Blockchain is Going to Shape China, Watch out for Nervos CKB

China’s high-level involvement in blockchain is no longer hidden by now. The Asian giant is forging ahead with its exploration of the various opportunities the emerging technology — like 5G, Artificial Intelligence and Internet of Things — have to offer.

From the Chinese president’s somewhat endorsement of the technology in October 2019 to the eventual launch of the Blockchain Service Network (BSN) as a platform to ease development burden, the general consensus out there is that China is leading globally when it comes to blockchain technology.

Led by the State Information Center, the national blockchain platform seeks to build a global commercial infrastructure network to help companies produce all kinds of blockchain applications faster and cheaper.

This government’s presumed friendliness, which on its own has petered the uncertainty that usually surrounds policies that are related to blockchain and crypto activities in China in the recent past, has so far gone a long way to entrench projects to unleash innovation in the space. It has helped deepen projects’ roots in China to rise above operational constraints and aim for adoption in a highly competitive and diluted global market.

These China-originated projects (e.g. NEO, Ontology etc) are looking to take advantage of the seemingly slow pace of blockchain adoption in the West — mainly as a result of the U.S.’ hesitation to adopt technology developed in China — as a headstart ahead of others to spread globally including across South America.

From Huawei — a BSN member which had partnered with Shenzhen authorities to accelerate blockchain adoption in the city and launched its Blockchain-as-a-Service solution in May — to Tencent’s blockchain e-invoicing and Alibaba’s traceability blockchain system, top Asian tech giants have now been showing interest in the technology. They have rolled out initiatives that support the grand objective set out by President Xi Jinpin when he stressed the importance of blockchain and the need to accelerate its development in China in a wide range of sectors to some of the Chinese Communist Party’s most senior members.

Lesser known projects are catching up with the trend too, introducing new products and infrastructures built on blockchain to explore the generational impact of the technology especially in the wake of the rising embrace of decentralized finance (DeFi) services — a sector that has seen a rapid growth in various financial services offered through decentralized applications in the past year majorly between the U.S. and China with less related activities from Europe.

With the regulatory uncertainty surrounding blockchain in the U.S. presently which has been a setback for many projects in the country, China and Chinese projects seem to be riding high in their exploration of its potential even as enterprise use continues to be a key focus for blockchain in China and, to a very large extent, Asia.

While the Chinese government may not go for decentralized public chains, the development is a plus for embracing blockchain technology in China and a positive for the sector as it could largely benefit several sectors particularly key localized layer 1 public blockchains in China in the long-term.

Layer 1 blockchains target large pools of developers to offer them protocols that are global, decentralized, secure and neutral as possible. As is obtainable in other regions, public chains are building their developer communities in China though localization still plays an important role for success.

Hence, localization competition is a very important strategy in China with key factors such as a project’s standing with the government, decentralization (since permissioned chains could just use the BSN) and its developer ecosystem being of utmost consideration.

According to GitHub’s data spanning all unique commits across all branches and repositories for these public chains, Nervos, Tron and NEO have dominated the group’s developer activity from 2019 (as at March 2020) leaving other top players like Qtum, VeChain and Ontology behind.

The data compilation from the Layer 1 blockchain’s localization Strategy in China , done by a research and consulting firm that is focused on the digital asset market, Delphi Digital, shows from the Github commit activity across all repos for these projects over the past year that Nervos has the most developer activity followed by Tron and Qtum.

As a new layer 1 sustainable token economic system that differentiates itself from the rest through its belief that a layered approach is the right way to build a blockchain network, Nervos Common Knowledge Base (CKB) believes the current crypto-economic models for layer 1 protocols — primarily focused on incentives and punishments to ensure network consensus while native tokens are used mostly to pay transaction fees or to satisfy staking requirements that provide Sybil resistance — could be better.

It is based on the view that a layered approach is the right way to construct a system instead of building an all-encompassing single layer. That is, to decouple concerns and address them at different layers to enable the layer 1 blockchain focus on being secure, neutral, decentralized and open public infrastructure while smaller layer 2 networks can be specially-designed to best suit the context of their usage.

The Nervos CKB is the first layer 1 blockchain built specifically to support layer 2 protocols. It hopes to achieve this complementary role by focusing on security and decentralization instead of overlapping layer 2 priorities such as scalability.

It is a Bitcoin-inspired value preservation layer of the entire Nervos network that is open and public, and proof of work-based blockchain designed to be maximally secure and censorship-resistant as a decentralized custodian of value and crypto-assets.

In short, the CKB aims to be the infrastructure to store the world’s most valuable common knowledge, with the best-in-class layer 2 ecosystem providing the most scalable and efficient blockchain transactions.

With localization in China being a crucial factor that has hindered Western companies from thriving in the Asian country due to a limited market, culture and competition understanding of them thus imposing a global structure rather than a China-focused division, Nervos CKB stands out from a number of layer 1 blockchains competing to attract developer interest as not likely to be caught in this web.

It is well-grounded in China hosting plenty of meetups and community leads with documentation in the native language to drive the domestic developer ecosystem; backed by $30m grants program and sustainable DAO to fund the projects in ecosystem; and an issue-free relationship with Chinese regulations thus being able to grow to even partner with one of China’s largest banks, China Merchants Bank International.

The Asia/Pacific region accounts for 46% of the world’s traditional developers, who can code in their traditional programming languages with Nervos and lead to more unique applications being built.

Unlike Western based projects which face the aforementioned barriers that hinder their fostering a developer community in China, Nervos may be better positioned to grow a developer community in China for its home advantages — presence in China, developer tools in the native language, ample funding and community engagement — even in the face of Ethereum’s global lead.

It stands a better chance of being adopted by more users over time even as the growing importance of public blockchain infrastructures has seemingly become glaring to policymakers and central banks. They have somewhat realised that payment settlement processes are too slow, costly, and inefficient hence growing talks of digital currencies e.g. after Facebook’s Libra Project announcement, the European Central Bank has set up a cryptocurrency task force to follow the People’s Bank of China’s digital yuan initiative.

Policy support will see more companies enter the blockchain space and make more attempts to evolve with the technology. Fostering a community from within China — with its 1.4 billion population — to launch and develop an international presence seems a plausible strategy, too, for an ideal layer 1 blockchain that makes no compromises on security, decentralization and sustainability.

One of the benefits of a layered architecture is the fundamental layer can be kept neutral, while allowing the upper layers to customize for different regulation conditions in different countries and regions. In China the majority of blockchain applications are built on permissioned/consortium blockchains for regulation reasons.