Innovation in technology that underpins cryptocurrencies seen as serving real economy
Industries are stepping up efforts in blockchain technology to serve the real economy, even though the global cryptocurrency market could be facing tough times.
As of November, China led the world in new blockchain projects, with 263 in progress.
The figure accounted for about 25 percent of such projects globally, according to data service provider Blockdata in Beijing.
Blockchain refers to the technology that underpins cryptocurrencies, but its real value goes far beyond that. In the digital ledger system, transactions are recorded chronologically and publicly, ensuring that data is secure and not tampered with, while allowing it to be shared among a distributed network of computers without the involvement of middlemen.
The technology is used widely across a range of industries in China, like financial services, public services, healthcare, supply chains, smart manufacturing and logistics.
"The main strength of blockchain is in decentralized data management," said Zhang Feixue, chief editor at Blockdata. "It can serve the real economy in terms of circulation and distribution. In the field of industrial economy, blockchain allows various assets to flow in the digital world, so it is a real gateway to digitalization for industries."
Paul Sin, leader of the Asia Pacific Blockchain Lab at global advisory company Deloitte, said, "Whenever there is a need to synchronize data, especially sensitive information, across companies, industries and geographical boundaries, blockchain can offer a great solution due to its cryptographical protection of data."
For instance, trade finance will allow banks to detect fraud, improve productivity and eventually enable small and medium-sized enterprises to obtain financing that was once unavailable to them. "This is a solid example of blockchain supporting financial inclusion and macroeconomic growth," Sin said.
In Deloitte's 2018 global blockchain survey, nearly 50 percent of respondents in China said the technology was already being used in their organization, compared with only 14 percent in the United States.
Li Qilei, chief technology officer at Qulian Technology, a blockchain platform developer in China, said the financial industry is now the biggest user of the technology in areas such as asset securitization for banks and brokers.
Take Qulian, for example. On an accounts receivable platform it developed with China Zheshang Bank, the scale of financing has reached hundreds of billions of yuan since its launch in August 2017.
Qulian, in Hangzhou, capital of Zhejiang province, launched Hyperchain, which focuses on enterprise-level network solutions for companies, government agencies and industry alliances.
In June, the company said it had raised a series B round of financing of 1.5 billion yuan ($222 million) - the largest amount in the domestic blockchain industry at the time.
In addition to linking with financial services, Li said blockchain can be applied in other areas such as green energy and smart government. Qulian is also working with some housing bureaus to build a trusted property chain, with the aim of preventing fake housing information appearing online.
Qulian is just one of 615 blockchain companies in China, with 82 percent of them founded between 2016 and last year, according to a report in December by Beijing think tank EO Intelligence. Half of the companies are working on the adoption of blockchain technology in the financial industry.
Internet giants Baidu, Alibaba and Tencent - collectively known as BAT in the industry - have launched their own blockchain initiatives.
Alibaba has been using blockchain in areas such as public welfare, food and healthcare since 2016. With 90 blockchain-related patents, it ranked No 1 in the Top 100 Blockchain Enterprise Patent Rankings, followed by international technology giant IBM's 89 patents, according to Beijing intellectual property information media outlet IPRdaily, which compiled the list last year. Tencent ranked eighth with 40 patents, while Baidu was 40th with fewer than 20.
In August, the tax bureau in Shenzhen, Guangdong province, and Tencent announced that China's first blockchain electronic invoice had been issued.
Du Xiaoman Financial, formerly known as Baidu Finance, released its blockchain white paper to outline its capability in developing applications in eight areas - consumer finance, management of financial clients and community building, asset digitalization, public welfare, identity systems, digital content copyright, interconnection between different products, and tracking.
China's innovations are also expanding overseas, one example being Ant Financial, Alibaba's financial services affiliate, which operates mobile payment tool Alipay.
International blockchain companies are also looking to China for opportunities. Digital Asset in New York is one example. The distributed ledger technology provider is working with Hong Kong Exchanges and Clearing to develop a blockchain-powered program to help international investors to trade Chinese mainland shares via Hong Kong's Stock Connect system.
Chris Church, chief business development officer for Digital Asset, said, "One of the reasons that HKEX is so important to us is because it is a gateway to the mainland's stock market." He added that he feels excited about how people want to advance the technology in the region.
Kang Li, assistant director at the Blockchain Research Center of China at Southwestern University of Finance and Economics in Chengdu, Sichuan province, said a blockchain product has yet to be put into practice on a large scale in China.
"The industry is still in a blossoming phase where more and more companies can come up with all kinds of chains, but they don't have an explicit idea of application service or supporting content," Kang said.
Although many see the potential in blockchain applications, the attitude being adopted is still relatively prudent due to a lack of direct return. In addition, regulations, user acceptance and conflicts with other industries are all issues facing the blockchain industry.
Data from research and advisory company Gartner show that in 2017, 82 percent of reported cases of blockchain use were in financial services, while the figure fell to 46 percent last year. The data appeared in the PwC Global Blockchain Survey 2018.
In December, Pan Gongsheng, deputy governor of the People's Bank of China, the central bank, said initial coin and security token offerings are essentially illegal in China "no matter how fancy the technical terms are". He said internet finance and related tools should be under even stricter supervision.
Since Feb 15, the Office of the Central Cyberspace Affairs Commission at the Cyberspace Administration of China has been implementing Regulations on the Management of Blockchain Information Services, under which providers must file their information on the listing system within 10 days of launching the service.
Qulian's Li said that blockchain as a distributed ledger technology provides a very good tool for the supervision of finance and related sectors, adding that blockchain can be used to counter fake documents, or to provide real-time tracking of wealth management products.
Li added that Qulian is working with the Ministry of Industry and Information Technology to draft industry standards. Although some reports have said a national blockchain standard will be established this year, Li does not expect it to happen so soon, especially as the industry needs more freedom to develop.
Sin, from Deloitte, said that to help adopt permitted technology, the government needs to understand blockchain and see how it works under existing regulations.
Kong Hui, senior data analyst with Blockdata, said: "To some extent, regulations act as a kind of support to the industry. When the industry is unregulated, some companies can make money easily, but it will be insecure for all industry players. But if they know where the bottom line is, it will be clearer for companies to know where they can head to."
Blockchain is not a magic fix for all industries. "If it is just used to build an immutable database for higher transparency, then the rate of return should be questioned," Kong said.
Li said there are some deficiencies in blockchain technology in terms of how it can be expanded, privacy exchange and protection, as well as anti-attack capability.
Sin said, "We are starting to realize that some cases of use will be better supported with other technologies such as Open API ... rationalizing such cases is a healthy sign." Open API is a publicly available application-programming interface that allows third parties to share a proprietary software application or web service.
Blockchain spending worldwide is expected to reach $11.7 billion by 2022, according to a report by global consultancy International Data Corp. Respondents to PwC's survey believe that in three to five years, China will lead the global trend in developing blockchain.
"Currently, we don't see a huge difference between blockchain development in China and the US in terms of the business-to-business market," Li said.
He added that once the technology is mature enough to unlock the consumer market, blockchain development in China will be much faster than in the US, thanks to the country's fast-growing internet industry and large user base.
In 2017, many observers expected blockchain to bring disruptive change to the world. But the industry was soon hit by the cryptocurrency collapse. The value of bitcoin, one of the world's most popular virtual currencies, plunged by more than 80 percent last year from its record high of nearly $20,000 per bitcoin in December 2017.
"When all the noise, hype and speculation dies down, we expect an increasing focus on the real application of the technology in solving real business problems to create solid synergetic values," Sin said.
Kang, from the Blockchain Research Center of China, said the easing of cryptocurrency investment will be conducive for the healthy development of blockchain. This will allow capital to flow to applications that generate real value and services, he added.
"In the initial stage, there could be some products that do not fully accord with the characteristics of blockchain, but developing blockchain applications needs to be done step by step," Kang said, adding that 2019 will be a year for such applications.
Kong, from Blockdata, said it is still too early to talk about how disruptive blockchain can be. "It is still at a nascent stage and will only be upgraded to blockchain 2.0 if it really finds its roots in serving the real economy," she said.