In the shadow of the splitting up of the Blockchain Service Network — China’s once-hyped blockchain bridge between the East and the West — Conflux announced that it had received another endorsement from a regional government, this time in Hunan.
Hunan’s official embrace of Conflux Network, which is headquartered in Singapore, follows a similar endorsement by Shanghai last December.
In China, a government endorsement allows a company to access lucrative public sector contracts. Relationships are key to doing business in the country, and official endorsements like Hunan’s are notable events with consequences for a company far beyond mere public relations value. The ultimate goal of Conflux’s partnership with Hunan, according to an email from the company, is to share and verify all government administrative data on a blockchain infrastructure powered by Conflux.
Conflux — an open-source, layer-1 blockchain protocol — seems to be pulling off what few blockchain companies have been able to do on the mainland before: getting government seals of approval, so to speak, for a public, permissionless blockchain network.
What is the secret to Conflux’s success in China?
Though Conflux is registered in Singapore, the company’s investors and core employees are part of China’s tech elite and have deep mainland roots.
Founded in 2018, Conflux has raised US$35 million, according to Crunchbase, from investors including Sequoia China and Baidu Ventures — the venture capital arm of China’s equivalent of Google.
According to Conflux, at least 10 out of the company’s 18-people development team, including founders David Chow and Fan Long, graduated from the computer science program at Tsinghua University — which is sometimes referred to as “China’s M.I.T.”
“Conflux is honored to be endorsed by the Hunan Government, whom we very much look forward to working with,” said Conflux Global Managing Director, Eden Dhaliwal. “Hunan is evolving into an epicenter for science and technology innovation and Conflux is proud to be at the forefront of this exploration and development. We strongly believe a positive relationship with Chinese state-backed entities is an instrumental piece to the puzzle of widespread blockchain adoption.”
Hunan’s plans for Conflux
According to Conflux and local media coverage, the company will be working closely with the Hunan government to build out blockchain infrastructure to enhance the region’s GovTech initiatives. Recently, the Hunan government initiated a three-year plan for blockchain, to build out the industry in the province while accelerating blockchain projects for supply chain management, tax compliance, electronic signatures and digital contracts.
As part of its three-year blockchain plan — the first of its kind for a provincial government in China when it was unveiled earlier this year — Hunan aims to build 10 blockchain-based public service platforms and five blockchain industrial parks, with a target of connecting 30,000 enterprises that will produce 3 billion yuan in revenue — or about US$443.5 million — across a variety of sectors.
“The lab at Hunan University creates a launching pad for more research and development opportunities in the great province of Hunan,” Dhaliwal said. “Not only will Conflux founders Fan Long and Ming Wu be presented as honorary professors, they will help foster an ongoing partnership with students and professors who may be interested in developing a Conflux incubation in the future.”
Special barriers for blockchain firms — especially non-Chinese ones
Navigating Beijing’s blockchain policy can be a tricky process. While the country has identified the technology as a key pillar of the new economy, blockchain companies can’t be run on the mainland the same way they are in the West or the rest of Asia.
Conflux’s level of penetration into China’s provinces is certainly unique, as many non-Chinese blockchain infrastructure providers have hit barriers due to regulatory compliance requirements — requirements that are certainly possible to abide by but would require a fundamental change to the core infrastructure of most projects.
Encryption, which is at the core of blockchain technology, is a non-starter in China unless it is developed in China and the key registered in Beijing. Furthermore, local securities laws mean that any blockchain that has an accompanying token — which Conflux does not have — is a no-go in China.
One rival of Conflux — Hyperledger, the open-source platform that is also a close competitor technically — has made inroads in China as well, But Hyperledger and other non-Chinese blockchain companies don’t have the same level of official accolades and access to government projects under its belt.
Hyperledger is currently said to be working on a Chinese government-approved version of its fabric — with a China-developed encryption protocol at its core and no accompanying token — which allows the non-Chinese blockchain company to operate on the mainland.
“China realized that this is a technology that’s not just enabling, it’s transforming, and is a way to leapfrog other countries in the establishment of trustworthy information systems and trustworthy economies,” Hyperledger CEO Brian Behlendorf said in a recent interview with Forkast.News. He calls the technology that Hyperledger is developing for the mainland “blockchain with Chinese characteristics.”
China’s rules on blockchain encryption and bans on token offerings have caused BSN — China’s new and ambitious Blockchain Service Network — to already fork into separate domestic and international versions as a result of pushback from its state-backed partners. This split has significantly degraded the importance of the project, as blockchain technology agnosticism and being that “East and West” bridge were key tenants of the platform.
Although BSN will still aim to support most of the world’s major blockchain projects, a separate group of enterprise blockchains will have to follow China’s special rules — Beijing-approved, with no accompanying token and made-in-China encryption — to be allowed to operate on the mainland. Which means the Chinese provincial government-endorsed Conflux blockchain is likely meeting all those criteria.