Xinhua Finance: Ten Major Events in the Blockchain Industry in 2020

The author of this article, Guo Xinghua, is the Chief Economic Analyst of the Zhongjing Community Blockchain.
Looking back at 2020, blockchain technology developed rapidly, the industry continued to grow, and innovative applications emerged in various scenarios. In response to the sudden outbreak of the COVID-19 pandemic, blockchain also played a significant role in joint prevention and control. China has continuously increased its investment in basic research, with the number of related papers published in the past two years being comparable to that of the United States and significantly higher than that of other countries. In terms of patent applications, the cumulative number of blockchain patent applications accounts for nearly 50% globally, and the gap with the United States has widened significantly since 2018. China will be the most important application market for blockchain technology. However, the results of the China Academy of Information and Communications Technology's trusted blockchain evaluation show that about 50% of blockchain technology currently adopts foreign open-source underlying platforms, and other core technology components also come from abroad. The independent innovation of underlying technology remains an important direction for our efforts.
1. The People's Bank of China DC/EP Pilot Launches 30 Million Red Packets in Two Phases
Since the lottery registration channel opened in Shenzhen on October 9 and ended with the random distribution of digital red packets in Suzhou on December 11, the People's Bank of China has tested both offline and online consumption scenarios for DC/EP. This indicates that the plan to steadily promote the digital renminbi has transitioned from small-scale closed testing to large-scale open testing. Compared to global native digital currencies like Bitcoin and Libra, which cross national borders, the digital renminbi is primarily focused domestically, with pilot programs concentrated in small, high-frequency, retail application scenarios. In contrast, blockchain-native digital currencies have largely exited the small, high-frequency payment scene due to their continuously rising transaction fees.
As early as August 24, the Bank for International Settlements (BIS) published a working paper titled "The Rise of Central Bank Digital Currencies: Drivers, Methods, and Technologies." The report argues that central bank digital currencies will greatly change the future of human payment and lifestyle. Among various global economies, the People's Bank of China's digital currency DC/EP is at the forefront.
2. The United States Lists Blockchain as a Key Technology
In October, the U.S. National Security Council released the report "National Strategy for Critical and Emerging Technology," which includes distributed ledger technology (DLT) as one of its key areas. Conceptually, distributed ledgers and blockchain are two independent concepts; blockchain is a form of implementation of distributed ledger technology, or in other words, blockchain technology is a subset of distributed ledger technology. However, currently, both terms generally refer to the same technology. The report identifies the "distributed ledger technology" that has spawned blockchain and cryptocurrencies as one of the key and emerging technologies that require close attention to ensure that the U.S. maintains its leadership position in global technology. U.S. think tanks have proposed the theory of Digital Currency Areas, suggesting that digital currencies and fiat currencies will have a strong competitive relationship, leading to a more fragmented international financial system due to this global competition. This action by the U.S. signifies that blockchain has been classified as a key technology at the national security level, and the U.S. needs to vigorously develop these technologies, no longer providing them to competitors. In other words, the core blockchain technologies of the U.S. will no longer be open-sourced for free. This is a nightmare for blockchain projects that have "forked," as the "fork" development teams only need to modify and optimize the target open-source project without changing the mature underlying architecture and code system of the target project to issue their own projects. On the other hand, this is a significant advantage for enterprises with highly independent innovation in blockchain technology, as "fork" projects will stagnate and soon become sources without water. Although independent development is difficult and slow, it can progress steadily.
3. Facebook's Digital Currency Libra Renamed to Diem
In early December, Facebook's official website announced that the originally planned super-sovereign digital currency Libra has been renamed to Diem to emphasize its simpler structure. Regulatory agencies reacted poorly to the early proposals of the Libra project, leading to a large-scale adjustment of the original plan. Diem aims to first launch a single digital token backed by the U.S. dollar. Its digital wallet has also been renamed to Novi (previously known as Calibra). The release of the Libra white paper in June 2019 sparked widespread discussion among domestic financial institutions, blockchain companies, and scholars, focusing on concerns that Libra could affect financial stability, erode control over monetary policy, and threaten privacy. From a regulatory perspective, the design and technical route of Libra will bring significant uncertainty to the international monetary system, where the interests of Western countries led by the U.S. cannot be guaranteed. This renaming does not represent a technological regression; rather, it indicates a compromise between regulation and technology. The U.S. has already viewed Libra as a tool for a new type of currency war, legislating and deploying it. Meanwhile, Libra continues to advance, achieving a settlement speed of 80,000 transactions per second, with functionality and performance at a world-leading level. With regulatory obstacles cleared, the new digital economy entity Diem is about to take the world stage, accelerating the arrival of a new monetary landscape.
4. Libra 2.0 White Paper Announces Currency-Chain Separation and Coin Abandonment for Chain Preservation
In April, the Libra 2.0 white paper was released, which included a large number of compliance-related designs and decided to abandon the transition to a permissionless system. Although many blockchain technology enthusiasts viewed this report as a "historical regression" and a "betrayal of ideals," it broke the inherent perception that digital currencies are bound to digital currency platforms. Previous research, including that of the IMF and various central banks, failed to escape this framework. Libra announced that its platform could handle multiple currencies; if a country chooses to develop its own central bank digital currency (CBDC), Facebook would abandon the circulation of Libra in that country and use the Libra chain platform to assist the country in developing its own CBDC. The Libra 2.0 white paper clearly states that Libra is a platform rather than a digital currency arena. Current theoretical research focuses too much on digital currencies without considering the importance of platforms. Currency competition needs to include both digital currency competition and platform competition. Libra 2.0 aims to establish a digital currency platform rather than compete with the digital currencies operating on that platform. This design is more likely to gain regulatory understanding and is more aligned with the essence of future digital currency competition, making it very clever.
5. Payment Giant PayPal Announces Support for Cryptocurrency Payments
In October, PayPal announced its entry into the cryptocurrency market, allowing customers to buy, sell, and hold Bitcoin and other cryptocurrencies using its online wallet. Starting in early 2021, PayPal customers will also be able to use cryptocurrencies to shop at its 26 million merchants worldwide. Cryptocurrency payments on PayPal will be settled in fiat currency (USD), and merchants will not receive payments in cryptocurrency. PayPal hopes that this service will encourage the global use of cryptocurrencies and prepare for new digital currencies developed by central banks and enterprises. PayPal has 346 million active accounts worldwide and processed $222 billion in payments in the second quarter of 2020. PayPal was one of the first members of the Libra Association but announced its withdrawal a few months later. PayPal has obtained its first conditional cryptocurrency license from the New York State Department of Financial Services. The significant volatility of cryptocurrency prices is attractive to speculators but not ideal for shopping experiences. PayPal's move is a major boon for cryptocurrencies, and PayPal may gradually become the most important cryptocurrency exchange globally in practice.
6. Blockchain Officially Included in China's New Infrastructure Information Infrastructure Category
On the morning of April 20, the National Development and Reform Commission held its regular press conference for April. The meeting clarified the scope of the recently discussed new infrastructure, with "blockchain" officially listed as part of the information infrastructure in the new type of infrastructure. As a guarantee for secure data transmission, blockchain technology makes data difficult to tamper with, traceable, and co-governable. It can leverage its inherent advantages in the digitalization process of cities and explore new applications in various vertical industries, including new infrastructure. This is a significant boon for the blockchain industry, as the favorable conditions brought by new infrastructure will provide tremendous momentum for the development of blockchain technology. It also means that the standardization process of blockchain technology in China will accelerate, and blockchain will be applied in more scenarios, industries, and sectors.
7. Bank Confirmation Blockchain Service Platform Launched
On December 18, the Bank Confirmation Blockchain Service Platform (Blockchain Platform for Bank Confirmations, abbreviated as BPBC) was officially launched. The platform is promoted by the China Banking Association and the China Certified Public Accountants Association, with over 100 banks and dozens of accounting firms applying to access the platform. The application layer of the platform is primarily based on the ICBC Xichain and provides functional modules such as confirmation requests, confirmation distribution, confirmation replies, compliance checks, statistical analysis, and data dashboards. The digital transformation of China's banking industry is about open banking, and blockchain technology provides a secure foundation for data openness. The launch of this platform indicates that state-owned banks have achieved significant results in the mid-to-low-level technology field. The technology of ICBC Xichain is independently developed, making the BPBC's technical architecture more secure compared to those based on single technology modules or open-source technologies. The digitization of confirmations is an important advancement in the path to open banking, empowering through the banking network, reducing the degree of manual intervention by related parties, enhancing risk control, and lowering the risks of data errors and fraud. Another highlight of the platform is that data is available but not visible; it retains only the information of the confirmation transmission process and does not retain confirmation data information, focusing on information isolation and confidentiality to ensure the security of data for banks and firms.
8. IMF Releases Cross-Border Payment Report "Digital Currency Cross-Border Payments: Implications for Macroeconomic Finance"
The International Monetary Fund (IMF) has released in-depth reports on digital currencies for several consecutive years, from believing in 2016 that digital currencies have the potential to change finance, to a detailed comparative analysis of the rise of digital currencies in 2019, and to a comprehensive examination in 2020 of the changes that will occur in the macro-financial landscape. The impact of technology on the world always occurs subtly from unseen places. Looking back at recent progress is always astonishing; this series of reports documents that our understanding of digital currencies is undergoing rapid upgrades and iterations, with comprehensive disruptions to existing perceptions occurring periodically.
9. Bitcoin Price Hits New High of $24,220, Increasing More Than Sixfold Within the Year
Currently, Bitcoin remains the largest and most widely influential product of blockchain technology. Looking back at the market this year, the price low was $3,783 in March, and the price high was in December. The entry of Grayscale Alternative Investment Fund has become the biggest driving force for the market, with its 6-month to 12-month lock-up period ensuring a period of one-sided market. It is considered the "largest Bitcoin holding institution in the world." Currently, the reasons for bullish sentiment mainly focus on investment demand, with evidence showing that traditional financial companies on Wall Street have also entered this field, as the historical performance of 2020 is quite persuasive. Digital cryptocurrency investment has become the third hot direction after going long on tech stocks and shorting the dollar.
However, we cannot find reasons supporting its price increase beyond capital speculation in various analysis reports. Remember those famous bubbles in history? This time, the bubble is distributed and may last longer than what the great Buffett anticipated. Statistics show that since 2016, there have been 10 instances where Bitcoin has fallen by 20% or more, 7 instances where it has fallen by 30% or more, and 4 instances where it has fallen by more than 48%.
10. Hong Kong Issues First Cryptocurrency License
On December 15, BC Technology Group (863.HK) announced that its OSL exchange has obtained the first virtual asset license issued by the Hong Kong Securities and Futures Commission, classified as Type 1 securities trading and Type 7 automated trading services. This means that Hong Kong has issued its first cryptocurrency license. After the platform officially goes live, customers can trade high-quality cryptocurrencies, including Bitcoin (BTC), Ethereum (ETH), and strictly screened security tokens (STOs) through OSL's secure compliance platform. For individual investors from the mainland, OSL's license cannot provide services to small retail investors and is only available to professional investors or institutions. If an individual, their assets must not be less than 8 million Hong Kong dollars, and institutional assets must not be less than 40 million Hong Kong dollars. For individuals, a Hong Kong bank account is also required, and transactions can only be conducted in Hong Kong dollars. Unlike Japan and Singapore, Hong Kong currently does not have a dedicated legal system for the virtual asset industry but issues corresponding licenses within the framework of existing financial service licenses for companies applying for virtual asset licenses.