China is ready to lead the blockchain industry thanks to President Xi Jinping's strong support. In the absence of competition from other countries like Europe and the United States, the move might allow the second-largest economy in the world to control the development of emerging technology.

The term 'blockchain' refers to a technology introduced by the digital currency bitcoin. It served as a public ledger of unchangeable and impenetrable activity in that situation. Additionally, it was 'decentralised,' meaning no single party owned it.

Since technology began to be used in fields like finance, its definition has changed. These situations today frequently refer to concepts such as 'distributed ledger technology,' or DLT, which differ from the original bitcoin blockchain. However, the appeal of a system that allows transactions to take place over a single record for authentication remains.

In October, Xi gave a speech urging China to 'seize the prospects' of blockchain. Xi called blockchain an “important breakthrough in the independent creation of essential technologies.”

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Blockchain's chief of research, Garrick Hileman, called this 'very significant' for China and the world.

“Countries are racing to uncover important technologies and establish sustainable competitive advantages in artificial intelligence and robotics. 'Xi's speech adds blockchain technology to this list,' Hileman.

KEYPOINT:

• As one of the first prominent world leaders to appear to support the technology, Xi stated in an October address that China must 'seize the chances' given by blockchain. 

• With the government, more than 500 blockchain projects have been registered.

• If China can take the lead, experts warn that it may define the technology as 'hazardous.'

China-crypto relations

• Bitcoin trading is illegal in China.

The government outlawed ICOs in 2017. Startups sold new digital currencies to raise funding.

Some cryptocurrency activity is legal. Hileman thinks that China mines over half of bitcoin and other cryptocurrencies, and millions of Chinese hold and invest in them. Bitcoin mining demands energy-intensive computers.

Blockchain has never been a problem for China.

After Xi's statements, bitcoin's price rose, maybe in hopes that China might soften its trading laws. Experts suggested that's unlikely. Chinese enterprises will instead develop blockchain technology.

“We expect (the) Chinese government will insist on pushing the development of blockchain technology instead of cryptocurrency application,” Lawrence Wintermeyer, co-chair of Global Digital Finance. 

China's situation?

China often makes massive statements on how to develop vital technology.

The government released a plan in 2017 to lead AI by 2030. China began 6G mobile network research and development a week after launching 5G.

This motivates corporations to develop the technology.

“With President Xi's embracing blockchain, China has unequivocally indicated that the future foundation of technology is blockchain, and China will be the first nation to the moon,” Jehan Chu, co-founder of Kenetic Capital, a digital asset trading and investment firm.

“There will be waves of innovation at state and municipal levels in China, with large infusions of finance powering AI and Big Data.”

Technology development is underway. The Chinese Cyber Administration has registered over 500 blockchain projects since March. China's biggest internet businesses like Tencent Huawei initiatives.

The technology is still young but is being closely examined in several fields. Sebastian Markowsky, the partner at Blockchain Valley Ventures, said China wants to use blockchain for fraud prevention, food safety, supply chain, and charitable donations.

• Hainan test

Xi supports blockchain, but the government is cautious.

Hainan, a southern Chinese province, has created a blockchain pilot zone to advance the technology. Baidu and cryptocurrency exchange Huobi are in Hainan.

Markowsky likened this to China's special economic zones. It also reduces risk if the technology lives up to the hype.

Markowsky said China could experiment with blockchain with all the benefits and few drawbacks.

“The government has supported the technology and will do so indirectly (through state-owned and private enterprises). 'If blockchain is the revolution promised, they will be able to roll it out in the entire country quickly,' he stated. “Otherwise, the little Hainan experiment would be shut down.”

Crypto mania

• Technology is hyped.

“Blockchain technologies have not yet lived up to the hype, and most enterprise blockchain projects are still in experimental mode,” Gartner research vice president Avivah Litan stated in a recent report. Blockchain may not enable a digital business revolution across corporate ecosystems until 2028 when Gartner expects blockchain to become fully scalable technically and operationally.

Hundreds of cryptocurrency-based blockchain firms have failed. Xi's support might spur a flood of firms and projects without a business.

Markowsky warned that firms might adopt blockchain simply because it's popular.

• World vs China

The largest blockchain policy is China's. Switzerland and Gibraltar have supportive policies to attract blockchain startups.

The U.S. lacks a blockchain policy. Instead, U.S. companies like Facebook have worked to advance blockchain projects.

Libra. Before launch, regulators are pressuring the U.S. tech giant's cryptocurrency initiative.

However, Blockchain's Hileman suggested Xi's speech could inspire other governments to adopt policies.

Markowsky said China's blockchain effort might put other countries behind, allowing the world's second-largest economy to control the technology and its development. Blockchain could help China's society evolve.

“For the rest of the world, this is an emergency call since with all the good things that blockchain theoretically promotes, like transparency, staking (rewarding right behaviour in societies), interaction in a trustless system, etc., if applied towards a society in the shape of the social scoring that is underway in China, it can be a fairly dangerous technology if it is used to cater the needs of a specific country,” Markowsky said.

If this country is big enough and sets the pattern, we in the West may miss the chance to make the system not unchangeable and equitable for all.”