China and the Blockchain - Zhang Ruidong, Academy of Internet Finance at Zhejiang University

Transcript

[Music] hello and welcome to the blockchain and us we're pioneers and thought leaders talked about their journey in blockchain technology crypto assets and a token economy and I'm your host manuel stackers if you enjoyed this podcast please give it a top rating and review on itunes and feel free to follow me on twitter at Manuel's dagger this episode is brought to you by the car to finance the cart is the leading switched digital wealth manager providing its products and services to individuals family offices charitable organizations banks and as managers its investment strategies lead the way they harness the

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application of the next-generation internet and now to the interview genre Don thanks a lot for taking time today my pleasure the the Swiss consul in Shanghai introduced us recently because we both were at some point part of his future of finance series in China and China has said very early on that they're not so much in favor of cryptocurrencies and Bitcoin and ICS but very much in favor of the blockchain so how exactly does that work proxy as we know is the technology that enables Bitcoin Proctor is believed to have more

application areas in different industries in different aspects of our society the reason that digital currency or Bitcoin or SEO is restricted in China is because people who are not well informed me make a lot of investment mistakes and in China a lot of people tend to think something that's new or

something they believe some people told them could make them quick money and they possibly will jump on the opportunities I think the Chinese government is very cautious in not want a lot of people to be mislead or to make investment mistake so protection of investors in China is also is what the Chinese government is trying to do now of course we know a CEO

initial coin offering has a lot of miss leading projects they don't have actual technology the misuse the term of blockchain or digital currency to fool people around that's also why government trying to you know prohibit or restrict the a ce o--'s in China right now as we know globally there are over 1500 digital currencies all of them are actually what we call tokens you know over these 15 hydrant tokens or

cryptocurrencies a lot of them have new you know real technology behind or underlying them so that's a reason yeah when when did that become clear in China to the government you know actually the ICO was started you know in 2016 2017 and then the Train in the first half of 2017 was accelerated and then after being aware of the problems or potential problems the Chinese government issued

regulations and policies in September in 2017 to prohibit I see us to be used in China mm-hmm okay yeah that was exactly the last time I was I was in China and that was right nan was was the big news but you know many many people I speak with they say blockchain technology without a cryptocurrency will never work so what do you think about it I think it says it is true to a large extent you know big block camp was initially

invented and used in Bitcoin the initial purpose of blockchain was to be used as the general ledger or distributed ledger to store the value or to a low value to be transferred globally we thought a central you know Bank or central authority but proc chair wasn't designed in a very beginning to be used for other areas for example for identity verification for certificate

verification for other applications like supply chain finance e therefore blockchain you know has to be modified for example in the original B the coin design you have to mine alright you have to solve a puzzle to earn the right to create a blog and then to earn a bitcoins alright live which is called Manion but for some other applications do we still need to use the mining process alright I have people have a lot of computers

working together to solve a puzzle to earn the right to create a blog to earn bitcoins or to earn other types of digital currencies so that's the the cowlick how the Bitcoin was initially design but with other applications we still need to insert a question why people are motivated to be part of your block chain system right to help you create blocks so the incentive problem has to be solved for the blockchain systems the Uni shall be the coin you know is that incentive a is you earn the

right and then you also in the same time or be the coins so that's the incentive so for other applications they have to answer the question how people will be motivated to for example upload their information to the blockchain for example do I want to upload my social security number do I want to upload my driver license to the blockchain why would I be motivated so the motivation has to be dude has to have has to be a soft so that's why to a large extent no matter it's a token or it's some form of cryptocurrency they need to be generated in the same time

the blockchain is being expanded so that's why I think it's essential for the blockchain solutions to have an incentive system and this incentive system can be in multiple forms it can be you know a token digital token or a type of a cryptocurrency but the bottom line is that you must have something that's real that's of real value to people for you to issue the tokens and for other people to accept the tokens as a form of incentive or a form of you

know pay payoff but currently in China there there there are no exchanges right or I mean I thought that the exchanges were shut down yes all of the you know we used to have a major exchanges last year like Bitcoin change China after I think lost September October I think all of them have moved out of China so they have landed in places like Hong Kong Singapore some of these currencies landed in USA or other places so

basically I think the Chinese government is clear that digital currency trading hears very speculative it's not considered a normal investment behavior that's why it were prohibited and and these digital currency could change moved out of China but can can people living in China can they still legally own cryptocurrency that they bought abroad somewhere well the China is not blocked by at least as of now is not blocked by the by

the government or to my knowledge is blocked by the by the government so people have different ways to buy digital currencies overseas as long as you have internet access I think there are ways for you to buy or feed digital currencies there might be you know regulations that prohibit these channels to sow or feed digital currencies for

Chinese citizens but we don't have I haven't seen a regulation like this you know published on the newspaper or on the Internet and then we have friends we know people in China who you know live in China but they can do the digital currency trading using oversea exchanges mm-hmm okay so it hasn't they haven't exactly worked the depend on cryptocurrencies then I think to a large extent yes for example if you want to treat these two currencies overseas

then you must know the channel you must know how to operate it it's not a very straightforward like before you must have a certain technical skills or you must have a someone you know like a middleman working for you to make this make this happen I'd like to speak or I'd like to ask a little more about the current developments that you see of of maybe startups working on blockchain technology in China what what kind of projects do you see them focusing on at the moment they are different kinds of projects

that are undertaken by Chinese startups for example the major areas include supply chain financing the intellectual property protection some project want to develop cross chain platforms so allow digital currencies or tokens to be transferred between different blockchain systems they are also startups who want

to solve problems in other areas for example the secret he exchanges or the overnight loan between banks the payment system between banks what about identity is there a focus on solutions like this as well there to my knowledge there some startup strengths you you know come up with some solutions in this area we I

mean he specifically to what we are doing we are also all my team is also in the process of trying to develop a pro 2 system prototype system about identity verification and how people can become a part of the system be willing to or motivated to upload their identities or identity document to a production system hmm when when you start a company like this in the in the blockchain field how

how closely are you working with the regulatory body in China I mean I think in China tears China has its own regulator for blockchain technology I believe and in how closely do they want to be involved with with the development there I think to answer this question you have to know that the area you are working with is that subject to existing regulations for example if the solution or the the problem you're trying to solve involves borrow money and then it will be subject to the regulations which

is about what interest you me George what where you want to catch your lessons so you can lend people money but in some new areas like identity verification identity document operating through the blockchain system these are new areas we haven't seen any regulations which is which says that you cannot do this or you cannot do that so new areas certainly you know kind of like a a career or a you know weather where you don't you cannot find existing

regulations that govern this areas so these are areas you know what we call our you know new areas when you develop products in these areas maybe eventually you need to work with the government or by communicating with the regulatory bodies and and see if some new regulations can be developed but in a beginning we don't see any big issues in new areas where you know you cannot do this or you cannot do that hmm have you I mean we talked a little bit also about other jurisdictions before you know the US or

or Switzerland have you looked into starting projects in in other areas outside of China as well no basic outside of China basically we are doing case studies see a net learn elsewhere what are being developed or what are the latest development in terms of prying prochain technologies to solve to solve problems what kind of differences do you see there you know from companies in China approaching that the blockchain is

the technology in comparison to maybe the US or Europe in some few differences there are there are few differences why yes the Western countries like us or Switzerland the regulatory bodies are more responsive to the latest development for example in Switzerland some new regulations about SEO have been developed so the regulation I think in

Western countries are more responsive or they want to quickly have regulations odd in this aspect Chinese regulate regulatory bodies sometimes is a little bit you know conservative the possibly want to make sure you know everything is safe or secure before some or become a little bit more mature before regulations can can come out so this is

a one area of difference which means how fast a country's regulatory bodies can respond to the latest technology development and also on the other hand this is another area of difference yes which is in Western countries the technology companies focus more only long-term or longer-term development is the instead of I'm trying to focus on short-term money-making opportunities

because SEO or digital tokens can quickly make some people get rich fast so in this area basically this is about you know the people the entrepreneurs you know are you focusing on short term or long term so this is also one area of different but the Chinese and preneur over the last you know 20 30 years are also becoming more and more mature so they you know also want to look for long term paybacks

but there's still some because you can still see some difference in this in the and another area would be the who is because the role of government in China government is pushing the development of new blockchain technology applications aggressively holding was exactly are they are they doing that for example the infinity they put this in the government connect like the State of Union Union you know that type of report government

report come like at the policy level they increase government at different levels to support the you know to the creation of new innovation zones or the creat a special zone for the blockchain firms to be landed in this area and then in the same time enjoying some tax reduction benefit or some other benefits you mean these these special economic zones that's right especially example

zones or we call it economic zones or innovation zones is there one of these or several of these zones already focusing on blockchain technology yeah in in Hangzhou there's several innovative zones that have already been created just especially for the blockchain firms to be landed in this in these areas and now other places like you know Shanghai like Beijing like changing and they also have a similar policies or similar innovative zones to encourage blocks and firms to come to

come to their their their locations mm-hmm I mean I think it's it's quite unique that already at the highest policy level there is this focus on blockchain technologies I tend to disagree with a little bit because there you know for any new technology in the beginning it's always a mix of reality and myths or imaginations if you look look at where the with Bitcoin digital currencies or block chains or being

embraced with some places are kind of like little bit to our surprise for example Cambodia Cambodia is creating also like a special lava like what you said a little bit ago you know special economic zone all right to increase the digital currency or SEO firms to come to Cambodia Venezuela we know Venezuela has a lot of problem with their own currency

you know there's that we have a total problem with her with the inflation problem but they're also trying to issue their own these two currencies back to buy the oil but you know right yeah yeah patria so other countries you know some countries in Africa okay they also want to see if can something can be done here all right so with creepers of course one fundamental understanding we should have is that for this countries they like a lot of infrastructure we also like a lot of talents in this area so these countries when they want to do something about the

digital currency or blockchain basically they want to have their own policy to attract talent from elsewhere to come to their countries to start some blockchain or digital currency project so I think yeah I think globally you can classify the countries maybe into two categories the first category like USA like Swiss Switzerland like other European countries they want to see if blockchain technology can offer new solutions to some existing problems but then we also

the second category other countries who are speculative we want to see what can I take advantage of this technology bring some benefit to talk to my country so this is a basically you know two categories so interesting point I wasn't aware of that I mostly looked at Western countries and there there is a lot of favorable regulations for icos cryptocurrencies but there is not a push and so that's that's very surprising what you just said there with these Asian countries that have on the policy level that that really try to attract a lot of the companies have you have you seen entrepreneurs in China who want to

be active in blockchain technology have you seen them leave and go to other countries where they think maybe they have better better chances of success or just a better ecosystem well you know when we talk about abroad can only talk about the digital currency basically we see two categories of people the people who are in the category of cryptocurrency and also people who are in the category of approach in technology for the blockchain technology people I think you know they just want to find solutions they won't have their new star startup scene in mature or stable countries but for the people for people

who are in the category of cryptocurrency they want to go to places where there are favorable regulations or favorable tax policies so these people we see the food countries like you know Cambodia Singapore you know a lot so there are two categories of people so depending which category people you are talking about we see big you cowlick all the flows of them to go to overseas rocks young people I don't see them have you know have a big reasons to move

overseas mm-hmm but if they're also some kind of brain drain associated to that well production is new Bitcoin has been you know started in 2009 it has been around for a number of years but in terms of developing blockchain solutions in terms of developing proxy and systems for you know to solve different problems yes we like people who have skills not only in a programming but also internet and order and then the specific

application areas for example understanding how the existing banking system works or the existing systems handle the business transactions let alone you know the technology has changed also very rapidly and evolving so fast for example few years ago have we heard about the programming language called cool solidity no and they sought a new languages just came out just you know a few years ago so the it takes time to train skilled Greta there graduate who are skillful in

these new technologies to develop the new systems yes so I grew up with you there is a brain drain there you know a lack of talents so basically we have to train people you know to be productive in developing and this new blockchain based solutions let's take a quick break for a message from our sponsors the card finance take tradition into the future harnessing a combination of cutting edge technology and personal advice in the service of your personal interests the card cuts through the financial noise and focuses exclusively on scientific and evidence based investing to give

investors a better understanding of how to view the financial markets and provide them with the respective investment strategies to learn more please visit www.techyv.com that VES dar tes - finance comm we have to dream people you know to be productive in developing this new blockchain based solutions are there also policies that focus on that on the on the education in the blockchain field well at least in some major Chinese universities like Georgia University they have started or

they're going to offer their first blockchain based classes either at the graduate level or maybe at come like like a seminar class level so there are initiatives in major universities you know who have started all doing to start over offering classes related to protein technologies right I mean in your view do you think people overestimate what the technology can do well in the beginning I think this is a good thing you know in the beginning we

always mix reality with imaginations or mix reality with Miss so in the beginning you know we trying to see or explore all kinds of opportunities but we should really adopt attitude which yes you should be not if you not have a hothead or choose to try to mislead people to make speculative investment or

this serious assuming this technology is going to bring quick money to you so so I think you know this is a a mature what a mature society the behavior the mature said it should have when did you originally get in touch with with Bitcoin or with blockchain technology my initial awareness of Bitcoin that was 2012 around 2012-2013

and then my I got a lot of involvement with blockchain that was around 2014-2015 so since then we did research in this area case studies and also we publish a few reports in this area and also including the research paper about central bank issued Fiat digital currency I wanted to ask one more question about this mentality and I mean we have the currency use case for

block chains as we've seen right with bitcoins and all kinds of other cryptocurrencies and then we have the information the immutability the censorship resistance use case is is that later use case sometimes at odds you think with with developments in China well let me use the example to try to maybe shed some light in this area Internet has become something that we cannot leave resort on a daily basis can

you shut down the internet completely can you see well I don't want our people to access internet so this is one area which yes the technology has become part of what we have it has become an integral part of our life you cannot

separate the technology from us one that technology becomes something like this you want to take the technology away you basically part of our life away so for the blockchain technology 180 evolves when it become something like the influence or the impact that the Internet is having on us then possibly new one can completely shut down the technology from our our our daily life so this is a

perspective I have and then this is I think a perspective we should have regarding the blockchain technologies so to summarize technology is important technology once become part of ourselves and nine to take it away will become a impossible thing so when we see that blockchain allow data to be permanently stored and then it's on a distributed system can you shut down the system completely and then it becomes completely impossible so then when that

happens and when every part of our society you know has this tech or this type of technology implemented and then the society will evolve so this is the impact of technology on modern society possibly you know nobody or no government no one can prevent that from happening so fascinating I mean do you really think it will change the world well you know the technology evolves we see the huge potential but the potential

need to be tapped another example is artificial intelligence you know artificial intelligence a concept was conceived in 1950s and right now we see when we call the fourth weave so we see technology goes by weaves with one with to weave through before 1990s with what we call with three so now is we've four but from 1950s to the current wave of artificial intelligence we see more and more applications that AI or artificial intelligence or machine learning is being used but do we see a Iommi

solonian is being used everywhere in our everyday life not yet but do we believe artificial intelligence or machine learning have a huge potential in the future in our future I think if you ask one person possibly 90% of people who see yes so about blockchain I think right now maybe you ask a hundred people maybe 60 or 70% will see yes I see huge potential but how blockchain is going to change everything the way we live our life the way we do business

hard to predict it but potential is a huge but would there be a scenario where the blockchain is going to be eventually turn out to be a huge social act experimentation fueler well that possibility is still real so let me give you another example I don't know if you have heard about WiMAX WiMAX ten years ago was believed to change the way we communicate the globe boring so you keep your cell phone or smartphone which you bought in a Switzerland you want to go

to visit the China the moment you landed in China WiMAX promise you you have the instant connection wireless connection you can make VoIP phone calls you can check internet you can give him basically do whatever with internet connection broadband wireless connection so the promising was greed and also many people at a time 10-15 years ago WiMAX is going to replace at that time one week or two G 2.5 g to become the 3G or 4G right but that never happened and then big companies like Canadians North End

telecom I don't know if you heard about this company hmm the northern telecom was Canadians number one telecommunication from you could main manufacturer you know like China's Huawei or ZT you know these days and then they made a strategic mistake they bet everything on WiMAX so they made big strategic mistakes and then that really eventually lead to the company to go bankrupt because when people figured out why max

is not going to replace - G - favi G it's that that expectation is not going to happen right the bet on the wrong horse here's a bad one horse so you can see that lead to the northern telecom to go bankrupt also another example is the USA is a print spread is not - it used to be the number two big carry in us but no it's number four number five is becoming a target of acquisition so back to block sure do you think blockchain is going to be everything you know the rand of many people are some people paint a very rosy picture about

the future of proxy but for there to happen a lot of hard work still need to be done the ecosystem still need to be formed to be created for this technology to reach or to realize its full potential what we see Rena the penitential is a huge the future Society will be beautiful with the Polacks in technology but for that to happen a lot of work a lot of infrastructure a lot of government regulations still need to be changed need to be developed you know eventually only the future will tell you nowhere

right now our bed on this technology is a great strategic buy it or not but you know as often no wife I do believe the future it has a future it has a huge future it has huge potential I mean you mentioned WiMAX before you know I think it of course people knew about WiMAX but I don't think many people got extremely excited about to IMAX and with blockchain technology it really you have people who believe that this will change everything and society will be entirely different in in the future because of this technology and you know sure not to not to belittle WiMAX but it was just it didn't carry that excitement right like

other technologies before the blockchain it is true WiMAX if you want to compare Apple to Apple Orange - orange WiMAX is more like a pure technology which doesn't have a lot of social implications but blockchain is a technology but it's a technology which is in many ways similar to the Internet technology has a lot of social implications so it's kind of like you know the technology become part of ourselves that type of technology which means we cannot go with odd cannot leave

a result another good example is a smartphone you know this something you vehicle anywhere if you leave your smartphone at home leave your smartphone somewhere you will become upset you will feel you are in a very bad situation maybe in the future protium will become our and you will be our new smartphone we cannot leave what I believe this is a potential yeah but what is it that makes this technology you know so important what is it exactly well we you know the Internet has created huge benefit it was if I want to buy something my first thought would be

I'm going to search the internet to see if I can buy this on my favorite a you commerce website alright if I can find this I'm just gonna make older I'm not going to go to the brick-and-mortar stores to buy it so that's the harder the the the the the technology yes part of our daily life yes yes but the reason that is this way it's because it's convenient it's less expensive yes it's fast yes right and and with with the blockchain I think it's still you know for people working in the field it's

clear or many people are very very clear about its potential but if you if you walk in the street and ask people what is a blockchain I'm sure many wouldn't know no because you know the blockchain only started a few years ago I mean we use blockchain to solve other social problems on it started a few years ago but you can imagine a few scenarios or use cases where the blockchain is essential to our future life let me give you a few examples right now you go to a grocery store right you could a grocery

store you buy some stuff you give them the cash all right and then they give you the whatever you want to buy do they know who you are do they ask who you are they don't they just to see what the money you give to me is illegal you know currency I'm good except in it so then I'm gonna sell you my product to you all right so it's a done deal and then one would become more and more used to the Internet what we call cyberspace all right will more become more and more used to buying stuff in the Internet all right communicating over Internet okay

socializing over the Internet and now we have the problems with years we're gonna lose our anonymity right we are going to basically whatever we do on the internet on the current of cyberspace we're going to leave a fingerprint or footprint digital footprint if if someone right now we're on skype right if someone want to intercept our conversation they can't they have wished to do this for example do we trust this Escape is owned by Microsoft do we trust Microsoft what if Microsoft is is is it is doing some

reconnaissance all right what if Microsoft is in the backroom is monitoring overcomer CSS it's possible oh it's not possible definitely yes for example if a government want to track what we're talking about they can certainly you know do some surveillance right so this is a sub current cyber space a big issue right so with the blockchain solution our anonymity can be to a large extent can be protected

using encryption used in privacy protocols so in many ways you can view blockchain technology as a privacy protocol so like you give me money I'll give you the product so I don't need to know you or you don't you don't need to tell me your identity so this is what you know one of the potentials that the blockchain technology can bring to us in the future which means to protect our privacy analyze window privacy is one of the cornerstone from this sense we have a modern society so protect anonymity

protect our identity allow us to meet connections and in this connections we do not want all our identities to be reviewed we don't want to leave a disco for the print and then this is one area why many people believe blockchain you know is going to be important in our future life you know I often hear the argument where people say absolutely you know blockchain technology can be used to you know maybe pseudonym eyes certain things online but at the same time do you really need a blockchain for many of

those applications couldn't you also just use encryption I mean you before you mentioned Skype Skype at the beginning was encrypted and then you know when I'm not sure I think it was eBay first and then other companies and then Microsoft owned it slowly that was stripped away and now it's not encrypted anymore so it could just be a cryptid again but you don't necessarily need blockchain technology for that that's a good test this is a very good observation and then we get back to the blog Jam basics do you want to have a centralized encryption or you want to have a distributed encryption good point yep yeah that's the argument indeed

the blockchain technology essentially is overlay technology overly you know what I'm talking about right so technology above another technology and also you have to have the right technical background to appreciate the potential this blockchain technology may be able to bring us so you have to put yourself in the future right you have to bring put yourself in the future and look back and see what can we do to put ourself you know in the future so the kind of

like more like a catch-22 type of problem so you put yourself in the futures that what I want to protect my identity I don't want a sensual Authority to be able to track my daily activities in a cyber space all right and now you will see what we need have something right now we need to have some solution technology is a technical solution to move us from current to the future so this is a way of thinking this is a way to justify why blockchain has some potential to move us from current to the future yeah I think it's it's all very good points I'm just wondering

still you know because there's nothing more centralized than a government and the knight a nation-state and and of course you know it's I mean if you look at all the surveillance apparatus that came out of the NSA out of the u.s. I mean that was to centralize all that information and to to gather it and analyze it in one place so it's the opposite of you know of all the pluses that blockchain technology you know promises yes I just wonder how long I just wonder how long it will be until that really openly and overtly clashes whoa eventually you know eventually the money come

phears you know there would be a lot of challenges like the existing civil rights law the existing government regulations even the culture you know even the culture may need to be changed for something dramatic to happen for example social media we have become so used to the social media in channel week on a twitch ad in USA becau Facebook we forgot that these companies are selling

our information to make a profit and then these companies are monitoring our communications they are storing our data on their central servers they use the data they have collected as they were digital asset as you will and they give a back door to the National that's the point that's the point so and then the coach we become so used to it we forgot this the culture therefore is you want to be my friend

add me to your you know social media friends circle or add me to your social media so that's the culture but in the future the culture might be changed you want me to add to a friend a circle do you have certain level of privacy protections so I can add myself to your friends circle so that's the culture change as a culture change you know the society change technology evolves so those you know a society's culture so there we should see you know a lot of fascinating things opinion in the next few years there will

be classes yes there will be possibly some government think you know this should prohibit it and that should prohibit it you know all of these things would bring us you know I excited you know future to to to expect or to to watch you know has that ever happened to you that you know maybe somebody close to the government or from the government itself said oh you know you cannot say that or be careful here with with with you know exploring this too deeply well it's still too early because nobody for example right now saying well I have to

maintain my identity alright we thought lighten the government to know how much money I make or wizard letting the government organizations to know my you know daily life patterns what do i do on daily basis what what was my lifestyle so this this technology is in its early stage if this technology is heading to that direction then sooner or later some

issues will be will be generated and when that happens we should see a lot of maybe since not just the technology but also Susu technology change this is one of the interesting academic discipline which is study the social technical impacts socio technical you know interactions so I know that technology's too early a lot of things is unfolding itself we are not very clear you know the consequence is we only see the potentials and also people

tend to believe when we see the potentials we typically see the potentials from a very positive perspective so we paint the future very rosy but when that happens possibly there's something we don't want so this is a very I think practical attitude so for for technology for any technology this will be a you know I think with ready to read attitude we should have hmm fascinating I mean this is it's really interesting to speak with you about these these issues and I'm sure there's many of the specific things that you touched upon that we could have a whole conversation about you know maybe

maybe separately in the future General John thanks a lot for taking time today thank you it's my pleasure thanks so much for joining us today more info on our guests and our sponsors isn't the show notes of this episode and on the podcast website the blockchain and ask.com to help people find this podcast it's important that you download subscribe and give it a top rating and review on iTunes or on the podcast platform of your choice I'm Manuel stackers and I thank you very much for listening [Music]