China’s determination to stay ahead of the curve when it comes to the utilization of blockchain technology was evidenced again this week, after the release of the country’s latest five-year development plan.
The word “blockchain” was reportedly mentioned for the first time in the 14th of China’s regular five-year plans, which lay out the country’s economic priorities for the period from 2021 to 2025, according to local news outlet Pingwest.
China’s exploration into new technology has been unceasing in recent years. From its ongoing scheme to roll out a central bank digital currency to its utilization of digital biometric hardware wallets for the digital yuan, China’s is already regarded to be at the forefront of national currency issuance.
All of this is despite a general distrust of open-source, decentralized cryptocurrencies within China, as evidenced by the country’s bans on cryptocurrency exchanges and initial coin offerings.
The recent commencement of digital yuan payments in China’s Shanghai department stores, coupled with the rollout of ATMs in the Shenzen region, also align with China’s goal to have 65% of its population in urban areas by the end of the next five year period.
The country’s willingness to work with business enterprises in pursuit of this aim was evidenced recently when the China Merchants Port — the largest port operator in the country — partnered up with Alibaba to promote the integration of blockchain tech in the port industry.
The five-year plan was criticized in other areas, specifically for its lack of broader economic ambition, and a tendency to focus heavily on debt reduction. Contrasting with U.S. President Joe Biden’s recent decision to issue another $1.9 trillion as part of a COVID-19 stimulus package, China recently axed plans to launch a $140 billion package for the same purpose.
Technology spending is expected to contribute higher returns to China’s GDP in the coming years, with research and development spending slated to be increased 7% each year until the end of 2025.
Private distributed ledger technology or public blockchain?
Some people think that permissioned distributed ledger technology can perform better than open blockchain because it is tweaked to address the issues of the latter. Such systems are also called “permissioned blockchain,” as if blockchain is a high-level concept and “permissioned” is one of its variants. But this statement is controversial and down below, you will come to understand why.
Is “permissioned” decentralized?
There are a lot of other options to choose from in DLTs: permissioned, private, enterprise, federated DLT, etc. And frankly, sometimes, it is not easy to distinguish between them. Therefore, for this level of discussion, let us compare just DLTs vs. blockchain.
A permissioned DLT and the mentioned variety thereof are not decentralized. There should not be any fallacy around this, as it might be fatal for a project. While some opponents to this statement might claim that decentralization can have a degree, and of course, permissionless blockchain is more decentralized.
Let us put it simply. If there is someone between two counterparties in a transaction, and you can do nothing about this, it is centralized. In a public blockchain, if an ordinary user does not want to rely on a miner for their transaction to be included in a block, they can draft their transaction, and mine a block themself. If the block is valid, the network will accept it. Of course, mining nowadays requires enormous computational resources, but there are no technical or formal barriers to it — you don’t need to seek permission to mine. In DLT, users of the network have different roles and authority, and ordinary users are not able to create and validate blocks. There is nothing wrong with having a centralized system; it is just a matter of understanding what you are dealing with.
Permissioned DLTs can be decentralized only from one perspective, i.e., by having a consortium of independent members (organizations, companies, etc.) running the network with the exclusive authority to create blocks. Having a few affiliated companies controlled by one beneficiary will not make it decentralized.
And keep in mind, any consortium structure with independent members can be decentralized but only for these members — it will always be centralized for all those outside of the consortium.
Is DLT a cartel?
A consortium (private/permissioned) DLT can be considered a cartel. Sooner or later, an antitrust body may question this. A safe strategy would ensure that the terms and conditions of the consortium were built in compliance with the antitrust laws.
By the way, to be completely centralized system is much safer. But a centralized system will never achieve the same level of reliability and credibility that blockchain can. It will be vulnerable as any other centralized system is, and here is why.
A centralized DLT is not immutable. The ledger can be rewritten arbitrarily by the one (or more) who controls it or due to a cyberattack. Because of its open and competitive nature (mining, staking, etc.), any blockchain can achieve immutability and hence its records will be credible. Thousands of independent nodes can ensure an unprecedented level of resistance to any sort of attack.
Usually, it comes next after the discussion about immutability. How to correct a mistake? What if you need to change your smart contract? What if you lost your private key? There is nothing you can do retroactively — alteration in the blockchain is impossible. What’s done is done. In this regard, the DLT is usually the opposite of an alternative to blockchain. You will hear that DLTs can be designed so that those who control the network verify transactions on entry and therefore, non-compliant transactions are not allowed to pass through. But it would be a fallacy to think that censorship in the network will ultimately exclude all mistakes and unwanted transactions. There will always be a chance for a mistake. Then what? A retroactive change as the last resort? But if you can alter history, you undermine the whole idea of blockchain. No other technology can ensure such a level of the immutability of data. It is not one of the advantages of blockchain — this is its distinguishing advantage.
Nevertheless, immutability is perceived as something that impedes its legal application. Say, your circumstances changed, and you need to alter the smart contact. The answer to this is the proper design of an application that does not undermine the immutability of the ledger. The smart contract should be designed in a way that the user can attach a new transaction to reflect a change toward the previous one. Blocks are firmly chronological and only the latest transaction will reflect the current state of affairs, while all previous transactions will be a historical reference. You don’t need to change history. The blockchain is a public repository of evidence for everything that happened. There are different methods of designing applications that address all possible legal issues; for example, this and this academic paper proposed solutions to manage property rights in blockchain registries. These issues are also discussed in the series of articles that I published last year.
Permissioned is not blockchain
If anyone questions it regarding your system, they will be right. Further discussion about why permissioned is not a blockchain can be found in this academic paper, but in a nutshell: Not every chain of blocks is a blockchain. Connecting timestamped chunks of data with hashes was invented by Haber and Stornetta in 1991. But nobody has ever called it “blockchain” because blockchain is more than just a chain of blocks. It is about how these blocks are created and validated. Blocks that are created are the result of an open, decentralized and uncensored competition. This is the definition of blockchain and this is what Satoshi Nakamoto designed. Hence, anything that is centralized (permissioned, private, etc.) is whatever but not blockchain.
Unfortunately, anyone is free to attribute the word “blockchain” to any technology they want, as there is no legal copyright or any legal protection to this word. DLT proponents tried hard to erase the boundary between these concepts. But it is only a matter of time until a few high-profile knockdown hacks of private DLTs show the real difference between DLT and blockchain and dramatically change the situation. There is a big difference in how many nodes ensure the security of the network, i.e., a handful of known nodes in the DLT network, or thousands and anonymous nodes around the world in the blockchain network.
We can argue about this on the theoretical level, but when it comes to losing money due to vulnerabilities in the system, nobody will listen to enthusiastic speeches about DLT. People will start asking questions. If you use “private/permissioned,” you should be ready for this.
If you still want permissioned
A safe strategy would be to use the word “DLT” in all communications. It might not address possible vulnerabilities, but you can then say: “We had never said it was blockchain.” By the way, ENISA (the European agency on cybersecurity) always uses “distributed ledger” instead of blockchain in their reports. Conversely, their colleagues in the National Institute of Standards and Technology in the United States used “blockchain” in their earlier report.
Do you want to create your own public blockchain network? It is not necessarily a good idea unless you have reliable technology and a robust plan. First, [permissionless] blockchain does not mean safe by default. To achieve a decent level of immutability and resistance to attacks (hence, credibility and a high capitalization of your coin), you need thousands of independent nodes all over the world. If you have enough resources to create your community on this hard path, your network will survive and you will reap the rewards. But what are the odds?
If you are still considering creating your private or permissioned network, think about how this infrastructure will be maintained. If this is solely your network, you can have a solution to this because its maintenance can be covered by the commercial applications that you develop on it. But you have to understand — the network maintenance is completely on your shoulders.
If you have a consortium of members, how do they redeem expenses on infrastructure? In a blockchain, there is a native mechanism to this — cryptocurrency. Independent nodes compete to mine coins. This is how the whole infrastructure is created and maintained. Those who develop applications on the blockchain need to worry about fees, not infrastructure.
But how about your DLT? Is your DLT only for private use among the members of the network? In this case, the end must justify the means, so the reason why independent players on the market created their own DLT network must cover the cost they bear to create and support it.
Consider another story about DLT by members who develop a network for outside users. Inevitably, you will need to design a viable economic model for the network members. No one will spend their resources for nothing or the resources will be applied unfairly — you will end up with a common tragedy. A possible solution to this is to create a native token of the network — say hello to cryptocurrency.
Private DLT o a blockchain?
Is a permissioned/private DLT better than a blockchain? This is not an appropriate question. They are different and their use depends on what you are trying to achieve. But it would be a fallacy to attribute the features of blockchain to a permissioned DLT.
Leading existing blockchains can provide you with reliable infrastructure for an application. The idea that immutability impedes the application of blockchain is a misconception. On the contrary, it is the major advantage as no other technology can provide such a level of credibility to records. Various methods exist to create mature applications without bumping up against the immutable ledger.
A solely controlled DLT is centralized and therefore requires as much attention to cybersecurity as any other centralized technology. A consortium DLT is decentralized for its members, but will always be centralized for outside users (if, of course, the DLT is designed for public use). At the same time, the use of such a DLT can be fruitful in a private application among independent members, but be careful with objectives as it can be considered a cartel and questioned by antitrust bodies.
Visa Announces Layer 2 Payments Channel for CBDCs and Stablecoins
Credit card giant Visa is delving into cross-chain interoperability for digital asset transfers with the announcement of a Universal Payment Channel.
On Sept. 30, Visa’s Global CBDC Product Lead, Catherine Gu, wrote that the company’s research and product teams are working on a new blockchain initiative called Universal Payment Channel (UPC).
The cross-chain interoperability hub will connect different DLT networks to facilitate transfers of digital assets.
Gu used the example of splitting a bill between friends using different types of money, such as a central bank digital currency (CBDC) and a stablecoin like Tether. She described it as a kind of universal adaptor for money:
“Think of it as a “universal adapter” among blockchains, allowing central banks, businesses, and consumers to seamlessly exchange value, no matter the form factor of the currency.”
Visa to Settle Cryptocurrencies?
Visa is confident that digital currencies will be a part of daily financial life in the future. The payments giant is also confident that there will be more CBDCs launched, even if the United States is still dragging its feet on that front.
Visa’s UPC aims to connect all of these newly released CBDCs and stablecoins in one cross-chain platform to enable seamless transfers. The UPC hub would connect dedicated payment channels between blockchains such as CBDC networks for different countries or vetted private stablecoin networks.
Gu also pointed out that there were certain transaction speed advantages that Visa could offer over existing public blockchains that are much slower, though she didn’t name names. The new platform would act as a layer 2, processing transactions off the main chains.
“UPC’s specialized payment channels would be established off the blockchain and leverage smart contracts to communicate back with the various blockchain networks, delivering high transaction throughput securely and reliably and improving speeds overall.”
The UPC solution aims to serve as a network of blockchain networks, she added, “adding value to multiple forms of money movement, whether they originate on the Visa network, or beyond.”
There was no mention of the ability to transfer cryptocurrencies such as Bitcoin or Ethereum, but the infrastructure laid out would most likely permit it. Visa referred to BTC as digital gold earlier this year and is clearly eager to be a part of the space.
Cardano Partner COTI Launches Visa Debit Cards
In a related development on Sept. 30, digital fintech platform COTI announced new products that will provide Visa debit cards and bank accounts to users.
In July, Visa approved the first debit card that would allow Bitcoin payments for the Australian market.
Metaverse Group Welcomes Tokens.com As A Stakeholder
The concept of a Metaverse has become popular in blockchain circles due to the fact that the new technology is an important enabler of it.
The idea is that it can be used to build an online world that doubles the real world in a virtual environment. This, of course, includes the creation of virtual private property.
Blockchain investment firm Tokens.com Corp. specializes in allocating capital to digital assets used for crypto staking and DeFi applications.
The firm has decided to extend these investments into the burgeoning market of virtual real estate.
It recently shared its plans to purchase a 50 percent stake in Metaverse Group, the first real estate company of its kind. This transaction is expected to be completed by Q4 2021.
Metaverse Group’s portfolio consists of premium properties in major platforms such as Cryptovoxels, Decentraland, Somnium Space, and others.
It is the first to collect NFT real estate that is used to build a virtual world known as the Metaverse.
This makes the deal with Tokens.com one of the largest land acquisitions in the Metaverse to date.
Tokens.com will benefit from its stake in the company after the completion of the Metaverse Real Estate Investment Trust .
This will create an opportunity for other enterprises to gain exposure to virtual worlds through a rental model. These rentals will then become a source of revenue for Tokens.com.
Andrew Kiguel, CEO Of Tokens.Com, Reflected On The Deal: “We Look Forward To Monetizing These Digital Land Assets To Generate Recurring Income In Line With Tokens.Com’s Vision Of Providing Public Market Investors Exposure To Yield-Generating Digital Assets. Ultimately, We See Metaverse Group As Being A Significant Land Owner And Developer In The Digital World With The Ability To Pay Out Distributions In A REIT Structure.”