What should you know about the Chinese blockchain market?

Despite the hype, there is a case to be made that CIOs and other IT leaders simply do not need to know about blockchain technology. This is so new, so slow and so deeply unhelpful for many business processes that that one CIO even described it “a joke”. And anyway, when it does eventually come into place, it will mostly operate behind the scenes, by third-party suppliers, and there will be no real need to understand the different flavors of technology at work.

This said, it is always useful to have an understanding of the broader market to provide some context on what all this might mean further down the line. This is, after all, an emerging technology – it is both over played and misunderstood – but it is still likely to have an important impact on business in the future. And despite the usual emphasis on western players, there are also Chinese equivalents popping up that don’t get anywhere near the air time.

 

What is the Chinese blockchain?

In the wider media the majority of conversations around blockchain tend to focus on Bitcoin and cryptocurrencies, but this is not the case in a business setting, and makes the Chinese clampdown on ICOs irrelevant. In the west, most of potential revolves around the smart contracting possibilities in Ethereum and new approaches to securing IoT through unique – 2.0 – players like IOTA. In China both Ethereum and IOTA already have fairly direct equivalents.

“Although NEO may beat Ethereum on some fronts – it may be seen as younger and shinier from a technology standpoint,” Csilla Zsigri, senior analyst at 451 Research, tells us. “Ethereum is an established platform and NEO is unlikely to overtake it in western markets.

“However, NEO has the potential to establish itself as China's platform or even as the platform of the east alongside OnChain (OnChain's Decentralized Network Architecture targets Chinese businesses and government). Given this, NEO doesn't necessarily have to compete with Ethereum.”

This is something that I’m told time and time again in speaking to people for this article. China is likely to maintain its own blockchain ecosystem, with its own providers.

In fact, Lawrence Lundy, head of research at Outlier Ventures which heavily invested in IOTA, believes that a few key providers will battle it out and then “the government will back one winner. This not likely to be the one with the best tech, or the best community, but the one that works best with government,” he says.

“The Chinese government prefers to use and promote local products and businesses, think Alibaba, Baidu, Tencent, WeChat [and so on],” says Patrick Dai, CEO and co-founder of Chinese blockchain company, Qtum. “NEO and OnChain with their envisioned smart economy, their focus on regulatory compliance and relationship with the Chinese government, are in a good place to succeed.”

Joe Pindar, director of product strategy at security firm Gemalto believes it is not surprising that we’re seeing new companies emerge out of China. “It is very easy to dismiss them as not as good as their western counterparts,” he says and “when I look at the white papers – they’re very emergent – if they were in established markets they wouldn’t get any traction. However – and this is a big however – there is a lot of technical talent in the region.”  

Lundy of Outlier Ventures believes that Neo shows a unique approach because unlike Ethereum and Bitcoin it cannot be forked. “That is an interesting development,” he says.

Yet he adds: “I’m not seeing a solution out of China that is better than anything coming out of the rest of the world.”

Pindar believes one way the Chinese blockchain could come into its own is through its potential with the Internet of Things. “In IoT the future of 5G is being designed and focused by China, Korea and Japan,” he says.  

This is important because he sees cryptocurrencies as the first wave of potential for blockchain, connecting the supply chain as the second wave, and IoT combined with 5G as the third wave. It will be “2020 to 2023 before it realistically gets traction” though, he adds.  

 

Should western companies care about Chinese blockchain?

If a separate eastern blockchain ecosystem emerges there is definitely a case to be made that western professionals can basically ignore the Chinese variations and focus entirely on the technology they will actually use. However, this could prove a bit short sighted.

Just look at how Chinese giants like Alibaba suddenly appeared in western consciousness. And then there are the ongoing problems occurring between Chinese companies and the US – such as the clampdown on Huawei smartphones and Apple’s iCloud accounts in China. All this industry movement could have huge implications for large enterprises at some point down the line.

Our recent research based on 7,381 IT leaders globally also suggested that whilst blockchain implementations are not very high at the moment, Asia may be leading the charge. And as Sarah Pentland, Project Manager, MaidSafe points out: “From a business perspective every technology company in every sector should be preparing for competition from China.”

 

 

Times are definitely changing in regards to attitude if nothing else. “Last year I went to Asia five times having barely been before,” says Pindar of Gemalto by way of context.

“While we’ve seen Chinese replicas of major tech platforms before,” adds Dai of Qtum, “it’s worth remembering that this huge tech nation – as well as the many innovative Asian countries that surround it – do not need direction from the US to tread new ground.

“WeChat is a great example of where a Chinese firm succeeded in pushing the boundaries of technical capabilities in a way that its western rival could only dream of.”

Of course, there are also unique challenges for Chinese blockchain companies who want to export their offering. These come in the shape of a “strict taxation regime that will need to be overcome to enable blockchain to work across borders,” says Stephen Holmes, CTO of the Fintech Banking Lab at Virtusa, a global IT firm.

“For instance, even where an overseas parent company provides services to its own China subsidiary, or where a service from an overseas firm to a Chinese client is carried out elsewhere in the world, a complex mix of restrictive tax laws still apply,” he explains.

It is certainly early days for blockchain around the world and China is a more nascent ecosystem than elsewhere. However, as with all technology it is worth knowing that that there is a Chinese equivalent out there. And whilst it may remain a totally separate market it could also arrive suddenly and take the rest of the world by surprise.