Blockchain without cryptocurrencies: How might China’s BSN change Web3?

Transcript

Angie Lau: 2019 — the year blockchain technology got the green light from China’s top boss, Xi Jinping, that set into motion a juggernaut with far-reaching impact. It was no longer just about the Chinese crypto exchanges or crypto miners. It kick-started conversations about a Chinese central bank-backed digital currency, powering Chinese cities into the metaverse and so much more.

Well, none of this would be possible without the digital architecture this ecosystem needs. And we’re going to talk to someone who’s very closely involved in building just this in China. Welcome to Word on the Block, the series that takes a deeper dive into blockchain and all the emerging technologies that shape our world at the intersection of business, politics and economy. It’s what we cover right here on Forkast. I’m Editor-in-Chief Angie Lau.

And today we’re in conversation with Yifan He. He’s founder and CEO of Red Date Technology, that’s backing BSN — the Blockchain-based Service Network — in China. Yifan, thanks for joining us. It’s great to have you on the show.

Yifan He: Thank you, Angie. Thank you for having me.

Lau: Let’s start from the very beginning. For the audience not too familiar, what are you and your firm helping build BSN? What is BSN? Let’s start with the basics. What is the Blockchain Services Network that you’re building out? And what is Red Date Technology, your firm’s role in its development?

He: BSN basically is a project that we started in China with some local partners from the state-owned enterprise and some government agencies. The purpose of BSN basically is because we believe blockchain technology is so powerful. It shoots far beyond the only use cases of cryptocurrency, so it should benefit all the IT systems in the world.

But back in 2018, everything about blockchain was cryptocurrency, so that’s why we want to build a new infrastructure. If we integrate all kinds of technology, including public chains, but somehow just getting rid of cryptocurrency to make that into an appealing IT infrastructure, then all the businesses in the world, all the families, individuals, high school students can use this infrastructure to easily build a decentralized application, and it benefits their own matters. No matter if it’s a business matter, a business process, or just a high school student project, so that’s basically what we’re trying to do.

But this is a massive project because we want to enable all the cloud services to easily adopt BSN infrastructure. So we need to integrate all the APIs (application programming interfaces) from major cloud services like AWS, Google, Microsoft, Ali Cloud in China, Huawei Cloud.

And also, at the same time, just like I said, we don’t want to just build one chain, like public chains or fabric, which everybody can (build). We want to integrate as many blockchain technologies as possible. That’s why we integrate almost all the permissioned frameworks in the world. As long as you know a name, we’ve already integrated. Also, we integrate all the major public chains into the infrastructure.

So, because what we really think is that it doesn’t matter what you want — it’s just infrastructure. You can build whatever you want. But as a public chain, we actually put it into two categories: one type of public chain we call ‘crypto-based,’ which is the regular Ethereum, regular Algorand, regular Tezos, so it’s still for the crypto industry, so people can easily access nodes of those public chains; the second category we build we call ‘non-cryptocurrency public chains.’ They’re still public chains based on popular frameworks like Ethereum, like Polygon, like Cosmos. But for those types of public chains, we actually take out the cryptocurrency from layer-1. So when people access those public chains, they pay gas with fiat money at a fixed rate, which means it’s still public infrastructure, but people can spend, like, a US$0.02 fixed rate to mint NFTs (non-fungible tokens) for their traditional business. So what we’re trying to do is, basically, if you need permission, you’ll have it. If you need the regular public chains, you have it. And if you need some public chain, but without crypto, we also have it. So, just global infrastructure for everybody to use at a low cost.

Lau: That’s actually fascinating, because as we know right now, cryptocurrency is really what incentivizes a lot of these blockchain layer-1s. And that’s the ecosystem. But what you’re saying is that you can actually still use the public blockchains by removing the cryptocurrency and then just adding a fiat label to it? Isn’t that kind of like a stablecoin? How does that actually function? Have you created some sort of payment layer that allows you to be the intermediary between the person paying fiat, and then you delivering the crypto payments to an Ethereum, or to a Cosmos, or to other layer-1s? How does that work?

He: Yeah, it’s a very good question. It’s actually how we built the whole system. First, the non-cryptocurrency version of the public chain. It’s basically a new chain. We built three new chains based on the existing framework, not just part of Ethereum. We basically hard-forked it into three new chains, but actually what we did is only taking out the cryptocurrency.

So, when people use those three non-cryptocurrency public chains, they actually use fiat money. We can accept credit cards and we can also accept USDC anonymously. So we want people to use those technologies anonymously. We don’t even collect anything. So then people actually use USDC to purchase a new token. On our BSN Spartan Network, it’s called NTT. It stands for non-tradable token, which means when you purchase an NTT at US$1, one NTT equals US$1. But an NTT stays in your wallet — it cannot be transferred.

We have three public chains right now, I think in one year it will go to, like, 20 public chains on the network. Then you can actually choose to convert the NTT into what we call a ‘wallet.’ Inside the wallet, it’s no longer a cryptocurrency, it’s called gas credit, so you can actually use the NTT only to convert them into gas credits, because for exchanges, the units are different. It could be 20,000 gas credit on this chain, a 200 gas credit on another chain. It doesn’t matter — it always is $1. Then you consume those gas credits to execute transactions, deploy your smart contract, call any smart contract on the chain, it consumes the gas credit. And also, the gas credits are not transferable.

So, then you basically use fiat money to purchase NTT to purchase gas credits and consume them. After consumption, those gas credits actually get distributed, so it basically is the way regular people use USDT or credit cards.

Lau: Because what you’re actually doing is fundamentally reducing it back to the utility of the layer-1, of the actual blockchain protocol, rather than what we’re seeing right now in the space, where it’s very speculative. There’s a lot of back and forth. We’re watching price movements go up and down. What you’re saying is that there’s actually a utility layer here. And we all know China’s stance on crypto, so it’s very in keeping with internal domestic policy, but at the same time recognizing and not ignoring the utility of that blockchain protocol. That’s interesting.

He: Yes. Because we’re trying to build BSN into global infrastructure, actually the BSN Spartan Network, with the three non-cryptocurrency public chains, they’re outside China, because they’re still public chains. Public chains without cryptocurrency are still against regulations inside China, because there’s no KYC (know your customer), there’s no content control. There are many things.

If we run the Spartan Network inside China, it’s still illegal, so that’s why we don’t allow anyone from China to set up data centers on the Spartan Network. It’s only for the global market. So that’s why two days ago we launched it in Hong Kong. Hong Kong is the home base of the Spartan Network.

And also, it’s outside China and the target customer is traditional IT industries — it’s not the crypto industry. We work with almost 2,000 very famous Hong Kong companies. The first time we talked to their IT departments, they understood what we’re trying to do immediately. It’s always hard to talk with my crypto friends, (who say,) ‘Why would you even do this?’ But for traditional IT departments, they actually immediately understand this, because the way we positioned it is that first, the BSN Spartan Network is basically a decentralized cloud services network, so it’s not even about blockchain. We consider blockchains as the operating system within this decentralized cloud.

Then it becomes a new choice for those traditional IT industries. It’s the largest banks in Hong Kong, the largest land developers, the largest hotel chains. They say, ‘Ok, now I can actually put some data not only in my back-end system, but in a public environment.’ So, for example, my customers can have much, much better privacy there. They can control some of their data — not put everything in my back-end system … So, then, for IT departments, there are two choices: one is a back-end system, one is a public system. They can choose how they build part of their IT infrastructure.

Lau: But why wouldn’t they choose just the original layer-1 protocol, Ethereum, pay with crypto, do all of those functionalities? Why wouldn’t those firms do just that?

He: First, many many firms — for example, the banks — one of them is  building use cases on Spartan right now. The bank actually is HSBC. By their internal regulation and policy, they cannot touch cryptocurrency. Even if they say, ‘Ok, we just need a little bit of cryptocurrency to pay for the gas,’ they can’t. And also those large, traditional IT companies — they don’t want to touch cryptocurrency, either, because what they do is, like, when they use AWS, they just pay the fixed (fee). It’s fixed — they know what the cost is, so next year it’s very easy for their IT departments to put a budget plan together. I mean, with cryptocurrency, they have no idea how much money they will pay next year.

For 99% of the IT systems in the world, they just want to pay for what they use. They don’t want to get involved in a speculative trading kind of business, holding those assets. It’s too risky for them, and they don’t care. You’ll say, ‘Ok, holding them, you’ll probably make some money.’ They don’t care. That’s not their business.

Lau: And you’ve forked away to allow this to happen. You’re still using the basic protocol, but the fork is that you’re not using crypto.

He: Yes, exactly. So, when you really understand how the wallet gets the gas credit, and then when you connect to non-cryptocurrency chains, it’s exactly the same as when you’re using those public chains like Ethereum, Polygon, Cosmos. Call the APIs, how to deploy smart contracts, how to call them and how to execute transactions. They’re exactly the same. So if you go through our user manual when you reach ‘how to use those chains,’ it goes back to the Ethereum user menu.

Lau: How does the Ethereum community think about this? I mean, all your crypto friends are probably looking at you, Yifan, and saying, ‘Are you saying that this is the death of crypto?’

He: No. First, what we’re trying to do actually is to bring blockchain technology to other industries — not only stay within the crypto industry. Because right now the cryptocurrency is on layer-1, that makes it actually very hard for blockchain technology to penetrate traditional IT industries. So, right now, when we take out the cryptocurrency, it’s very easy for them to accept. Personally, I still think of cryptocurrency as just one type of application built with blockchain technology. There should be many, many, many applications out there. And also, on the Spartan Network, we’re not even against people building a layer-2 cryptocurrency on the Spartan Network.

Personally, I don’t like cryptocurrency, everybody knows that. But it’s like AWS. All those major companies, they don’t like gambling websites, but if there are ways to legally run a gambling website, they’re very good customers — they welcome them with open arms. We also welcome the crypto industry to build a layer-2 crypto on the Spartan Network. So they can do whatever. Just imagine if that happens — on the Spartan Network, the crypto application and the traditional applications, they actually co-exist. This could be a very good opportunity even for the cryptocurrency industry to actually link to the traditional IT industry. This could be one of the ways to take cryptocurrencies to massive adoption, what they always talk about.

Lau: We’ve talked before, and in the early days of BSN we had a lengthy discussion, and I remember that one of the things that was critical for you and building out BSN was, really, how do you allow enterprise to accelerate using this technology, to find the efficiencies internally and engage that way. It was very much built from an enterprise perspective.

And I note that today, in 2022, you reached a significant milestone at the end of July this year. Transactions on the BSN Distributed Digital Certificate Network (BSN-DDC) surpassed the global transaction volume on the Ethereum network. That’s a pretty big deal. You’ve got partners now like Hyperledger Consensus, Polkadot, Tezos. And BSN is really growing into that global scale that in the early days you were talking about. Where are you in the lifecycle of the BSN ecosystem? We’re starting to see traction. Are we going to continue to see you expand partnerships with other protocols and chains?

He: Yeah, of course. First, you just mentioned the BSN-DDC Network. It’s actually the equivalent of BSN Spartan inside China. So we don’t actually promote the BSN-DDC outside China because there’s no public chain on that. There are six what we call open permissioned blockchains, so we actually convert the public chains into forks of the public chain inside China, but it’s fully in compliance with Chinese regulations. There’s KYC. If someone does something bad, their wallets can be disabled. We have to do that in order to run that business. So, only in China, we have, like, 1,300 business platforms connecting to the DDC network and there’s 20 million. We have like 20 million wallets right now on the DDC network, and the daily transaction (volume) every single day is beyond 1 million transactions.

So, it gave us a lot of confidence in the BSN Spartan Network outside China, because everybody inside China is not related to the cryptocurrency industry. All traditional businesses, — 60% of them — are NFT related, 40% just using the DDC Network as a decentralized database technology. We are going to expand the DDC Network and the Spartan Network all the time. There are six open, permissioned blockchains on DDC, and seven new chains are under development right now. These include Casper and Everscale. And for the Spartan network, we will also increase from three chains to probably 20 by the end of next year, because we really want to integrate all major public chain frameworks into the Spartan Network. So for developers, they have a lot of choices.

And also between all those chains, they’re actually competing with each other. Because on the Spartan Network, each chain has its own operators. Not only we operate everything — we actually have a bunch of partners working with us on those chains, so they actually can set different prices for the NTT to convert to the gas credit, which means that with this type of competition, the price will continue to drop. Right now the benchmark is like mining a standard (ERC)-721 costs you US$0.03, it’s fixed, but we expect by the end of next year it will drop to US$0.01. Eventually it’ll be US$0.01 to do a 721 transaction, so then the NFT technology and public-chain technology become available to everybody. A high school student can run an NFT business with, like, US$10 spending each month.

Lau: It’s affordable, but it’s the technology that allows for it. But what’s so notable here is that within China, you’re doing more transaction volumes than the rest of the world combined on the Ethereum network. That’s pretty incredible. And it shows the acceleration in the adoption of the 1,300 firms that are currently under this network right now — that’s 1,300, this is a country of 1.4 billion — the 1,300 firms that you’re working with, that’s just really pebbles in the ocean of opportunity here. That’s incredible to me. It shows, really, the possibility of blockchain technology. And what does this actually mean on a global stage, when these firms are competing with other enterprise firms around the world, at efficiency levels that would definitely be higher than if you weren’t working on a blockchain network — not necessarily yours, but working with blockchain?

He: Yes, that’s actually how we say this. China really could be a leading force in the enterprise blockchain industry, because most of the firms outside China still focus on DeFi, GameFi, cryptocurrency-related scenarios, which actually are simple scenarios. The 1 million transactions on the DDC network are actually more complicated than the 1 million transaction on Ethereum, because on Ethereum almost all the transactions are transfers between wallets. As a technical person, I consider that kind of execution of data operation very simple, as simple as possible.

But there are a lot of transactions on the DDC network. It becomes so complicated. We see smart contracts with, like, 100 methods. It’s very complex. It actually caused a lot of trouble on the DDC Network. It breaks down the chain sometimes. We need to work with chain operators 24 hours, and team together to fix them. That’s why the Cosmos framework on the DDC Network has become so improved, because they never see that kind of volume with those kinds of complicated transactions. So, we’re actually helping those frameworks to improve even more than public chains, because operators from the Cosmos community, the CEO who’s sitting on the Cosmos support directors, she basically said, ‘Ok, we never see this kind of traffic and this complicated transaction.’ Then they actually spent like two months to fix that. Then it made the entire Cosmos framework become much, much powerful. We see this kind of thing happen in China because there’s no crypto.

Lau: You’re actually stress-testing a lot of these protocols in real life on an enterprise level, even before they’re technically ready.

He: Yes.

Lau: Yifan, there’s so much to unpack here. And I want to address the elephant in the room about China’s cryptocurrency policy and anonymity, all of that when we come back after this short break, when Word on the Block returns.

But folks, you’re just going to have to wait just a tiny bit longer. This conversation with Red Date Technology founder and CEO Yifan He, who is building out BSN, went just a little bit longer than our usual 30 minutes. In fact, it stretched on for close to an hour, so we’ve decided to turn this into a special part one. This was just part one. You’ve got to wait for part two, because what we talk about is how non-crypto blockchains work. What’s the future for non-crypto blockchains? And why it’s important to boost the use of non-crypto public chains from his perspective. What’s actually happening in China? And so much more. You’re going to have to wait for part two of this conversation of Word on the Block with Yifan He. So, for now, we thank you for your patience. But I promise you, it’s going to be worth the wait. I’m Angie Lau, Editor-in-Chief of Forkast. Until the next time.