China is ahead of us in many ways.
Box office receipts, social media engagement, and executions mostly.
In many ways, though, they’re way behind.
Let’s consider Chinese President Xi Jinping’s recent comments about blockchain as a case in point.
“Major countries are stepping up their efforts to plan the development of blockchain technology. Greater effort should be made to strengthen basic research and boost innovation capacity to help China gain an edge in the theoretical, innovative and industrial aspects of this emerging field,” said Xi.
China had been notoriously frosty regarding blockchain before this because of its relationship to Bitcoin, which they still don’t like. This abrupt about-face about the distributed ledger technology kicked off a rash of Chinese companies putting blockchain in their name, doing pivots towards blockchain, and exploring their blockchain based options in a way that should sound awfully familiar.
We did this in 2017 and it was a hilarious disaster.
Does anyone remember Long Blockchain?
They were a maker of branded long island iced tea alcoholic beverages before they decided to take advantage of the crypto-craze and rebrand themselves as a blockchain company. They styled themselves Long Blockchain, and released to the press that they were making a pivot away from their business-plan making beverages towards “exploration of and investment in opportunities that leverage the benefits of blockchain technology” and that they were exploring blockchain related acquisitions.
Their stock enjoyed a massive spike, but when the NASDAQ caught wind of it they sent out a letter telling the company their stock would be delisted. Its shares would then be eligible for trades over the counter, but by that time the company had abandoned its plans to purchase Bitcoin mining equipment.
Long Blockchain is perhaps the most notorious example of this type of investor deception, but there were lots of companies making these fake-pivots for a short-term stock bump. All of which, it should be said, are no longer with us. They’ve either moved on, say, to cannabis or esports, or whatever the next hot industry is, or they’ve passed on to the great blockchain in the sky.
That’s what China is doing:
“At present, we have detected the blockchain companies with the word “blockchain” or in its business scope. There are more than 32,000. However, after actual monitoring, we found that there are not many companies that have blockchain technology or chain ownership. About 10%, or even less than 10%,” said Wu Zhen, head of the Internet Financial Security lab of the National Internet Emergency Center (NIEC).
As you might suspect, most of these are scams.
The NIEC’s research finds that there at least 755 distinct ‘zero-return’ coins and 102 pyramid scheme coins.
“The actual pyramid currency has little to do with the blockchain, just borrowing the blockchain hype to scam,” Wu said.
It’s been happening since 2016. A firm called Liu promoted its proprietary digital currency, sharing price fluctuations and promising high returns, which of course, was a lie. The scammers behind Liu bilked 1.5 billion yuan (or USD$213 million) from 34,000 people.
“Anytime there’s a new technology like blockchain, and there’s any kind of mania around it, this is what the fraudsters take advantage of,” said Joshua White, assistant professor of finance at Vanderbilt University.
What does a legit blockchain company look like?
A legit blockchain company is one that knows and understands the value proposition and limitations of the technology. Essentially, it’s a communications platform that can’t be altered, changed or manipulated in any way, except through the use of specific processes called consensus protocols. That brings distinctive use to any industry that requires fidelity of information transfer—like for example—the meat industry, which has suffered from issues surrounding spongiform encephalitis (mad cow disease) somewhere along its supply and distribution chain.
Every data-point from farm to plate would be logged on the blockchain and should mad cow make an appearance, each could be investigated for practices leading to that malady. That way, supply and distribution chains can be better organized, cleaned-up when filthy and investor confidence restored.
That’s a proper use of blockchain.
Now in North America, it’s two years after the blockchain bubble blew up in investors faces, and the industry is just starting to come around. Most small-scale companies engaged using blockchain have either moved on (such as Atlas Blockchain – now an Israeli-based pot play called Isracann Biosciences (IPOT.C) or are struggling to stay alive and relevant, such as Graph Blockchain (GBLC.C) and Blockchain Foundry (BCFN.C).
But blockchain has found a home with some big name companies.
Alibaba Group Holding (BABA.NYSE) has 90 blockchain technology patents, and has developed several blockchain solutions to optimize its own business processes. It’s T-mail subsidiary leverages blockchain for supply chain management to track food adulteration and counterfeiting.
Mastercard (MA.NYSE) is exploring ways to use blockchain to help their clients keep safe against fraud, lower their transaction costs and optimize transaction speed.
IBM Blockchain (IBM.NYSE) offers a public cloud service that customers can use to build secure blockchain networks. They’re involved in about 500 blockchain projects, including IBM Food Trust, we.trade and CLSNet.
It’s not that blockchain technology is only limited to big companies. It’s not. But it’s that big companies like Alibaba and IBM tend to be the ones that use it best. For a small scale company leveraging blockchain technology in new and interesting ways, look no further than Bigg Digital Assets (BIGG.C), which tracks the movements of Bitcoin on the blockchain for the undisclosed government agencies involved in law enforcement.
Maybe China will learn their lesson and not go down the same rabbit hole we did.
—Joseph Morton