spite of it – that the approach taken by China’s rulers has excelled in ensuring stability and prosperity.
By almost any metric, life as a Chinese person today is exponentially better than it was 30 years ago. This cannot be overlooked. But as the Peking University case shows, blockchain could threaten the country’s social stability. If placed in blockchain networks, sensitive data will be available for all to see and difficult to remove.
“Nothing happened here” isn’t possible on the blockchain.
China’s committed yet cautious approach
However, because China wants to be number one in technological innovation, it will embrace the blockchain. Just expect it to introduce some caveats.
The Chinese government is moving quickly. The cities of Hangzhou and Shenzhen have announced funds to support blockchain startups, as has Fujianprovince, a rising tech hub. China has also become the global leader in blockchain patents, with The People’s Bank of China (PBOC) – its central bank – and tech giant Alibaba at the forefront.
However, China has been noticeably less enthusiastic about the recent boom in cryptocurrencies. It has banned initial coin offerings (ICOs) and blocked access to both foreign and domestic crypto-exchanges. According to the PBOC, this was done to limit financial risk created by the recent crypto-frenzy that has seized Chinese investors.
The downside to this is that many of China’s blockchain startups have found Singapore to be a more welcoming environment, if anecdotes are any measure. Nearly every Chinese blockchain entrepreneur I spoke to has either established a Singapore presence or is thinking of doing so.
In the end, finance may be the sector in which blockchain may be most quickly adopted in China. “In essence, blockchain could be used for almost anything,” explains Rich Hong, CEO of Blockchain Community App (区块链社群), a Chinese-language mobile app for building a blockchain community. “But for the time-being, the most likely applications for the government in China are likely to be in central banking and currency.”
The central bank seems to be signaling this. In March, a research institute under PBOC launched the Blockchain Registry Open Platform (BROP), an open platform for developing independent intellectual property rights based on the blockchain.
Beyond finance, entrepreneurs in China are envisioning more ways to fix China’s social ills. Alibaba recently announced a pilot program that will use blockchain to ensure food safety.
The Chinese Communist Party is a universal constant in the country.
In all of this, a core conflict for China is that while blockchains are decentralized, the country’s political system is one of the most centralized in the world. In a late April op-ed on state-run media Yicai, Yao Qian, director of the PBOC’s Digital Currency Research Institute, said that the central authority’s inability to control blockchain data or shut down the blockchain entirely could be the biggest obstacle to implementation.
“Overall, the governance mechanism on the chain is still being explored. There is not yet a unified opinion and we need further attention and research,” concluded Yao.
Judging from Yao’s remarks and the policy steps taken by Chinese regulators, private or semi-private blockchain applications (as opposed to public networks like Ethereum) are likely to take off in the country.
However, note that blockchain’s decentralization, neutrality, and transparency are key to realizing its greatest efficiencies. The more a market can accept such open systems, the more it is likely to benefit. After all, which environment is better when doing business? One where the rules are clear, transparent, and predictable, or one that is dictated by the whims of an opaque ruling party?
This puts into conflict possibly two of the most important “laws of physics” of economics and governance in China. On one hand, the country is dead-set on becoming a dominant economic and technological power. However, this may not be possible without fully using blockchain systems. On the other hand, many China experts agree that the Chinese Communist Party is a universal constant in the country.
A new physics
Blockchain governance isn’t a challenge that’s exclusive to China. “Governments across Asia seem to be eager to apply blockchain, but are still somewhat uncertain about how best to do that,” explains Paavani Reddy, a governance specialist for the United Nations Development Program’s Asia-Pacific hub. “Regardless, it seems that to most governments, the governance benefits seem to far outweigh the risks.”
In any discussion about blockchain technology, it’s possible that many of the assumptions which inform our thinking may not apply because of the revolutionary nature of the technology itself. We have yet to fully learn what the “quantum mechanics” of a blockchain-enabled world will be.
“The problem with understanding blockchain is that we tend to look at it through the lens of the ‘old economy.’ We need to use a different lens if we are to fully understand it,” says Reddy.
The same goes for China. As the country applies this transformative technology, it may have to rewrite its own laws of power.