Governments around the world are trying to find ways to improve public services with blockchain. According to a report from Deloitte—which is likely already outdated considering the fast development of the technology—more than a dozen countries around the world are running pilots.

China is one of them. The country’s effort to grab its position in the emerging technology has been an ongoing project: blockchain was written into the 13th Five-Year Plan in 2016. The effort is apparently paying off. During 2017, the country became the number one in the world for blockchain patents with its central bank, the People’s Bank of China (PBoC), topping the list, according to research by IPRdaily and incoPat. Building virtual identities for its citizens—the cornerstone of many other applications to come—has become a top focus.

Image credit: Deloitte

Social insurance is going blockchain

THEKEY, a blockchain startup specializing in government data commercialization under a company called E-BaoNet, is trying to put social insurance on the blockchain. The first step in accomplishing that is securing a robust ID verification system but the task is even more important considering it involves sensitive health information.

Government data is the basic or “the key” to any blockchain identity application—without it the application is useless. But collecting this data is not an easy feat. According to the company’s Chairwoman and CEO Catherine Li, the problem is that there is no central database. Only China’s Ministry of Human Resources and Social Security (MOHRSS) has 200 databases across the country.

The data also must be used under strict rules: it cannot be released to third parties or leave government custody. It also cannot be downloaded or seen by unauthorized persons, according to THEKEY.

“We have visited several countries and we realized that no government is happy to release government data since they are the owners,” Li told TechNode. “But right now the Chinese government is more open. We are trying to educate the government to release the data so it can better serve citizens in their daily lives. Of course, we have to make sure that data is secure.”

THEKEY’s core technology is Blockchain-based Dynamic Multidimensional Identification (BDMI) and it uses biometric data as its base—another area where the Chinese government has been making heavy investments. BDMI is meant to simplify often painful visits to the doctor in China involving queues and an unseemly amount of paperwork. Patients will download an application and scan their faces using machines available at hospitals or with apps on their phones.

Building an application that can undeniably verify a person’s identity is complex: the system relies on several steps to verify a user, including data from other sources such as telecommunication companies and location data. Individual users, service providers such as hospitals and insurance companies and the validator, which is THEKEY, are all connected through smart contracts and TKY Tokens.

“We set the laws, regulations, standard policies for different industries into the smart contract. This structure makes sure that government regulations will be strictly followed and government data privacy will be well protected,” said Li.

THEKEY Chairwoman and CEO Catherine Li (Image credit: TechNode/Masha Borak)

The project is still underway but THEKEY’s project team has already implemented an earlier ID verification system which not based on blockchain in 66 Chinese cities covering 210 million people. The company is also eyeing foreign markets in Southeast Asia.

Blockchain projects are multiplying in China

Social insurance is not the only blockchain use case that Chinese government is exploring. In March, the first central bank-backed blockchain platform in China, the Blockchain Registry Open Platform (BROP), was launched by Zhongchao Blockchain Research Institute, a company operating under the PBoC. The platform is another effort to cut through China’s bureaucracy, daunting both for local and foreign companies. It is an open platform for developing independent intellectual property rights based on blockchain providing digital credentials for enterprises, ownership registries and information on public services. As in the case of THEKEY, credible user identification will be important.

Blockchain-based ID is also going mobile. Tencent and China Unicom, a state-owned telecommunications operator, have launched the TUSI SIM card with new identity authentication standards for the Internet of Things (IoT) industry which among other things will be used in smart city applications.

Other blockchain use cases that are being trialed across China are blockchain-based tax invoice recently launched in the southern city of Guangzhou and supervision of ex-prisoners, parolees, and probationers which was rolled out in the same city in May. The project will use wearables to track ex-offenders and develop a credit evaluation system.

Local governments are also trialing blockchain solutions for renting property as in the case of Xiong An New Area, a city close to Beijing, where housing companies have teamed up with Alibaba and other partners. Tencent is building a blockchain-based logistics platform with the China Federation of Logistics and Purchasing which aims to solve a big headache for small and medium enterprises.

One of the questions that are drawing attention is whether China will one day issue its own digital currency. Although the government aversion towards cryptocurrencies is by now well known—ICOs have been banned since September 2017 while crypto to RMB exchange is now illegal—the Digital Currency Research Institute at PboC has filed 41 patents applications for commercial applications of blockchain and digital currency payments. According to former PBoC governor Zhou Xiaochuan, “it is safe to say that the digital currency is inevitable due to technology development.”

The Chinese government is also stepping up efforts to regulate blockchain with the Ministry of Industry and Information Technology publishing the “2018 China Blockchain Industry White Paper” (in Chinese) examining legal protection and efforts on establishing national standards for blockchain technology by the end of 2019.

The future of blockchain government

For governments, jumping on board the blockchain train makes sense. Governments are full of data which means there are many more blockchain applications waiting to be explored. With digitalization, electronic databases are constantly being updated with information on transactions, sales, fees, certificates, approvals, and much more.

According to Creus Moreira, founder and CEO of Swiss authentication company Wisekey, in the future, China will have to think of itself more as a platform competing against other platforms. Platforms should offer a range of products citizens can access.

“You have to have a very strong digital identity strategy in China,” Moreira said during this year’s GMIC in Beijing. “All the objects you produce and import need a digital identity. Then decentralized blockchain platforms to store the ID and that people can access. . . This will create a huge amount of data which can be mined with AI and improve the system.” 

Virtual identities and governance: Danny Deng on China’s blockchain future

Some even believe that blockchain-based virtual identities will be crucial for the future of states. As Chairman of TaiCloud Danny Deng said in an earlier interview with TechNode, digital identities could present an opportunity for countries around the world to reposition themselves. Citizens will have a physical and a digital identity with the latter enabling a more flexible notion of citizenship. Estonia is an example in the making: the country launched a blockchain-based e-Residency program.

“All countries will compete with each other to attract the most talented people, best technology, and smartest capital. If you miss this chance, you may miss a hundred years,” said Deng.

This article was updated on July 4th, 2018 to clarify the rules by which government data can be used by companies.

Masha Borak is a technology reporter based in Beijing. Write to her at masha.borak [at] Pitches with the word "disruptive" will be ignored. Read a good book - learn some more adjectives. More by Masha Borak

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