China's Dive Into Blockchain, Digital ID Spurs Rest of World to Action
News on crypto and blockchain technology is coming in abundance from China. This became especially true in late October 2019, when the Chinese President Xi Jinping called for accelerating the use of blockchain technology in the country.
President Xi identified dozens of use cases that should be promoted: loans, health care, anti-counterfeiting, charity and food security. Xi emphasized that blockchain development could “China gain an edge in the theoretical, innovative and industrial aspects of this emerging field.” That was the green light the Chinese blockchain startups and ongoing projects needed to further accelerate their development.
A few days after the announcement, China launched a blockchain-based smart city identification system to support the interaction between infrastructure, data and cities. The system was put in motion by the China Center for Urban Development, the Chinese Academy of Social Sciences, and the Zhongguancun Industrial and Information Research Institute for Two-Dimensional Code Technology.
The system — developed, distributed and managed in China — is based on uniform issuing rules, analysis of distributed storage, and protection against unauthorized access. Until now, the coding systems were not uniform, meaning that data could not be easily shared between different ministries and industries.
But the Chinese government seems to have an idea of how blockchain technology could facilitate workflow in various sectors of the economy, and thereby bring economic benefits. However, China is not the first country to start looking in the direction of putting IDs on a blockchain.
Baby steps to giant leaps
The first step toward blockchain was made in 2016, when China's Ministry of Industry and Information Technology published a white paper on China’s blockchain technology and application development, which lists the benefits of blockchain and explains how its applications could be regulated in different sectors of economy. Several industries were mentioned as having potential for applying the technology, but preference was given to the financial sector.
Since then, both the Chinese authorities and private companies have been working on how and where to apply blockchain. But taking into account the generally cautious attitude of the Chinese government toward systems using distributed registries — especially cryptocurrencies — there were not very many applicable blockchain-based solutions implemented. But in 2019, the situation began to change and several blockchain projects have emerged, especially in identification systems.
For example, a large number of public affairs management systems based in Guangdong province and Xiongan New District in Hebei province are using blockchain technology.
In the summer, a number of projects were announced or launched in various regions of the country, including a “blockchain + volunteer services project” and a “5G+ blockchain” implementation model. In addition, the municipality of Guangzhou launched the “Smart Bankruptcy Review System,” an enterprise services website that utilizes both blockchain and facial recognition technology.
In July, the province of Yunnan launched China’s first blockchain-based invoice system for tourism attractions. Then, in August 2019, about 6 million blockchain-based electronic invoices had been issued in Shenzhen since the city introduced them a year prior. Following these developments was the news of the aforementioned blockchain-based digital ID initiative for smart cities in order to to promote the development of digital economy.
These projects exemplify what China seeks to achieve and what Xi Jinping spoke about at the end of October 2019. Since his speech, many government structures and other organizations have announced the development of various solutions using blockchain.
Even the Chinese army is now reportedly thinking about using the technology to aid its military, potentially by implementing a blockchain reward system to manage personal data and to stimulate the workforce.
Thus, the adoption of blockchain has found fertile ground in China, where a lack of existing infrastructure can stimulate a faster adoption of new technologies. In the Chinese context, the importance that the government attaches to the digital economy, and its cautious but promising endorsements of blockchain technology are important signals that investors should take seriously.
Digital identification is a key element for building trust in a decentralized environment. Therefore, decentralized solutions for user identification have become a popular direction for blockchain development in recent years.
Paul Sin, a consulting partner with Deloitte China and leader of Deloitte's Asia Pacific Blockchain Lab, told Cointelegraph that he believes China is welcoming the technology only to facilitate the transfer of data and its uniqueness between participants in different fields:
“China is very supportive on Distributed Ledger Technology (DLT), just not crypto. Digital identity is not crypto, hence very welcome.”
Blockchain can be used to synchronize data between participating ecosystems, making them both contributors and consumers of the information. For example, one bank may collect Know Your Customer data and share it with other institutions, which means a client would not need to repeatedly submit the same information. Regarding this, Sin went on to add:
“As long as we can resolve the governance model (who can on-board the individual on behalf of the whole ecosystem, who will be liable if one bank did it wrong, etc.), commercial model (how much should the data consumers pay the provider, so that there will be incentive), and technology interoperability (including network, data, API, DLT protocol, etc.), then this is definitely real.”
Blockchain identification elsewhere in the world
In other countries, governments and financial structures are also pondering whether blockchain can be applied to various systems to reduce costs and facilitate citizen access to data.
In July 2019, seven large South Korean companies came together to develop a blockchain-based mobile identification system. The launch of the system is scheduled for 2020. The blockchain network has been named the Initial DID Association.
One of the main features of the new system will be that it will work without intermediaries. The system will allow individuals and organizations to control their IDs for online transactions, as well as store various personal information, such as resident registration information or bank account numbers.
The initial companies that joined the consortium include Samsung, major telecoms KT Olleh, SK Telecom and LG U+, the banks KEB Hana and Woori, and financial IT company Koscom.
However, the size and scope of the project increased substantially in October, when such companies as credit card issuers BC Card and Hyundai Card, along with banks Shinhan and Nonghyup joined.
The consortium said that blockchain technology will provide only the necessary information to verify identity rather than the entire certificate, and that it has developed security measures to protect personal information. The idea is to allow a person to control their identity, qualifications and personal information.
The European Union has moved to publicly recognize blockchain technology only in the recent few years. In February 2018, the European Commission launched the EU Blockchain Observatory and Forum to consolidate the main developments of the technology and to support European countries engaging with parties working in the blockchain space.
The commission has been funding blockchain projects through EU research programs like FP7 and Horizon 2020 since 2013. By 2020, it will finance projects that can use blockchain technology to the amount of 340 million euros. In September 2019, the European Commission’s Joint Research Centre released a report titled “Blockchain for digital government.”
According to the JRC report, the European Commission has identified use cases of blockchain in the government sector for citizen ID management, taxation reporting and e-voting, among others.
The report states that creating a benchmark blockchain infrastructure consisting of certified independent nodes to host public services has already become a priority for EU policy. It goes on to add that as more enterprises and institutions accept the general framework and participate in the hosting infrastructure, the safer and more secure it will become.
Blockchain-based authentication will be widely used in the public domain to provide more advanced functionality, process more transactions without unnecessary financial costs and remove legal barriers.
Compared to all other EU countries, Estonia has gone the furthest in implementing blockchain in the government sector. In the first half of 2016, the Estonian government and the blockchain-based digital signature system Guardtime reached an agreement for the transfer of electronic medical records data of over 1 million citizens of the country onto a blockchain.
The introduction of blockchain technology in the government sector all around the world is an irreversible process. It is worth recalling the attitude that states had about blockchain a couple of years ago and look at what is happening now.
The implementation of blockchain in governments offers lots of opportunities, as blockchain-based systems are far superior to paper-based management systems, which have many vulnerable dimensions. Future-focused countries such as China or South Korea want to use blockchain as early as possible in order to reduce financial costs.