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Why China may dominate enterprise blockchain sooner than you think

great wall of china

There have been numerous blockchain surveys ranging from Gartner‘s sober outlook to the more optimistic one published by PwC last week. According to the latter, currently, 29% of executives view the US as the leader in blockchain, compared to 18% in China. But they expect those figures to reverse in five years. However, it could happen far sooner than that.

Yesterday at TechCrunch Disrupt a pair of talks focused on the relative strengths of the two countries. Michael Arrington founded TechCrunch and now runs crypto investment company XRP Capital. He lamented the lack of ICO clarity from the US’s Securities and Exchange Commission. But what about enterprise activity?

China’s ICO clampdown not holding it back

Arrington said: “80-90% of our investments are in Asia, Europe, and Israel right now because there are actually countries where there’s enough regulatory certainty that entrepreneurs feel safe starting token companies.”

However, China has banned ICOs and clamped down hard on their promotion to protect regular investors from scams. This article is not going to delve into controversial public blockchain NEO or TRON, or even VeChain. It’s about the pace of adoption of blockchain by enterprises. And the Chinese government is strongly encouraging enterprise blockchain use.

China’s AI push as an example

China’s rapid rate of AI adoption is setting a precedent of what’s to come with blockchain.

The relevant TechCrunch Disrupt talk was by Kai-Fu Lee who led Google China until it left the country. Currently, Lee heads up the Sinovation Fund and wrote a soon-to-be-released book “AI Superpowers”.

He said: “People assume because the US is so strong in AI research, the US should dominate. But actually, China is catching up really fast. China [has had a] magical ascent in the space of AI just in two years. Coming from way behind, now it’s actually ahead of the US in AI implementation.”

Lee continued: “And AI we should think of it as electricity. Thomas Edison and also the AI Deep Learning inventors were American. They invented the stuff, and then they generously shared it. And now China, as the largest marketplace, with the largest amount of data is really using AI to find every way to add value to traditional businesses, to internet, and all kinds of spaces.”

“And the Chinese entrepreneurial echo system is huge. So today the most valuable AI companies in computer vision, speech recognition, drones are all Chinese companies. Their sales are larger. Their market cap is higher. More VCs invest in AI than in the US. 48% China (of all VC), 43% of the world’s AI investment are in China today.”

“We have created five unicorns in AI in the past four years. And these were companies that were founded between two to four years ago. So this is really how fast it’s been. You have to be there to see the excitement and the pace.”

China’s agility

Someone who has been there is Nathan Anderson, CEO of ScanTrust which has an anti-counterfeit blockchain solution. He spent the first part of his career working in China and still spends significant time in the country. He commented: “There’s a lot of activity going on in the blockchain space. For every company you hear about in Europe or the US, there’s probably a dozen if not more in China who are jumping in and doing this.”

“Companies [that] operate in China are very open and warm to adopting new technologies. They tend to move quicker and test things out, even if they break and fail right away, which leads to greater iteration and improvement.”

“When you just look at the the strong capabilities that are in China and the investment level, and the activity level alone, just based off of that there’s no doubt that China is going to be a major player in blockchain technologies. They already are, and that’s only going to continue.”

Blockchain examples

Ledger Insights sees the same sort of activity. There’s plenty of hype from both China and the West. But there’s a big difference between a proof of concept (PoC) which is purely experimental, compared to a pilot which is a real transaction. In China, there seem to be more pilots and live enterprise blockchains across the board.

While in Europe the first trade finance platform is taking baby steps, in China Zheshang Bank started using blockchain for trade finance a year ago. So far it has processed receivables worth $3.9 billion. And it took it a step further and issued securitized debt based on its trade finance pool. While securitization got a bad name in the 2008 crisis, the transparency that blockchain brings can address many of those issues.

Here’s an example of the pace to which Lee referred. UK based Everledger started out in 2015 and today has more than a million diamonds on its blockchain. A month ago, Zhong An helped to launch a similar diamond provenance blockchain with a consortium in China, and at launch, it had 760,000 diamonds.

These are just two examples out of many.

Geopolitical impact

TechCrunch referred to worries about government use of AI in China. Lee deflected by saying that AI concerns apply worldwide. Separately, in February the US authorities warned against the use of Huawei phones because of concerns over spyware. Some argued that this was protectionism and politiking. Others said there are always risks.

When it comes to blockchain, it involves data sharing. How much useful data is stored on a blockchain varies significantly depending on the technology used and the use case. For example, anti-counterfeit applications need to share non-sensitive data. Many blockchain applications don’t store much data.

However, in the cases where useful data is involved, it is usually encrypted. But security depends on the technology, the encryption used, who has access to the server, the keys, the code, and numerous other factors.

Of particular interest are blockchains which stretch outside of Chinese borders, with trading partners. There’s already a live supply chain platform where there are nodes in both Singapore and China. In that case, the technology comes from Singapore. There is no intention to imply anything negative about that project.

As the sector matures more of the technology will come from China. SoftBank recently invested in Zhong An International to help it expand in Asia. Zhong An uses blockchain technologies extensively and is one of the leaders in China.

A lot of the blockchain technical innovation will continue to happen globally. But China is good at leveraging innovation into application. On the one hand, China with its pace can pull the global enterprise blockchain sector forward, and it’s likely to in Asia. But could the West hold back engaging China in blockchain because of fear?