China proclaims Web3 policy, hails new opportunities, downplays surveillance

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China has announced a broad policy governing all things Web3, although the regime’s ultimate goal may be more about surveillance than expanding the horizons of data freedom.

On Tuesday, China’s Ministry of Industry and Information Technology (MIIT) issued its reply to a proposal submitted during the First Session of the 14th Chinese People’s Political Consultative Conference in March. The reply to this ‘Proposal on Promoting the Development of Web3 Industry’ by Committee member Wu Jiezhuang was issued internally in August but has only now been made public.

The suggestions in this proposal dealt with “strengthening resource support for Web3.0 technology research and development, strengthening technical supervision and management, encouraging international cooperation, and strengthening publicity and promotion.” The MIIT praised the suggestions as “forward-looking and strategic” and “highly consistent with the key tasks of our ministry.”

The MIIT noted that Web3 “application scenarios cover industry, medical care, education, tourism and other fields,” with the latter group including “energy, rule of law, copyright, and trade finance.” The MIIT also cited previous research into specific areas such as “metaverse, non-fungible tokens (NFT) … decentralized identity management and virtual digital people.”

China’s feared Ministry of Public Security recently promoted blockchain-based ID management to ensure that enterprises and third parties can’t engage in rampant data harvesting made infamous by the Western Web2 giants (Facebook (NASDAQ: META), Twitter, etc.). However, the state will be able to verify the real-world identities behind all blockchain-based entities, in keeping with China’s insistence on knowing everything its citizens do both in the real world and online.

The MIIT detailed four ‘next steps’ to ensure continued progress in Web3 development. They start with improving the “top-level design” by focusing on “key areas such as government affairs and industry” while also encouraging the development of “new business models such as NFT and distributed applications (DApp).”

The second step involves strengthening technical research and supervision in “key core technologies in cross-chain, privacy computing, smart contracts, etc.” However, the response also stressed the importance of exploring “a blockchain technology architecture that takes into account the open characteristics of the public chain and the easy supervision characteristics of the alliance chain.” (More on this later.)

The third step involves ensuring international cooperation, but the focus is on encouraging Chinese institutes, universities, and enterprises to participate in “global standardization activities” to ensure China can enhance its “international voice and rule-making power.”

The fourth and final step is to “increase technology publicity and promotion” and thus “improve the public’s understanding and awareness of Web3.0 technology through the dissemination” of China-approved materials, including promoting “application pilots such as distributed digital identity (DID).”

Party poopers

Personal digital identities are coming whether you like it or not, but one suspects Xi Jinping’s motivations for implementing this technological shift aren’t the same as those who view it as key to enhancing trust in one’s online transactions.

Recall the MIIT’s reference above to an ‘alliance’ chain. This is China’s preferred nomenclature for a permissioned chain set up by a consortium of entities for some project of mutual interest. Now, consider that Beijing doesn’t really distinguish between its goals and the goals of private enterprises, including foreign entities operating within China’s borders.

Also, consider that China installs’ party committee’ members on the boards of private companies, and the overwhelming majority of China’s largest private firms now have committee members at their board meetings—ensuring that these companies make ‘correct’ decisions and that Beijing is not kept in the dark. It stands to reason that any ‘alliance’ chain set up by these firms would be subject to similar CCP oversight.

These party committees are increasingly gaining a presence inside international firms operating within China’s borders and within certain strategic sectors. The Economist recently reported that “almost all private firms with more than 100 employees” in the Tianjin Economic-Technological Development Area “have written the party into their charter in the past three years” and that “more than 150 firms there, including foreign ones, have staged events to celebrate the party’s presence within their workforces.”

Big brother growing bigger

China’s cradle-to-grave 24/7 surveillance of its own population, both in the physical and online realms, is the stuff of legend. And yet its population appears inured to and—in certain instances—even welcoming such invasiveness. A 2018 survey found 82% of Chinese residents supported CCTV surveillance, while 61% were okay with the government reading their emails and tracking their online activity.

However, when survey participants are reminded that these tools can be used not only to catch criminals but also to repress political activity—even political thought—support for their use declines, in other words, China’s efforts to keep people in line by feeding them a tightly controlled narrative are impaired by the introduction of unapproved facts. 

As such, it’s in China’s interest to continually improve its ability to restrict its citizens’ access to unapproved information.; which suggests that China’s desire to play a role in Web3’s development is more about repression than advancing the cause of personal data empowerment.

A desire to tightly control its citizenry hardly makes China unique. All governments hold similar desires. It’s the extent to which China engages in such activity—and the punishments it metes out to those who test its boundaries—that makes Beijing such an outlier.

In Freedom House’s latest Freedom on the Net report, China retained its ranking as the worst environment for internet freedom for the ninth year in a row. It’s not hard to conclude that China puts a higher value on protecting the state from its own citizens than protecting those citizens from criminals.

The rapid rise of AI means online monitoring/censorship will accelerate in both scope and effectiveness. China even requires private companies building consumer-facing AI chatbots to train their gear on CCP-approved data, ensuring AI responses toe the party line on sensitive subjects such as Tiananmen Square or Taiwan. So call it Web3 with an asterisk (and the footnote ain’t pretty).

Not so fast, Justin

Among those celebrating this week’s MIIT announcement was none other than Justin Sun, founder of the Tron blockchain. Sun hailed the country’s “plans to establish new industry standards for Web3 and NFTs,” which he claimed signified “China’s growing involvement in the blockchain industry.”

Sun would undoubtedly love to offer up Tron as the platform on which these new standards could be deployed despite (a) Tron’s technical shortcomings, and (b) the fact that Sun-owned digital asset exchanges reportedly cater to China-based customers in defiance of Beijing’s unambiguous wishes. (The MIIT announcement made precisely zero mentions of ‘cryptocurrency’ in keeping with Beijing’s strict capital control policies.)

Also problematic for Sun is that China’s controversial history with the Ethereum chain may have already ended this auction before it began. But Ethereum’s notorious transaction bottlenecks and onerous’ gas’ fees make it a poor foundation for building anything, let alone a Web2-dismantling game-changer.

As readers of this site will already be aware, the BSV Blockchain is the only chain with a proven track record of handling the huge volumes of transactions that Web3 will require while doing so in a cost-effective manner that other chains can’t hope to match. So, if China is truly serious about getting its Web3 feet wet, they know where to start. Unless, of course, Beijing’s interest in expanding Web3’s reach is based on less lofty ambitions.

Watch: Digital identity, digital assets enable Web3