Blockchain of Things: global infrastructure made in China

In April this year, the Chinese government signed off on plans for new investments in Chinese infrastructure[1]. The plans are set to be implemented by the National Development and Reform Commission (NDRC), which recently presented a vision outlining its definition of infrastructure. According to the NDRC, the development of new infrastructure is focused on three elements: “information infrastructure, integration infrastructure and innovation infrastructure.” What is clear is that blockchain technology plays an important role in the first of these three elements, as confirmed by the creation in April of a National Blockchain and Distributed Ledger Technology Standardisation Technical Committee by the Chinese Ministry of Industry and Information Technology (MIIT)[2].

As I pointed out in 2018[3], China is a prominent player in the International Telecommunication Union, forging global alliances on a Blockchain of Things, which combines blockchain technology with the Internet of Things. This international standardisation drive, which is focused on the functioning of a blockchain-based Internet of Things and Smart Cities, has meanwhile produced the first reports. The Chinese megalopolis of Chongqing[4], which has a population of roughly 31 million, has already taken the lead and launched its own blockchain technology innovation league. The question is whether we in Europe and the Netherlands, in light of recent developments in China, actually understand the technology behind blockchain in combination with other technological developments, or that we should just bow to the supremacy of China and the US when it comes to these new technological combinations.

ITU

As expected, the reports published by the International Telecommunication Union (ITU) focus primarily on the combination of the Internet of Things and Smart Cities with blockchain technology to create a new technology-based combination of the new Blockchain of Things. Some of these reports were written by an ITU focus group made up of representatives from Renmin University of China, Huawei, Telecom SudParis, Smart Dubai, UN-Habitat and the Kyoto Institute of Technology.

The reports present technical specifications and definitions of terms to use in this context. One of the key concepts is ‘ecosystem’, which the focus group defines as a whole of organisations that jointly make up a distributed system with both technical and non-technical features. Smart cities and communities are defined as an effective integration of physical, digital and human systems in a built environment to offer civilians a sustainable, prosperous and inclusive future. The Internet of Things is defined as a global infrastructure, also referred to as the information society.

This global infrastructure makes the development of advanced services possible through the (physical and digital) interconnection of ‘objects’ or ‘things’ in networks, based on existing and still evolving information and communication technologies. The ITU focus group defines blockchain technology as a “peer-to-peer distributed ledger based on a group of technologies for a new generation of transactional applications which may maintain a continuously growing list of cryptographically secured data records hardened against tempering and revision”.

According to the focus group, Blockchains of Things can be classed in three categories, with the first being the public blockchain (accessible to everyone and anywhere without restrictions). The second and new category is the consortium blockchain, which seems to be based on the concept of ecosystem. The focus group defines the consortium blockchain as “usually deployed and maintained by a consortium. The distinction of a consortium blockchain is primarily on the method of making consensus. The consortium decides which participants in the blockchain will have the authority to deploy smart contracts and make transactions, and decides how to open the blockchain data to the participants”[5]. The term ‘consensus’ is a key element of this definition. The focus group considers ‘consensus’ to be “agreements to confirm the correctness of the blockchain transaction”. The third and final blockchain category designated by the focus group is the private blockchain. A private blockchain is developed and managed by private parties and is basically the opposite of a public blockchain, i.e. it cannot be accessed without the permission of the private parties that run it[6].

According to the members of the focus group, blockchain technology has major potential for the creation of a new ecosystem that consists of a whole of people, things and decentralised (software) apps[7], which is a whole that creates new possibilities in many sectors of society, such as the financial sector, healthcare, public sector, industry, retail, supply chain and logistics, etc.

China as the frontrunner

As a major advocate for the development and use of blockchain technology, the Chinese leader Xi Jinping believes that this new technology can help propel China’s economic developments and position his country globally as a technology-based society. Although Xi Jinping is clearly not interested in public blockchain networks such as bitcoin, China’s central bank is exploring options for a Chinese digital currency that runs on blockchain technology.

For China, blockchain technology is primarily a means of securely and reliably exchanging and sharing data and information between people and between people and things in a rapidly developing global digital society. In late 2019, several initiatives were launched in China for the development and implementation of what is known as a Blockchain-based Service Network (BSN)[8,9]. This network is intended to be a precursor to global infrastructure based on ‘consortium blockchain technology and consensus trust mechanisms’.

China has opted for this consortium approach because of the following reason stated in a BSN white paper: “Under a permissioned blockchain framework, if the application owner is an alliance composed of multiple organizations, then all members of the alliance will commonly formulate all internal mechanisms of the application. This type of permissioned blockchain structure is known as a consortium blockchain. If only one organization controls all application rights, privileges, and regulations, then it is known as a private blockchain.” The Blockchain-based Service Network is essentially made up of interconnected nodes that are the responsibility of city governments. For each urban area, one or multiple such urban nodes can be developed as units made up of physical servers or cloud services on one side, possibly hosted by private parties, which jointly form a blockchain operating environment, and a consensus order cluster service on the other.

The urban nodes developed in China are interconnected through the Internet to initially form a national information infrastructure and ultimately, as the white paper states, a new global information infrastructure. The Chinese Blockchain-based Service Network has the potential, so the white paper claims, to develop into “a second generation of smart and dedicated internet using consensus mechanisms between organizations”. The Chinese megalopolis of Chongqing is already taking the lead in this development, setting up its own blockchain technology innovation league of 110 companies, including Huawei, Tencent, China Mobile, China Unicom, China Telecom and IBM. The possibilities that this new information infrastructure offers enable Chinese software developers to develop what are known as decentralised (software) apps that can function in various frameworks and enable the interconnection and communication between the various ‘DApps’ (Decentralised Apps).

At present, 40 cities across China are interconnected through the BSN, and this number is expected to rise rapidly to 100 urban nodes in the BSN following the official launch. The authors of the white paper anticipate that other Asian and European nodes may be connected to the BSN as well soon thereafter. It will enable the BSN to slowly but surely grow into a global network of urban-based nodes. If the BSN does indeed go global, it creates, according to the white paper, “the only global infrastructure network autonomously innovated by Chinese entities and for which network access is Chinese-controlled”.

What about Europe?

China is currently the global leader when it comes to patents granted to state and private-owned companies for elements of a Blockchain of Things. While the US still manages to stay close to China in this respect, the European Union pales into insignificance next to China in the area of blockchain technology. China’s success starts with the combination of a long-term vision, which spans decades and is based on technology in general, and centrally managed developments such as blockchain technology. China has undeniably been very successful in implementing infrastructures driven by technological developments, such as the Belt and Road initiative and Artificial Intelligence. It is therefore highly likely that the Blockchain-based Service Network will in the long term be successful as an information infrastructure in parts of the world.

The rapid Chinese developments should get us thinking here in the Netherlands and Europe. Do we want to be part of a Chinese blockchain information network that is controlled from Beijing? If we in Europe want to stay autonomous and chart our own digital future, we are going to have to develop our own alternative to the Chinese Blockchain of Things. Such a European alternative infrastructure would then have to be able to communicate with its Chinese and US counterparts.

The development of such a European initiative is, however, impossible without centralised coordination and a long-term vision for knowledge development for the development and application of algorithms and software that make a blockchain what it basically is: a reliable and secure way for things to communicate, interact and autonomously make decisions based on consensus.

  1. China Includes Blockchain Technology under Definition of “New Infrastructure” as Part of 2020 Investment Ambitions (2020) China Banking News http://www.chinabankingnews.com/2020/04/21/china-includes-blockchain-technology-under-definition-of-infrastructure-as-part-of-investment-plans/
  2. China Assembles Technical Committee for National Blockchain and Distributed Ledger Standards (2020) China Banking News http://www.chinabankingnews.com/2020/04/14/china-assembles-technical-committee-for-national-blockchain-and-distributed-ledger-standards/
  3. Lier, B. van (2018), Blockchain of Things. May 2018.
  4. Chongqing Establishes New Blockchain Innovation League with IBM, Huawei and Tencent (2020) China Banking News http://www.chinabankingnews.com/2020/04/13/chongqing-establishes-new-blockchain-innovation-league-with-ibm-huawei-and-tencent/
  5. ITU-T Focus Group on Data Processing and Management to support IoT and Smart Cities & Communities (2019) Technical Specification D1.1 Use case analysis and requirements for Data Processing and Management to support IoT and Smart Cities and Communities.
  6. ITU-T Focus Group on Data Processing and Management to support IoT and Smart Cities & Communities (2019) Technical Report D3.5 Overview of blockchain for supporting IoT and SC&C in DPM aspects.
  7. Framework of blockchain of things as decentralized service platform (2020) 1.0 ITU-T Y.4464 2020-01-13 20 11.1002/1000/14167
  8. Blockchain-based Service Network Introductory white paper (2019) BSN Development Association, September 2019.
  9. Blockchain-based Service Network Technical white paper (2019) BSN Development Association, April 2020.
Ben van Lier, Director Strategy & Innovation

Want to find out more?

Ben van Lier, Director Strategy & Innovation

For more information contact Ben van Lier by calling +31 6 51 10 94 39 or e-mailing to ben.van.lier@centric.eu.