China cannot miss out on being a front runner when it comes to blockchain, which could have huge implications for its economy, Chen Lei, the chief executive of Xunlei, a US-listed technology company, said at a conference in Beijing on Monday.
“I believe there will be a main blockchain that dominates the market,” Chen said during a conference on blockchain supported by China’s Ministry of Industry and Information Technology. “I think China needs to encourage and invest in building one for the nation,” he said.
Chen said US companies had dominated the technology behind mobile operating systems, global position systems and microchips, and that it was important for Beijing to lead on blockchain.
At the conference, the ministry launched a white paper detailing areas that China should focus on. According to the document, Beijing should speed up the application of blockchain in industries such as trade finance, transaction settlement, insurance and securities, along with intellectual property, wealth management, big data, energy and health care.
“Why would anyone not consider working on areas that have support [of the government]?” said Zhang Lei, founder and chief executive of start-up Yeecall, a messaging app that facilitates cross-border payments. He said there had been too much “fluff” going in the blockchain industry, referring to a proliferation of initial coin offerings (ICOs).
China last year became the first country to ban ICOs, a form of crowdsourced fundraising by which companies exchange their newly created cryptocurrencies, or tokens, for payments in an existing currency, which can be cash or, most often, an established cryptocurrency. The People’s Bank of China, China’s central bank, said about 90 per cent of ICOs launched in mainland China had been fraudulent.
Beijing also shutdown local exchanges around the same time, the first country to halt virtual currency trading.
And last week, it became the first government to publish ratings for blockchain projects. The technology is a digital data structure most recognised for verifying and recording transactions using a network of computers rather than a centralised authority.
And its intervention has affected businesses in many different ways.© Provided by South China Morning Post Publishers Limited
Okcoin and Huobi, China’s largest exchanges, had to move their headquarters away from their home markets following the trading ban. China is not keen on speculation on virtual currencies, and while it banned domestic exchanges, it did not stop the demand. The weekly volume of peer-to-peer traded bitcoin rose by more than 250 per cent in yuan terms in September last year, after the halt in trading. The number of P2P trading platforms also rose from just 4 to more than 20.
China has been a force to reckon with in the mining industry, but this might not last. Jihan Wu, co-founder of Bitmain, which operates one of the world’s biggest bitcoin mines, told Bloomberg last week that the company was expanding into the US and was currently building mining facilities. “As a China company, we have to be prepared,” said Wu. Bitmain is now also developing artificial intelligence chips, a more agreeable proposition for the Chinese authorities, which might turn against mining.
Venture capital companies are no strangers to investing in blockchain. And there will probably be more of them now that local governments are trying to attract hi-tech investors and founders to boost their economies.
The government of Hangzhou, the hometown of Alibaba Group Holding, China’s largest e-commerce company and owner of the South China Morning Post, is investing in a 10 billion yuan (US$1.6 billion) fund, which claims to be the world’s biggest fund investing in blockchain projects. The fund is managed by Tulan and INBlockchain, a company founded by virtual currency entrepreneur Li Xiaolai, who is also the chief executive of ICO project Press.one.
Beijing-based Harry Man, a partner at venture capital company Matrix Partners, said that while blockchain founders had the option of using ICOs to raise funds, getting investment from an established investor added credibility to the project.
Given that there are national ambitions and investment in new projects, there will be a lot of start-ups jumping on the bandwagon. But while globally there are many start-ups working with the technology, it is still relatively new and in its infancy, said, Yeecall’s Zhang.
He said only 10 to 20 per cent of the start-ups in China had experience in blockchain. The rest were just following the herd. “It’s at a very early stage of development,” he said.
This article originally appeared on the South China Morning Post (SCMP), the leading news media reporting on China and Asia. For more SCMP stories, please download our mobile app, follow us on Twitter, and like us on Facebook.
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