The divergence in the development paths of the blockchain industry between China and other countries is intensifying

This article was published on January 19, 2020, on the Chain Catcher WeChat public account, by author Gong Quanyu.

From various signs, the development paths of the blockchain industry at home and abroad have shown significant differentiation. Especially compared to Europe and the United States, the two exhibit different characteristics in terms of development routes, concepts, and ecosystems, which undoubtedly provides an important perspective for judging the current state and trends of the blockchain industry.

For a long time, China and regions such as Europe and the United States have been in significantly different social environments and stages of development. These reasons have led to the Chinese internet industry developing characteristics distinct from those of the European and American internet industries, and now they have resulted in similar situations in the blockchain industry, with the differentiation being even more pronounced than in the internet industry.

Abroad, many countries have recognized the legal status of cryptocurrencies as assets through laws and regulations, and after being included in the mainstream regulatory framework, there is a relatively friendly and relaxed policy and public opinion environment. Therefore, an extremely rich ecosystem has formed around cryptocurrencies, including issuance, trading, payment, custody, and many other aspects.

Specifically, in terms of cryptocurrency issuance, many European and American regions hold an open attitude toward cryptocurrencies, with numerous well-known technicians and financial experts entering the blockchain industry and launching cryptocurrency projects. Today, most mainstream high-market-cap cryptocurrency projects are predominantly developed by individuals from overseas countries, such as Bitcoin, Ripple, and Stellar, which have a significant impact on the local financial system.

In China, due to the long-standing lack of mainstream social recognition for cryptocurrencies, domestic cryptocurrency projects founded by Chinese individuals lag behind those in Europe and the United States in terms of talent reserves, technical quality, and marketing promotion. This has led to the prevalence of a large number of "shanzhai coins" and "air coins" that lack technical strength and rely heavily on marketing.

In the cryptocurrency trading field, many countries abroad have issued licenses for cryptocurrency exchanges. For example, New York State in the United States has granted Bitlicence to numerous exchanges such as Bitstamp, Coinbase, Circle, and biFlyer, allowing them to legally operate Bitcoin-related businesses locally. Additionally, Bitcoin contracts and options trading can appear on traditional financial exchanges such as the Chicago Mercantile Exchange, which provides most overseas citizens with legal and compliant channels to invest in mainstream cryptocurrencies. Mainstream asset management companies are also gradually entering the market, injecting larger amounts of capital into the cryptocurrency field.

As the scale of cryptocurrency trading has reached hundreds of billions of dollars daily, many countries have begun taxing the returns on their citizens' cryptocurrency investments. Considering that the trading volume of cryptocurrencies is still growing rapidly, countries that regulate cryptocurrency exchanges can gain more fiscal revenue from this.

In contrast, in China, the cryptocurrency trading industry still exists in a gray area outside the mainstream regulatory framework. Strictly speaking, most exchanges are operating illegally, which keeps mainstream financial companies and internet companies at a distance from the cryptocurrency trading field, and ordinary citizens face high barriers to engaging in cryptocurrency trading.

In the cryptocurrency custody field, due to the lack of regulation and the high technical maintenance threshold, many exchanges, wallet providers, Token Funds, and collateral lending platforms have a demand for third-party secure storage services for their high-net-worth cryptocurrency assets. However, since mainstream crypto assets have considerable value, custodians must have sufficient endorsements and qualifications to gain the trust of those in need of custody services.

In Europe and the United States, many cryptocurrency custody companies have formed partnerships with regulators to gain customer trust. For example, Paxos has been approved as a trust company by the New York State Department of Financial Services, and BitGo has been approved as a trust company by the South Dakota Division of Banking. Tagomi and Xapo have obtained New York State Bitlicence, allowing many cryptocurrency project parties to cooperate with these officially approved trust companies to ensure the safety of customer assets. Additionally, traditional financial giant Fidelity has launched a subsidiary, Fidelity Digital Asset Services, leveraging its parent company's endorsement to manage cryptocurrency assets specifically for hedge funds, family offices, and trading companies.

In China, although many cryptocurrency wallets have launched custody services for cryptocurrencies, and their technology is well recognized in the industry, the lack of official endorsement and a clear mechanism leads most large asset holders to remain concerned and prefer to use overseas cryptocurrency custody services.

In the cryptocurrency payment field, hundreds of thousands of online websites and offline physical stores in Europe and the United States already accept cryptocurrency payments. Cryptocurrency payment companies like Bitpay and Wirex have achieved significant scale, allowing many citizens in Europe and the United States to enjoy a more convenient experience in commercial transfers, especially in cross-border payment scenarios, which can improve operational efficiency and reduce costs for businesses. In contrast, in China, due to strict regulatory control over third-party payments and the rejection of cryptocurrencies, only a very small number of merchants tentatively accept cryptocurrency payments, resulting in almost no usage scenarios.

In addition to the aforementioned differences between industries, similar to how the Chinese internet industry has transformed and innovated shopping and payment models created in the European and American internet sectors, the domestic blockchain industry is also particularly adept at modifying concepts created in the overseas blockchain industry. For example, many exchanges have introduced IEO, ILO, IGO, etc., based on the ICO model proposed overseas, and many public chains have launched variant consensus mechanisms such as BPOS, POC, and YPoS based on the POS and DPOS consensus mechanisms developed abroad.

Of course, the various phenomena in the cryptocurrency-related fields do not imply that the domestic blockchain industry is lagging behind. While the use of cryptocurrencies can bring more convenience to society to some extent, as their scale expands in the future, the impact of cryptocurrencies on the mainstream financial system will become increasingly significant. Whether this impact is more positive or negative remains a consensus yet to be reached in political and academic circles. For instance, to what extent does it affect the ability of high-level governments to regulate the macro economy, and to what extent does it interfere with the government's ability to regulate anti-money laundering and counter-terrorism financing? However, judging by the attitudes of many foreign governments toward Facebook's issuance of cryptocurrencies, most governments hold a negative stance and resist the large-scale diffusion of cryptocurrency influence.

At the same time, the flourishing of domestic alliance chains and their extensive implementation also have advantages over those abroad. This advantage is mainly reflected in the degree and progress of applying blockchain technology in the real industry, driven by government, enterprises, or based on national strategic needs.

For example, the cross-border financial blockchain service platform launched by the State Administration of Foreign Exchange attempts to leverage the trustworthy characteristics of blockchain technology to solve the difficulties and high costs of cross-border financing for small and medium-sized enterprises. It provides banks with services to verify whether the information about corporate collateral is authentic and whether the collateral is being reused or over-financed. Since its launch in March of this year, many small and medium-sized enterprises have benefited from it. By December 2018, the platform had completed accounts receivable financing amounting to approximately $10.169 billion, serving a total of 1,859 enterprises.

For instance, Ant Blockchain and Baidu Super Chain have cooperated with internet courts in Beijing, Hangzhou, and other places, meaning that the information stored on the alliance chain is recognized by the judicial system and applied in evidence-gathering and other judicial processes, helping copyright holders better protect their rights.

For example, this year, Ant Blockchain collaborated with the Zhejiang Provincial Department of Finance to create the Zhejiang Blockchain Electronic Invoice Platform. Official data shows that in the medical scenarios where it was first applied, 507 medical institutions in Zhejiang Province have gone on-chain, enabling 74 public hospitals in the province to achieve cross-region electronic invoice reimbursement, helping hospital patients quickly receive medical reimbursement funds.

In contrast, although the research and exploration of blockchain technology abroad are more in-depth and cutting-edge, its application is mostly still in the exploratory stage and has not been scaled up. For example, the blockchain plans of giants like Goldman Sachs, Facebook, and Telegram have not been implemented, or they focus on applications in areas like on-chain DeFi, specifically providing services for cryptocurrency holders, remaining distant from the general public.

Of course, the differentiation of blockchain ecosystems between domestic and foreign contexts is not only reflected in the industry but also in the open attitude toward cutting-edge blockchain technologies. In the European and American blockchain industries, code openness is the spirit advocated and executed by most blockchain projects. Most blockchain projects, including public chains and alliance chains, open-source their underlying code on GitHub.

The necessity of open-sourcing blockchain projects lies in the fact that it embodies the most important characteristic of blockchain's openness and transparency. The external world can assess the technological advancement, reliability, and openness of the project through the open-source code, while third-party developers can better participate in the ecological construction of the project through the open-source code. The Linux and Android systems in the internet industry, as well as Bitcoin, Ethereum, and Hyperledger in the blockchain industry, have achieved their current industry status to some extent due to open-sourcing.

However, in China, due to the deep-rooted patent mentality, the public's blind worship of patents, and the state's emphasis on "self-controllability," most blockchain companies are particularly fond of applying for patents. Just as the number of patents can determine the reliability and strength of their technology, many blockchain companies even transform their code into "original technology" after making simple modifications based on open-source code from overseas, subsequently applying for patents.

Although many public chains have open-sourced their underlying code on GitHub, these public chains mostly lack original cutting-edge technology and have relatively weak industry influence. The choice to open-source is more symbolic than substantive. For the increasingly prominent alliance chains in China, most exhibit a strong patent mentality and have not chosen to open-source, and many have not even disclosed their accounting nodes, resulting in a significant disadvantage in terms of openness and transparency for domestic blockchain projects.

Since 2019, although JD Chain and XuperChain have open-sourced part of their underlying code, these actions have not caused a fundamental change in the industry compared to the vast alliance chain ecosystem in China. Considering the long-term development needs of the industry, domestic alliance chains may need to put more effort into addressing this issue.

Due to the aforementioned reasons, the blockchain industries in China and Europe and the United States are moving along two different paths. Each of these paths has its advantages and disadvantages, but overall, the European and American path appears to be more advanced. However, in this emerging industry full of unknowns, the exploration journey is still long.

On the exploration path of economic development, the "Chinese path" has largely proven its success. In the exploration of more specific industries like blockchain and the internet, China, due to its unique national conditions, is also likely to encounter the emergence of its special path. Although there are still various issues that need to be addressed, the path of development is never singular. As long as the focus remains on application landing and serving the real economy, the "Chinese path" in the blockchain industry may also achieve success that is different from that of Europe and the United States, in different forms.