Note from the authors: We are engaged in a $1m, 2-year research study into blockchain and smart contracts funded by the Food Agility CRC. As part of this project, we have investigated China’s new Blockchain Service Network (BSN), and written an opinion article that discusses critical issues such as regulatory and privacy challenges and uncertainties. This article is written for an Australian industry audience interested in connecting with the BSN infrastructure, and sheds light on some of the choice points and risks Australian businesses.
Anniversaries can be important focal moments. Just ask those who forget how significant they can be. And so it is in the world of blockchain technology.
Five years ago, on 30 July 2015, the Ethereum genesis block was minted. This event brought blockchain to the wider world. Unlike the ‘single purpose’ Bitcoin protocol, Ethereum was conceived and developed as a general purpose blockchain. A “world computer.”
Now, Ethereum celebrates its fifth milestone by deploying Ethereum 2.0. Concurrently, the blockchain world will also experience what could be the next major jolt. The 30 July 2020 is the date slated for the launch of the international version of China’s Blockchain-enabled Services Network (BSN).
The BSN promises to be an IT infrastructure with global significance. It matters to Australia, and here is why.
The Blockchain-enabled Services Network
On 25 April 2020, China launched the Chinese version of BSN for commercial use. This is the latest in a suite of initiatives aimed at boosting the role of technology – especially blockchain – in China’s economic development and intensifying global trade, including the call for a national focus on blockchain by President Xi Jinping last October.
Key Features of the BSN
The BSN is China’s national blockchain ecosystem. It is described as the ‘Internet of Blockchains and applications built on blockchains.’ It should not be confused with the Chinese central bank digital currency (DCEP) which is expected to integrate with the broader BSN ecosystem.
The BSN is a permissioned chain powered by Hyperledger Fabric that provides a foundational data superhighway infrastructure enabling information flows between governments in China, businesses, organisations, and individuals. It promises to be ‘blockchain protocol agnostic’ allowing other blockchain systems to dock and communicate across its framework.
It achieves all of this through what are known as Public City Nodes (PCNs), a combination of hardware and software. There are already 128 PSNs: 76 in China, 44 are under construction and 6 located overseas. More are planned, in China and elsewhere with 200 PCNs in total targeted for end of 2020. Ultimately, this will serve as a large-scale infrastructure of the Digital Silk Road (part of China’s Belt and Road Initiative – BRI) to interconnect China’s trade partners.
What are the broader strategic issues posed by the BSN for Australian industries? The BSN forms the technological foundations of China’s trans-national Digital Silk Road to complement the more conventional bricks and mortar aspects of the country’s ambitious BRI.
The BRI is a global and long-term strategy involving significant Chinese investment in the development of trade relationships and infrastructure in over 70 countries. While it has been criticised as ‘debt trap diplomacy,’ recent research casts significant doubt on this characterisation. The BRI lays the physical infrastructure for the storage and distribution of goods. The BSN is the digital equivalent.
Cross-border trade ultimately involves the interaction of supply chains across sovereign territories. The ability of goods and services to circulate is increasingly a function of the ability of data about these goods to pass from one jurisdiction to another in ways that provide comfort and confidence to each jurisdiction. This means ensuring that this data is acceptable to those managing the passage of goods from one jurisdiction to another. A decentralised data ledger, where data is stored in a digital network accessible to all involved in the relevant transactions, streamlines data flows and strengthens trade relationships.
Issues and Opportunities
In February 2020, the Australian Government launched the National Blockchain Roadmap, which sets the stage for strategic engagement in initiatives such as the BSN. The Roadmap identifies priority areas including food supply chains and financial services. On both fronts, the BSN presents opportunities and challenges.
The opportunities are straightforward, e.g. technical interoperability, and potential ease and cost of access. The challenges are more subtle and complex. Many relate to concerns around data privacy, data governance, and data sovereignty that see a disparity between the Australian and Chinese standards. Key considerations include:
• Gaining permission to operate on the BSN: This requires authority from the BSN administrator, presupposing compliance with China’s cryptography and privacy requirements.
• Cross-jurisdictional data flow: Australian participants will need to carefully examine how this interacts with privacy and data confidentiality protection concerns and national requirements.
• Uncertainty of Chinese Cryptographic protocols: Are there unknown backdoors that pose data security risks?
• Harmonising business expectations: We will need best practice for data confidentiality and data security. Australia’s leadership role in ISO Technical Committee 307 on blockchain standards can help here.
All this needs to be addressed in the increasingly complex landscape of regional geo-political friction and uncertainty. For Australia, one pathway is to address BSN via our role in the Regional Comprehensive Partnership Agreement (RCEP). Unlike the BRI, the RCEP is a more traditional multilateral agreement between ASEAN countries and Japan, Republic of Korea, New Zealand, China, and Australia. Of RCEP signatory countries, only Australia is not also a BRI participant. Membership of RCEP provides Australia with the institutional means to interact with the BRI through ‘porous edges.’
Contemporary geopolitical dynamics are perhaps the most challenging that Australia has faced for quite some time. Australia again confronts a need to navigate bilateral and multilateral relationships increasingly framed by tensions between the country’s largest trading partners on the one hand, and Australia’s most significant historic security ally on the other. In this context, the BSN is another instalment of what Hugh White calls ‘the China choice.’
An extended version of this article is available here.
*Some of the research on the BSN is being undertaken as part of the Export Smart Contracts project that is a collaboration between BeefLedger Ltd, Queensland University of Technology (QUT), and Food Agility CRC. This project was supported by funding from Food Agility CRC Ltd, funded under the Commonwealth Government CRC Program. The CRC Program supports industry-led collaborations between industry, researchers and the community. The opinions are those of the authors alone.
Dr Shoufeng Cao is a Postdoctoral Research Fellow with the QUT Business School. Dr Felicity Deane is a Senior Lecturer in the Faculty of Law at QUT. Professor Marcus Foth is Professor of Urban Informatics in the QUT Design Lab and a Fellow of the ACS. Adj. Prof. Warwick Powell is Chairman of BeefLedger Ltd. Lachlan Robb is a PhD Candidate in the Faculty of Law at QUT. Charles Turner-Morris is a Director of BeefLedger Ltd.