OODA Loop – The National Blockchain Standard… in China

In June 2023, China’s Ministry of Industry and Information Technology (MIIT) announced “a national standard for blockchain technology to guide the development of the industry.”  In this post:  an analysis of the strategic policy initiatives in the lead-up to the June 2023 unveiling of the Chinese national blockchain standard – and future scenarios.

The History of Blockchain in China 

The history of blockchain in China is a fascinating journey that reflects the country’s strategic approach to technology and innovation. China’s engagement with blockchain technology began in earnest around the early 2010s, paralleling global interest but with distinct characteristics reflective of its centralized governance and strategic economic priorities.

Initially, China, like many other countries, was intrigued by the potential of cryptocurrencies. However, the Chinese government quickly distinguished between cryptocurrencies and the underlying blockchain technology, embracing the latter while imposing strict regulations on the former. This was evident from the early bans on cryptocurrency exchanges and Initial Coin Offerings (ICOs) in 2017, which aimed to curb financial risk and speculative trading that could destabilize the economy.

Despite these restrictions on cryptocurrencies, the Chinese government recognized the transformative potential of blockchain technology itself. This led to significant state-sponsored initiatives to integrate blockchain into various sectors of the economy. For instance, in sectors like supply chain management, financial services, and even governmental operations, blockchain was seen as a tool to enhance efficiency, transparency, and trust.

A pivotal moment in the history of blockchain in China was the endorsement of the technology by President Xi Jinping in 2019, where he highlighted blockchain as a critical part of the new industrial transformation. This endorsement was not merely rhetorical but was followed by substantial policy support and investments. For example, major cities like Shanghai and Beijing announced significant funds to support blockchain projects and startups.

Moreover, the development of the Blockchain-based Service Network (BSN) in 2020 marked a significant step in China’s blockchain strategy. The BSN is intended to be a global infrastructure to help developers create and manage blockchain applications more cheaply and efficiently. This initiative is particularly noteworthy as it aligns with China’s ambition to set global standards in emerging technologies and reflects its approach to using state-led infrastructure to shape technological ecosystems.

In recent years, the focus has also been on integrating blockchain technology with other strategic technologies like artificial intelligence and 5G, further embedding it into the national strategy of technological supremacy. This integration is seen as a way to enhance the capabilities of these technologies and to develop new forms of applications that are secure, reliable, and scalable.

China’s approach to blockchain, characterized by strong governmental support and strategic integration into national economic and technological policies, contrasts with more market-driven approaches in other parts of the world. This has allowed China to not only lead in certain aspects of blockchain technology development but also to attempt to define the frameworks and standards around its use, both domestically and globally.

Recent Policy and Strategy Background

Coindesk provided coverage of the  strategic policy initiatives in the lead-up to the June 2023 unveiling of the Chinese national blockchain standard: 

June 2021 

China’s Ministry of Industry and Information Technology Outlines Proposals for Blockchain Development

China should “promote the deep integration of blockchain and economy and society and accelerate the promotion of blockchain technology for application and industrial development.”

China’s Ministry of Industry and Information Technology (MIIT) has outlined its proposals to accelerate the application and development of blockchain technology across the country’s economy and elsewhere. The MIIT has put forward its proposals in accordance with President Xi Jinping’s “Socialism With Chinese Characteristics for a New Era“. China should “promote the deep integration of blockchain and economy and society and accelerate the promotion of blockchain technology for application and industrial development,” according to a document written on May 27 and published Monday.

The MIIT suggested that blockchain could enhance the real economy by improving supply chain management, product traceability, data sharing, and more. However, blockchain would also be used to improve the collection of data for the purposes of judicial deposit, real estate registration and law enforcement. China’s development of a central bank digital currency (CBDC) is well known, with its digital yuan, or eCNY, currently being piloted in numerous cities.  The proposals published by the MIIT also reveal the extent to which the CCP believes blockchain itself can be applied to the development of its country’s economy.

October 2021

China to Release National Blockchain Standard Next Year, Says Official: Report

While cracking down on the cryptocurrency industry, Beijing is pouring resources into blockchain for governmental and enterprise use.

China’s technology standardization body will issue a national standard for blockchain next year, said an official from the China Electronics Standardization Institute, according to news site Chuanguan.

• The institute has drafted a standard and is in the process of approving it, said Li Ming, director of the Blockchain Research Office at the standardization body, during the Fifth China Blockchain Development Competition held in Chengdu, Sichuan.

• China is looking to boost blockchain innovation and application in enterprise and government across the country even as it clamps down on crypto. Its latest Five-Year Plan, a planning document that outlines development goals, put blockchain on a par with artificial intelligence, big data and cloud computing.

• Li said that standards are fundamental to an industry and used the example of Wi-Fi or Bluetooth. Without a unified standard, he said, devices from different manufacturers wouldn’t be able to connect to the network.

• Once the standard is set, the body will look into drafting evaluation criteria around it so that a “benign” ecosystem can be created, the director said.

• Key government projects like the Blockchain Services Network and Xinghuo Chain follow an “open permissioned” protocol, which seeks to retain some of the benefits of decentralization while maintaining centralized control.

• Exporting Chinese-made blockchain and standards is also a goal of these projects.

• Last year, the International Telecommunications Union passed a set of blockchain standards for financial applications developed by the People’s Bank of China, the China Academy of Information and Communications Technology, and Huawei.

• The institute is responsible for drafting tech standards and is under China’s Ministry of Industry and Information Technology.

• Chuanguan is a site operated by Sichuan Daily, a state-run newspaper in China’s southwestern province.

January 2023 

China Launches Smart-Contract Functionality on Digital Yuan Through E-Commerce App Meituan

Through the smart contract, users can win part of a daily prize of $1,312 for using the digital yuan.

China has enabled smart-contract functionality for its central bank digital currency (CBDC), the digital yuan, through the e-commerce app Meituan, one of China’s largest food delivery and lifestyle apps.  China has been at the forefront of CBDC development among major countries, as it started to test the digital currency as early as 2020. The currency has been used in retail transactions and to buy securities, but smart-contract functionality on a mass retail scale has yet to be tested.

At the end of 2022, digital yuan accounted for 0.13% of the total circulation of Chinese renminbi yuan, the People’s Bank of China said earlier in January.  The PBOC’s Digital Currency Institute said in September it was working to increase smart-contract functionality and later rolled out a smart contract-based function that prevents payees from wrongfully taking prepaid funds.

February 2023

China Targets Blockchain Breakthroughs With Beijing Research Center: Report

The center will focus on blockchain use related to the economy and individuals’ livelihoods in an attempt to make the technology central to China’s digital infrastructure.

China is establishing a blockchain research center in Beijing as it explores integrating the technology more extensively into day-to-day life, the South China Morning Post reported on Thursday.  The Ministry of Science and Technology approved the establishment of the National Blockchain Technology Innovation Center recently, the SCMP reported, citing the government-run newspaper Beijing Daily. The center will focus on major use cases related to the economy and individuals’ livelihoods in an attempt to make blockchain central to China’s digital infrastructure.

The move reflects the government’s enthusiasm for the technology despite having banned the use of cryptocurrency. Blockchain received its first mention in China’s most recent five-year policy plan in 2021, which said it would play a key role in the country’s digital economy.  As of July [2023], more than 1,800 blockchain companies were registered with the Cyberspace Administration of China (CAC), the SCMP reported. 

The Chinese National Blockchain Standard

June 2023

China publishes national blockchain standard

China has released standardized guidelines for the blockchain industry to boost its rapid growth and adoption in the country.

China’s Ministry of Industry and Information Technology (MIIT) has published a national standard for blockchain technology to guide the development of the industry in the country, a state-run news channel CGTN reported on June 2 [2023]   

The guideline reportedly standardizes the blockchain system’s functional architecture and core elements, serving as a reference to better understand and utilize the emerging technology.  MIIT reportedly stated that the standard aims to accelerate the standardization of China’s blockchain industry and drive its further development. Global Times reported that over a hundred blockchain companies in the country have been applying the standard to their operations.

China is pro-blockchain technology

Despite China’s strict anti-crypto stance, the Asian country has actively explored the use of blockchain technology. In September 2022, a Chinese government official said the country accounts for 84% of all blockchain applications filed worldwide.

On May 10, China launched a new national blockchain research center designed to connect universities, developers, and blockchain businesses, fostering the industry’s growth. This center is tasked with developing research and innovations that can further China’s expansion into the blockchain space.

The Beijing Municipal Science and Technology Commission recently published a white paper covering various technologies, such as blockchain and AI. The white paper emphasizes a commitment to web3 and metaverse innovations and plans to become an industry leader by 2025.

Several crypto community members, including Binance CEO Changpeng Zhao, noted that the white paper’s timing signaled the beginning of a more open approach to digital assets.

China has also leveraged blockchain technology to make significant progress in developing its digital yuan CBDC. The national digital currency has been trialed in several jurisdictions and has enjoyed some success since its development began.

What Next?

The release of a national standard for blockchain technology by China’s Ministry of Industry and Information Technology (MIIT) is a significant development in the global deployment of blockchain.   This initiative is part of China’s broader strategy to become a leader in the technological innovations that will drive future economies, while also setting standards that could potentially become global benchmarks.

Historically, China has taken a dual approach to blockchain technology. On one hand, it has been very cautious with cryptocurrencies, imposing strict regulations to curb speculative trading and financial risks associated with them. On the other hand, it has been very supportive of blockchain technology itself, recognizing its potential to enhance transparency, security, and efficiency in various sectors.

The national standard released by the MIIT is intended to guide the development of the blockchain industry in China by establishing clear guidelines and frameworks for the technology’s application. This includes technical standards, business and industry standards, and even ethical standards to ensure that blockchain technology is used in a way that is secure, reliable, and beneficial to societal needs.

This move is strategic for several reasons:

1. Innovation and Leadership: By setting national standards, China positions itself as a leader in blockchain technology, encouraging innovation and setting benchmarks that could influence global practices.
2. Regulatory Clarity: Clear standards help in providing regulatory clarity for companies and developers, which is essential for fostering investment and innovation in the blockchain space.
3. Global Influence: As blockchain technology continues to evolve, having a set of standards could help Chinese companies export their technology and practices abroad, influencing how blockchain is implemented worldwide.

The implications of this initiative are profound. It not only underscores China’s commitment to leading in high-tech industries but also highlights the importance of regulatory frameworks in fostering technological advancements. The release of these standards could accelerate the adoption of blockchain technology in various sectors, from finance to supply chain management, both within China and globally.

Further OODA Loop Scenarios

China’s move to implement a national standard for blockchain technology is a strategic maneuver that could significantly alter the global technological landscape. By establishing these standards, China is not merely influencing the blockchain sector within its borders but is also positioning itself as a pivotal player in the global arena. Here are several scenarios that could unfold as China pursues this path:

1. Global Standard Setter: One of the most direct impacts of China’s national blockchain standards could be their adoption internationally. If Chinese companies can leverage these standards to enhance the interoperability and efficiency of their blockchain solutions, these standards could become attractive to other nations, especially those in the developing world that may not have the infrastructure to develop their own. This could lead to a scenario where China’s standards become de facto global norms. 
2. Innovation Hub: With clear standards in place, China could attract a significant amount of blockchain-related research and development. Companies and startups might find a more predictable regulatory and technological environment appealing, leading to an innovation boom. This could be similar to the surge in blockchain investments seen in recent years, where the technology’s potential catalyzed a wave of innovation and investment. 
3. Enhanced Export Capabilities: The adoption of national standards could streamline the process for Chinese blockchain companies to export their technology and services. This standardization could reduce the complexity and cost of deploying these solutions internationally, giving Chinese companies a competitive edge in global markets.
4. Strategic Industries: Blockchain technology could be integrated into critical areas such as manufacturing, supply chain logistics, and even governance, aligning with China’s broader goals of upgrading its industrial base and improving administrative efficiency. This could enhance productivity and transparency, propelling economic growth and reinforcing China’s strategic competitive advantage.
5. Digital Sovereignty: By setting its own standards, China could further its goals of digital sovereignty, reducing its dependence on Western technology standards and asserting more control over its digital economy. This could lead to a more bifurcated global technology landscape, where different blocs use different technology standards, echoing the broader geopolitical tensions between China and the West. 

 These scenarios are not without challenges. The global acceptance of Chinese standards could be hindered by geopolitical tensions, especially with countries wary of China’s technological ascendancy and its implications for security and privacy. Additionally, the success of this initiative depends on the Chinese government’s ability to foster innovation while maintaining tight regulatory controls, a balance that has historically been difficult to achieve.

What potential challenges do you foresee for China in achieving global technological and strategic competitive advantage through the implementation of a national standard for blockchain technology?

NOTE:  This OODA Loop Original Analysis was partially generated with the cognitive augmentation of and in collaboration with ALTzero Project – MattGPT.

Additional OODA Loop Resources

For our News Briefs and Original Analysis research efforts to date on this topic, go to:

OODA Loop | Blockchain    OODA Loop | Trust      OODA Loop | Zero Trust    OODA Loop | Trustworthy AI

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Embracing Corporate Intelligence and Scenario Planning in an Uncertain Age: Businesses also confront unpredictable external threats besides traditional competitive challenges. This environment amplifies the significance of Scenario Planning. It enables leaders to envision varied futures, thereby identifying potential risks and opportunities. Regardless of size, all organizations should allocate time to refine their understanding of the current risk landscape and adapt their strategies. See: Scenario Planning

Bitcoin’s Momentum: Bitcoin seems unstoppable due to solid mathematical foundations and widespread societal acceptance. Other cryptocurrencies like Ethereum also gain prominence. The Metaverse’s rise is closely tied to Ethereum’s universal trust layer. See: Guide to Crypto Revolution

Geopolitical-Cyber Risk Nexus: The interconnectivity brought by the Internet has made regional issues affect global cyberspace. Now, every significant event has cyber implications, making it imperative for leaders to recognize and act upon the symbiosis between geopolitical and cyber risks. See The Cyber Threat

Track Technology Driven Disruption: Businesses should examine technological drivers and future customer demands. A multi-disciplinary knowledge of tech domains is essential for effective foresight. See: Disruptive and Exponential Technologies.

Networked Extremism: The digital era enables extremists worldwide to collaborate, share strategies, and self-radicalize. Meanwhile, advanced technologies empower criminals, making corruption and crime interwoven challenges for global societies. See: Converging Insurgency, Crime and Corruption

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