In an effort to attract more international developers and expand mainland China’s blockchain ecosystem, China’s state-owned Blockchain-based Service Network (BSN) is planning to build a universal digital currency payment system and also add an open-source protocol layer to build Ethereum-based enterprise applications. 

BSN’s new digital payment network will facilitate blockchain usage in China with central bank digital currencies and stablecoins but not other cryptocurrency. According to BSN, a beta version of the new payment system will be launched in the second half of 2021, and a fully functioning system that accepts central bank digital currencies (CBDCs) from different countries will be up and running in the next five years.

BSN will also be partnering with New York-based blockchain company ConsenSys to use Quorum — an open-source protocol layer — to support developers to build Ethereum-based applications for BSN China, according to ConsenSys in an announcement today. BSN China does not support public chains but has over 100 public city nodes spread over 80 major cities in mainland China. 

Backed by Beijing as well as state-owned companies such as China UnionPay, China Mobile and China Merchants Bank, BSN is the world’s biggest enterprise blockchain ecosystem spearheaded and controlled by a government. Experts say BSN exemplifies China’s ambition to be the world leader for blockchain technology and development.  

Since its commercial launch in April last year, BSN has already gone through a number of iterations. One of the most notable changes took place last July, when the blockchain network split into two entities — BSN International and BSN China. 

BSN International provides permissionless services by integrating public chains like Ethereum, NEO, Nervos and Polkadot. It wants to attract global developers to build DApps through BSN International’s portals and also work with a few city nodes to achieve interoperability with BSN China.

See related article: Joe Lubin of ConsenSys on acquiring Quorum: ‘a match made in blockchain heaven’

BSN China, where ConsenSys Quorum will be added in, owns the majority of BSN’s city nodes across the mainland. It is a separate, permissioned system that cannot access any public chains and is subject to regulatory supervision in accordance with China’s strict laws for cryptocurrency and blockchain. For example, China requires all the developers for BSN China to provide identification information before they could use its blockchain services, according to a government document

New BSN digital currency payment layer 

In its 2021 outlook, BSN announced that it would focus on developing a new payment network based on blockchain technology to support other countries’ central bank digital currencies (CBDCs) and stablecoins, the cryptocurrencies pegged to reserved assets. Evidence of this will be seen during the first quarter of this year, when a new CBDC and a stablecoin payment layer, which will give more payment options for developers to pay the services fee of BSN. 

He Yifan, chief executive of Red Date Technology, the Beijing-based technology company behind BSN’s technological development, said in a recent TechNode webinar that the universal digital payment network on BSN would be similar to a universal wallet, such as WeChat Pay and Alipay. But the wallet would not contain virtual cash. It would contain CBDCs such as China’s new e-CNY digital yuan and stablecoins. 

One reason why BSN is embracing CBDCs and stablecoins and eschewing other cryptocurrency as payment methods is it would cancel the mechanism of requiring payment of “gas fees” in the native tokens issued by the platform. 

He said the companies he talked to are reluctant to run their apps on public chains, because the cost would be in the form of cryptocurrency, which is highly volatile, so the cost of building DApps would not be stable. Also, Chinese law does not permit BSN to issue any native tokens, as China has effectively banned initial coin offerings (ICO) in the aftermath of the ICO  bubble and crash in 2017. In 2019, China put its ICO ban in its draft banking law, which decrees that no entity or individual may produce or sell tokens, coupons and digital tokens to replace renminbi in circulation in the market, or be used as renminbi substitutions circulating in the market. 

This means that while other public chains, such as Ethereum can issue native tokens to pay the gas fee and become a circulation currency in its blockchain ecosystem, BSN has to figure out another way. CBDCs and stablecoins — which are also based on blockchain-related technology and circulated in the blockchain ecosystem — may be more acceptable to BSN developers in the future as a faster and more universal payment approach.

Alternative way to use Ethereum in mainland China

BSN used to be expected to be a bridge connecting the East and West that would attract more global users to get into the network as well as globalize China’s blockchain technology. But as BSN split into two, like Bytedance’s Douyin and TikTok for different markets, people began to doubt BSN’s value as a bridge between China and the rest of the world. 

But BSN, especially BSN China is now working to attract more international developers by integrating more international features within the boundaries of China’s regulations. Having an open permissioned blockchain and adding ConsenSys’s open-source protocol layer are two big steps toward that goal.

See related article: How China is embracing blockchain, from DCEP to BSN

The BSN Open Permissioned Blockchain Initiative launched in November 2020 in the BSN China portal is a hybrid that combines the public chain and permissioned chain. It adapts public chains to offer permissioned controls over node deployment, and removes the mechanism of using cryptocurrencies to pay for gas fees.  

Nervos, Polkadot, Tezos, Algorand, Cosmos, Ethereum, IRISnet and Huobi Chain are in the initial release public chain to join in the initiative. 

Quorum, which provides an open-source protocol layer, will be packaged with other mainstream permissioned and public blockchain networks to sell to enterprises and governments, offering a much larger and deeper market in China, according to ConsenSys.

“ConsenSys Quorum is unique in that it spans the whole range of needs for enterprises in terms of privacy and permissioned features, yet is still compatible with the Ethereum mainnet,” said Joseph Lubin, CEO of ConsenSys and a co-founder of Ethereum, in a media statement. “We believe that the different open source blockchain protocols need to interoperate, and with the BSN we are taking a significant step forward in bringing ConsenSys Quorum to many enterprises in China that could benefit from transparent collaborative business networks.”

Quorum — which ConsenSys acquired from JPMorgan last August — will be able to add on the open permissioned frameworks to create a path for public chains into mainland China. 

“After the launch, BSN will include Quorum in BSN’s training programs in 2021 to substantially accelerate the enterprise adoption of blockchain technology and Ethereum-based solutions in China,” Yifan He, in a statement. “GoQuorum will also be interoperable with other permissioned frameworks and open permissioned frameworks on BSN, building the blockchain cornerstone for the ‘new infrastructure’ in China.”