Overview

In recent years, Chinese central and local governments have spoken highly of blockchain technology and crafted many policies to encourage the application of blockchain technology in an expanding list of industries.

On the other hand, China imposes an absolute ban on cryptocurrencies. All cryptocurrency-related businesses, such as mining, trading, and initial coin offerings, as well as the blockchains associated therewith, are prohibited in China.

This article highlights examples of popular industrial application of blockchain technology in 2022.

NFTs: An Active Market in China With Huge Potential

Recent trends in the application of NFT technology

Since 2021, non-fungible tokens (NFTs) have become highly popular in China. Many giant internet companies have developed NFT-related businesses, especially digital collection platform businesses.

NFTs’ potential to diversify the digital economy and promote cultural and art businesses has been fully recognised in China. The Chinese government encourages the application of NFTs in the digital economy. For example, the Shanghai Municipal Government issued the Notice on Promulgation of the 14th Five-Year Plan in the Shanghai Municipality for the Development of the Digital Economy, in June 2022, which explicitly supported leading enterprises in Shanghai to explore the development of NFT-trading platforms.

As a result, NFTs have been widely exploited in art, gaming, and metaverse businesses in China in recent two years. Many companies, including the leading internet platform players and luxury brands, have issued or invested in NFTs. Successful application cases include the NFT platform built by internet companies based on private or consortium blockchain, such as the Ant Chain, and Bigverse (NFT China).

However, China’s NFT market has two notable features:

• all NFT transactions are priced and traded in renminbi (or central bank digital currency) rather than cryptocurrencies; and
• many platforms intentionally avoiding using the phrase “NFT” and instead refer to “virtual collectibles” to downplay their token nature.

To minimise legal risks in association with cryptocurrencies, some platforms prohibit secondary transactions. As a result, China’s NFT market has not been fully explored. The public has not been made fully aware of the true value of the NFTs and treats it more as fun.

Recent trends in NFT litigation

In 2022, the first NFT case in China was heard by Hangzhou Internet Court (the case number is (2022)浙01民终5272号). The Court focused on the copyright aspects of digital works and made a preliminary exploration of the nature of NFT digital works, the trade in them and the responsibilities regarding infringement in NFT-related disputes.

The Court held that an NFT is a unique identification used to mark and identity a piece of digital work. Copyrighted works that are transacted with NFT identification have features of digital assets: they are virtual, scarce and exchangeable, disposable and exclusive. Such qualities mean they are recognised and protected as a form of asset by the Civil Code of the PRC. Therefore, trading in NFTs represents a transfer of the proprietary interests in the digital assets represented by the NFTs, which should be protected under the law.

The Court further held that transactions involving NFT digital works are not distribution of copyrighted works under the Copyright Law of the PRC.

Finally, the Court found that the NFT platform in this case was a service provider, not a content provider, because (i) the platform was charging transaction fees for the NFT sale on the platform, and (ii) the platform had the responsibility to verify the identity of NFT sellers and the contents of the NFT-represented digital works. Therefore, the “notice-and-takedown” principle did not apply to the NFT platform in this case. The Court determined that the platform should have the legal obligation to properly review the copyright ownership status of the NFT-represented digital works sold on the platform. 

Although the court remained silent on the ultimate nature of NFT digital works, some people think that this case suggests that the judicial system is in a position to protect NFTs as a digital asset.

Successful Blockchain Application in Industry

The Chinese central government has supported development of blockchain since 2019. In 2021, the Ministry of Industry and Information Technology (MIIT), together with the Cyberspace Administration of China (CAC), issued a Guidance on Accelerating the Application and Industrial Development of Blockchain Technology (《关于加快推动区块链技术应用和产业发展的指导意见》), calling for expanding application scenarios, promoting the application of blockchain in key industries and fields, and driving the iterative upgrading of technology and the continuous improvement of industrial ecology with large-scale applications.

MIIT collected examples of successful blockchain application cases and announced the list of cases on 6 February 2023.

It is worth mentioning that, according to the instructions of the MIIT, the applications of blockchain technology that can be included in the list should:

• be in compliance with the relevant laws and regulations and industrial policies;
• have been successfully implemented and achieved good results;
• represent advanced technology, industrial or regional characteristics and a mature business model;
• serve as a model that can be replicated;
• fully exploit the technical characteristics and application scenarios of blockchain; and
• be referred to in a certain industry or by enterprises doing the same or similar business.

The following are two examples of the application cases of “blockchain+” on the list.

JD Logistics: a blockchain-based supply chain logistics service platform

In supply chain logistics, most of the receipts are still on paper. The apparent disadvantages of paper receipts are high cost, low efficiency, and difficulty in identifying authenticity. In short, paper receipts restrict the developments of smart logistics.

JD Logistics (a Chinese company, belonging to the Chinese e-commerce giant JD.com), uses blockchain technology to realise paperless supply chain logistics receipts. JD Logistics adopted the chain structure and consensus mechanism to ensure that the signed receipts on the chain are authentic, valid and cannot be tampered with. By using smart contract technology to realise the assessment of contract performance, automatic settlement and reconciliation, JD Logistics creates better co-ordination between cargo owners and carriers. JD Logistics also uses the distributed ledger technology to upload the signed receipts to the blockchain public ledger in a safe, complete and real-time way. In short, the supply chain logistics service platform launched by JD Logistics uses blockchain technology to simplify the large-scale and complicated signing process, which not only saves time but also improves efficiency.

This is a typical case of blockchain applied in supply chain logistics services. According to the public figures released by JD Logistics, the successful application of this case has helped supply chain companies improve the efficiency of warehousing and distribution, enhance the shopping experience of consumers, and effectively reduce the operation and management costs of paper receipts by more than 50%. Another bigger benefit is that using blockchain technology for paperless receipts substantially reduces carbon emissions.

Ant Group: “Blockchain + Privacy Computing” promotes data sharing

Ant Group, one of the largest fintech companies in China, recently launched a “blockchain + privacy computing” solution. In the past few years, Ant Group has devoted itself to R&D and application of cutting-edge technologies such as privacy computing and blockchain, and has successfully developed its privacy collaboration platform (known as “FAIR”). FAIR combines the advantages of two cutting-edge technologies – blockchain and privacy computing – where the collaboration process is driven by smart contracts and the data flow is executed by the privacy computing engine. Blockchain technology is adopted to confirm rights, registration and transaction. During the process, personal information is effectively protected and the whole process is recordable, verifiable, traceable and auditable. This is another typical example of using blockchain and privacy computing technologies to break data silos, and the platform has been widely piloted in enterprises in Zhejiang, Jiangxi, Hubei, Sichuan and other regions in China.

This case shows that blockchain can play a unique and significant role in assisting data confirmation, verifying data authenticity, and realising data traceability. However, questions remain as to how to identify the origins and legality of the data or records on the chain, and whether blockchain can adequately fulfil personal information subjects’ requests to exercise their legally granted right to rectification or deletion.

Judicial Use of Blockchain: Another Successful Application Scenario

In the public sector, there has been significant investment and encouragement from the Chinese government for the development of private or consortium blockchain applications and services in justice and administrative management. For example, since 2017, the tax department has been exploring the establishment of a “tax blockchain” that uses blockchain technology for taxation and electronic invoice issuance. Another notable and mature application in this area is the judicial blockchain.

In May 2021, the General Office of the PRC Supreme Court circulated a Notice on Promoting the Construction of a Judicial Data Centre and a Smart Court (《最高人民法院办公厅关于推进司法数据中台和智慧法院大脑建设的通知》), requesting the acceleration of the construction of a nationwide unified judicial blockchain platform to provide unified data storage and verification capabilities for courts at all levels and people across the country.

As a result, the PRC Supreme Court has built a higher-level smart court system around a nationwide judicial blockchain platform. The platform uses blockchain technology to process data such as electronic evidence, electronic files, law enforcement investigation and supervision information, complaint and petition information, and work logs.

Work is underway to explore the use of blockchain technology in various local courts. In internet-related cases, most evidence is electronic and originated on the internet, which makes the traditional methods of collecting and proving evidence quite challenging. The judicial blockchain was built to provide a better solution for storing, confirming and verifying evidence. Judicial blockchain systems used by the courts of Beijing, Hangzhou, Guangzhou and other cities are providing support for digital evidence storage and authentication, the automation of contract execution and the smart court management system.

As early as 2018, the Hangzhou Internet Court became the first Chinese court to accept electronic data that was stored using blockchain technology as legal evidence in its decision on a case regarding the infringement of the right of communication through an information network. It was also the first court in the country to announce its own judicial blockchain platform. In 2019, the Beijing Internet Court built and relied on the “Tianping blockchain” in an enforcement case and codified smart contracts into the chain, successfully realising the first case of automatic enforcement of mediation agreements in the country.

In September 2022, the Beijing Internet Court launched the 2.0 version of Tianping blockchain. The upgraded version realised the docking of the Tianping blockchain and the copyright blockchain, bridged the data barriers between copyright registration information and judicial trials, enabled real-time interaction and efficient retrieval of copyright registration information, and promoted the formation of unified standards. As of 1 May 2023, 31,717 pieces of data have been authenticated online according to the real-time data made public by the Tianping blockchain.

After comprehensive research and extensive consultation, on 23 May 2022, the PRC Supreme Court formulated a document specially on judicial blockchain use — the Opinion on Strengthening the Judicial Application of Blockchain (the “Opinion”) (《最高人民法院关于加强区块链司法应用的意见》). As a fundamental document, the Opinion clarified the general requirements for courts to strengthen the use of blockchain technologies in the judicial field and stated that the overall objective is to establish a blockchain alliance that facilitates information sharing between the courts and various sectors of society to establish a more comprehensive blockchain application standard in the judicial sector by 2025.

The Opinion also outlined the measures relating to the application of blockchain and the construction of relevant platforms, and listed four typical scenarios for the application of blockchain technology: generating tamper-proof data, improving judicial efficiency, enhancing collaboration and facilitating economic and social governance.

Generating tamper-proof data

By making use of blockchain technology’s ability to generate tamper-proof data, it will be possible to enhance judicial credibility by providing technical guarantees for the security of judicial data, the trustworthiness of electronic evidence, compliance with enforcement processes, and the authority of judicial instruments.

In March 2023, the Supreme Court stated that the electronic service of documents in more than 3,500 courts nationwide will support the online verification of electronic service of documents on the judicial blockchain platform or the “People’s Court online service” WeChat Mini program. As a result, every electronic document served by the courts will be stored and verified by blockchain technology in the future.

Improving judicial efficiency

The application of blockchain technology will optimise business processes and improve judicial efficiency, given the technology’s ability to enable the circulation and application of case-filing information, connect mediation and trial procedures, link trial and enforcement procedures, and enhance the efficiency of enforcement procedures.

Typically, smart contracts can automate the flow of case information and link the processes of mediation, adjudication and enforcement, reducing the time and labour costs involved in the process. A smart contract encapsulates the terms of a contract in a set of computer codes that is executed automatically once it has been signed by all parties to the transaction. Once the agreed conditions are met, the appropriate outcome is triggered immediately. By embedding the smart contract into the business process, the information format induction technology and multi-party key granting technology can realise the real-time chain of the whole process. When a legal dispute arises, the smart contract can automatically extract the item information and send it to the court for batch verification and automatic filing.

Since the smart contract is deemed, primarily, to be primarily an evidence verification or authentication process in China, preferably such a process should preferably be conducted on the judicial blockchain built by the courts. If the process is conducted on a third-party private or consortium chain, the process will be subject to judicial examination by the court pursuant to the rules regarding electronic evidence authentication, which is a complicated process.

Enhancing collaboration

Blockchain connectivity will enhance judicial collaboration and facilitate processes, such as the verification of lawyers’ qualifications, collaboration between legal entities in the handling of cases, and cross-departmental collaboration on enforcement.

Facilitating economic and social governance

The use of the mutual recognition of a fully integrated blockchain alliance will facilitate economic and social governance. In this way, its application will support efficient protection of intellectual property, the improvement of the business environment and data development and utilisation.

Integration between the judicial blockchain and the blockchains of other administrative sectors can open the links between depositing and publishing information, judicial confirmation and other procedures through a common governance approach.

At present, however, cross-chain integration still faces challenges. Courts at all levels have built their own blockchains, but these blockchains have different consensus algorithms, storage structures and security mechanisms, resulting in the lack of a unified interoperability mechanism. The blockchain system built according to the needs of diverse users has formed a fragmented judicial blockchain ecosystem, not to mention cross-chain complications with other administrative regulators.

Conclusion

China's digital economy exceeded CNY50 trillion in 2022, accounting for about 40% of its GDP. Innovative blockchain-related applications in China have mushroomed in the past few years, and more are anticipated in the years to come. Interested parties should, however, always bear in mind the restrictions and limitations on the application of the technology in China.