Since its advent in the wake of the 2008 financial crisis, blockchain technology has taken the economic world by storm. Open-source blockchain transactions have increased the speed of, and trust in, cross-border financial transactions. Many in the United States see the technology as a new and improved medium to raise and exchange capital. In China, the technology, though much more tightly regulated, has likewise begun to proliferate and has even been identified as one of China’s seven “frontier technologies” in its 14th Five Year Plan (2021-2025). Blockchain has the potential to transform industries in both countries and globally. This pioneering system is at the forefront of U.S.-China technological competition, and both nations have the potential to use the technology to remake the global financial system.

In an interview conducted on February 9, 2023, Paul Triolo examines recent developments in China’s blockchain evolution, focusing on its role in the U.S.-China relationship.

About the speaker


ELENI AYALA: Hello and welcome to our viewers. My name is Eleni Ayala, and I am a Schwarzman fellow at the National Committee on U.S.-China Relations. Today, I am joined by Paul Triolo. Paul is currently senior vice president for China and technology lead at Albright Stonebridge Group, a senior associate with the trustee chair in Chinese business and Economics at the Center for Strategic and International Studies and has served in senior positions within the U.S. government for more than 25 years.  

Paul, thank you so much for being here.  

PAUL TRIOLO: My pleasure.  

AYALA: Today we’re going to be talking about blockchain technology in China and its impact on U.S.-China relations. Just to begin, Paul, can you tell us when China first started using blockchain technology? 

TRIOLO: Well, that’s a good question. I think it’s important to note that China very early on became aware of the use of blockchain for things like cryptocurrencies, and in fact was one of the early pioneers of regulation in the crypto space. I can still remember in 2013 when the PBOC, the People’s Bank of China, issued a statement saying Bitcoin, which was the first blockchain project, was not a currency. 

I think Bitcoin and cryptocurrencies and blockchain were on the radar of Chinese authorities as far back as 2013. And then, of course, over the next six, seven, eight years, China in the cryptocurrency space enacted a number of policies that basically shut down the cryptocurrency part and use of blockchain in China, banning initial coin offerings and banning mining eventually.  

And then again in 2021, the PBOC banned all cryptocurrency transactions. But what the cryptocurrency craze had done was highlight the technology underlying cryptocurrencies, which was blockchain. The Chinese government and industry since then have really been attempting to leverage the underlying technology and the advantages that blockchain provides, while trying to scrupulously avoid the cryptocurrency part of that.  

Cryptocurrencies are really just the native currencies, if you will, of a particular type of blockchain. There are many different kinds of blockchains, which we can talk about. But there’s a recognition in the Chinese government that blockchain is useful for many different applications. The challenge that the Chinese financial authorities have faced and have really driven is that they don’t like the decentralized financing part of blockchain.  

They don’t like the whole cryptocurrency piece of that. It strikes them as bad and undermining centralized control of the financial system. So, they’ve worked scrupulously to restrict the cryptocurrency aspect. But at the same time, interestingly, Chinese regulators are eager to approve various blockchain projects. Enterprise blockchains in China, for example, we can talk about, are very popular, and there’s a lot of usage in China, but they’re all divorced from the currency part of it and from being used as a payment system.  

It’s really the distributed ledger technology aspect of blockchains, and being able to track things and put things on the blockchain immutably, that has attracted the interest from both the government and the technology sector, to blockchain. But it’s a complicated relationship because of the of the cryptocurrency aspect.  

AYALA: That’s very helpful. Thank you so much. On the topic of cryptocurrency, Huang Yiping, he’s an economist who was a former advisor to China Central Bank, he and others have suggested that the Chinese government, should reconsider its cryptocurrency embargo. And he believes that the ban on crypto related activities may result in missed opportunities to innovate in cutting-edge technologies. Do you think that banning crypto can hamper China’s innovation capacity?  

TRIOLO: Well, it’s a big question, and I think what he’s getting at is that the use of cryptocurrency or native payments capability, is really an incentive for developers and in a particular project. The most successful Western projects, for example like Ethereum—I guess Western may not be the right term for it, but a global project like Ethereum, for example—which was founded by Vitalik Buterin, who’s an ethnic Russian, but has a broad developer base globally, there, the developer base and the project are all helped and fueled by the fact that there’s a cryptocurrency, Ethereum in this case, the ether that’s associated with that blockchain. I think that the comments from this official may be trying to get at that, that it’s an ecosystem where the cryptocurrency, the native cryptocurrency, is an important part of that ecosystem.  

If you take that away, then you take away some incentives for people to get paid for developing projects or for just easing transactions on the blockchain, because if you don’t allow the cryptocurrency and native currency to be used, then you introduce other complexities to the use of those blockchains, for example, for payments, which is one of the big use cases for cross-border payments and frictionless payments. That’s what I think he’s getting at.  

But it’s hard to say where the exact impact on innovation comes from. Chinese companies have been pretty innovative. A lot of Chinese companies have developed their own blockchain projects. There’s a thing called the Blockchain Services Network, which we should talk about, which is a bigger effort. And again, all of these native blockchains in China don’t have a cryptocurrency piece to them. And that’s an important part of the equation.  

AYALA: That’s a great point. Talking about that, crypto is not allowed, but other forms of blockchain are. Can you tell us a bit about what forms of blockchain are in use in China and in what industries, or if the government uses blockchain?  

TRIOLO: There are a lot of efforts to use blockchain in different applications. The Cyberspace Administration of China (CAC), for example, approves licenses for different blockchain projects. This gives you a sense of the scope and scale of how blockchain is being used in China. The CAC requires registration and approval of a license for blockchain projects, and they’ve done something like seven or eight tranches of approvals. As of the last time I looked, in early- or mid-2022, there were something like almost 2000 licenses approved for different blockchains in China. These are presumably company-specific kinds of blockchains that are being used for internal purposes.  

There are different kinds of applications here. There are company-specific blockchain platforms that they’re using internally, and then there are also projects which are enterprise-level blockchains that have also gained currency in the West, like Ripple and Corda. There’s a number of bigger enterprise blockchains which are not for personal use, they’re for use within a corporate structure. They’re usually permissioned blockchains.  

That’s another big difference. I think, in China, the tendency has been to use more permissioned blockchains rather than permissionless blockchains, which is what the cryptocurrency projects are, like Ethereum and Bitcoin. I think that that this evolution has occurred particularly over the last four or five years.  

For example, the CAC has approved blockchain projects for a whole host of companies. I was actually in China at one point before the pandemic, and I had a full tour of’s business model and some of the some of the activities they were doing. They’re a big e-commerce company. They were using blockchain, for example, to track the commodities they were selling, particularly food items, from catching the fish, putting it on a truck, trucking it to processing plant, and then finally ending up in a store. That’s a good example of a use case that seems to be pretty popular. I could actually scan the QR code on my phone on the fish and it would give me the whole history. This is a food safety issue in China. This is one of the big applications for blockchain that has become popular. Tracking food stems from a lot of the food crises and scandals that have happened in China. That’s one particular use case.  

There are other examples. There’s a national health data chain, for example, which is which is designed to put health care data on the blockchain. That’s under the National Health Commission in China. That’s another broader data management use case for blockchain. There are also things like the BeiDou chain, which is managed jointly by the central bank and the MIIT, Ministry of Industry and Information Technology, that’s used to handle transactions that are that involve China’s BeiDou satellite system.  

The government views again blockchain as this technology where the barriers to entry are low in China, and Chinese companies should use this. You also see in many, many statements like National Five-Year Plans or long-term plans for technology development, the blockchain is always included in there along with 5G and AI and other technologies as of areas where China and Chinese companies should lead.  

That’s where the government is focusing its efforts and where these licenses coming from: CAC are focused on things like logistics, healthcare, data, Huawei Cloud. There’s a blockchain that Huawei has that’s been approved. Then there’s also things like for NFTs—Non-fungible tokens—that also uses blockchain technology. That’s been sort of a rage in China for a bit over the past couple of years. These are things like digital art or other things that can be digitized or tokenized and put on the blockchain. CAC has approved some blockchains that are that are involved in NFT projects, although that’s a little bit controversial because normally those entities are paid for using cryptocurrencies and so there’s been a little bit of issue around that.  

Basically, there are these categories of enterprise level blockchains for specific purposes like logistics, more national efforts like health care data, to put healthcare data on the blockchain, and for broader logistics purposes and things like that. And there’s also this national project which we can talk about called the Blockchain Services Network, which it a large permissioned blockchain that was set up under the State Information Committee, SIC, under the NDRC, the National Development Reform Commission. That was intended to be sort of a national blockchain platform that would allow applications to be developed on top of that, that could include payments. That also has an international element to that that’s being pushed by a company called Red Date, which is which is working with the Chinese government, and that may eventually get to this bigger issue of blockchain being used as part of cross-border payments.  

You can see there’s a whole range of areas where the Chinese government sees blockchain as being advantageous, and then Chinese companies across the board have put forward projects related to blockchain, in part because of the government saying, hey, this is a technology that China should be leading on.  

But again, because they sort of divorced it from the cryptocurrency aspect, they’ve been very careful to emphasize that blockchain itself is fine, the technology is good, they’re good use cases. But try not to use it for things like payments. For example, for NFTs, you can use Alipay and WeChat Pay to pay for those, which are normal digital payment platforms, but there’s no inherent cryptocurrency there. I would say it’s been almost a craze for blockchain and some of these use cases seem to be pretty good like the commodity tracking, but it’s still very much a process to develop.  

One final point is I think the Chinese government and companies also see the use of blockchain in metaverse related applications. The metaverse is another one of these buzzwords getting a lot of attention in China. Whenever you hear metaverse being mentioned, there’s usually a blockchain piece to that, because that would form the payments layer in some blockchain gaming, but again, not the cryptocurrency using RMB to actually pay for those blockchain applications in the metaverse.  

AYALA: That’s very helpful, thank you, and I can definitely see how that might be a little bit conflicting at times with NFTs, for example, being a new form of digital art. Art has also historically been a way of accumulating wealth. Sometimes that could get a little bit tricky to enforce, I would imagine.  

TRIOLO: Yes. Anything that involves that involves using alternative instruments that don’t run through Chinese centralized financial authorities’ ability to track ends up running afoul of the system. NFTs and particularly cryptocurrencies are just viewed as dangerous instruments that allow things like capital flight and evasion of foreign exchange controls in China. So the central government is very sensitive to these and will continue to intervene from a regulatory point of view to try to control this, at the same time as issuing documents supporting blockchain. It’s a very interesting dynamic in China, which really don’t have in other countries where the debate is more about how you regulate cryptocurrencies. 

AYALA: Yeah. Well, on the topic, some scholars have said that, or theorized, that cryptocurrency might be incompatible with authoritarian regimes precisely because of the decentralization aspect. What do you think about that?  

TRIOLO: Yeah, again, you have to be careful what you’re talking about here. Inherently, blockchain is a decentralized platform. Yes, I think in general, this is why cryptocurrencies became the focus of Chinese regulatory authorities. More recently, there’s this idea of decentralized finance. So instead of cryptocurrencies having a central exchange to hold your crypto, there are these decentralized exchanges which are much less subject to control. And there are things like Stablecoins which provide on-ramps to those decentralized financial exchanges.  

And this really scares authoritarian governments like China, because even if you try to control those centralized exchanges—which China did, China initially didn’t control those exchanges and some of the best exchanges, in fact, were Chinese exchanges like Binance and Okcoin and KuCoin, these were at one point were the largest centralized cryptocurrency exchanges globally, and Binance remains the global leader, even though they had to sort of move offshore as China clamped down on centralized exchanges—but the real promise of blockchain and cryptocurrencies is this idea of decentralized payments that don’t have to go through a central system.  

And you saw a lot of fear, for example, around Facebook, which was going to offer its Libra, later called Diem, cryptocurrency based on blockchain within that Facebook account context for micropayments and small payments globally. That ran afoul not only of Chinese regulators but also all sorts of centralized financial economies and the regulators in those economies like the EU and the U.S., because they didn’t like the idea of people being able to use a payment system that was completely outside of their control, through which dollars and other fiat currencies would be flowing, but over which they wouldn’t have monetary and fiscal authority. Of course, that’s why Bitcoin was founded. The founder of Bitcoin didn’t believe that central banks controlling the monetary policy and inflating the currency was a good thing. That’s why he developed blockchain and Bitcoin as the first platform for use of blockchain because it was a philosophical thing, he believed that central authorities controlling the monetary system was bad particularly because of the tendency of governments to inflate the currency. Inherently blockchain is sort of a subversive technology.  

Then in China, finally, you also saw other things like dissidents putting documents on the blockchain that were then immutable on the Ethereum blockchain. Now dissident documents or documents about certain scandals or being able to publicize things that the Chinese government didn’t like, [these instances] led to some of the clampdowns around how blockchains were used. They’re afraid of allowing these permissionless blockchains like Ethereum to be widely used in China because they could be used for other things besides payments, but they could be used for things, for example, for putting documents in the blockchain. Blockchain technology in itself, I think, scares authoritarian governments.  

AYALA: That’s very helpful. Thank you. As we get closer towards the end of our interview today, I’m curious about, what do you think all of this implies for or the future of Chinese society, but also specifically, how might it impact U.S.-China relations based on how the United States is regulating blockchain versus how China is regulating blockchain?  

TRIOLO: That’s a really good question. I think there are two aspects to that one. One is the cryptocurrency piece. The U.S. is trying to get its hand, and other governments are trying to get their hands, around how do you regulate cryptocurrencies? In some sense, China is seen as a leader in that. China decided at some point we’re just not going to tolerate this; we’re even not going to tolerate mining, which they did for a long time. They tolerated the mining of Bitcoin, which at one point, Chinese companies dominated.  

On the one hand, at the regulatory level, the U.S. and other Western democracies may be moving towards a more China-like approach to cryptocurrencies. But on the blockchain side, it’s a very different issue. And then you get into things like central bank digital currencies where China, conversely, is leading in terms of deploying the digital RMB, for example. One concern in the West, particularly in the U.S., [is] that China’s leading in the deployment of central bank digital currencies.  

Then on top of that, you have this project that I mentioned, the Blockchain Services Network, which is seen in in the U.S. government as an attempt as part of a broader Chinese government attempt through the digital RMB and through this Blockchain Services Network, which now has an international component to it and is being trialed in other countries, and there are projects in Hong Kong, the Bank of Thailand, that are sanctioned by the Bank of International Settlements in Switzerland, as a platform for eventual interoperability of central bank digital currencies using blockchain. The U.S. government very much views that whole effort, which is going to be a long-term effort. This is a very complicated issue when it comes to using a blockchain platform broadly to enable exchanges and interoperability of central bank digital currencies. That’s coming. That’s a 5-to-10-year project. But China is leading in that area. The U.S. government sees this very much as an attempt to provide an alternative to the U.S. dollar, for example, to circumvent U.S. sanctions law in the context of U.S.-China relations and Russia. [There are] situations where the U.S. government has very much leveraged its dominance of the dollar system globally to cut off countries and companies from that system through sanctions implemented by the Treasury Department.  

The bigger picture is that blockchain is part of that equation, particularly this Blockchain Services Network and what they call the Spartan Network. You’ll see periodic stories in the media about this. This is a long-term effort to establish this global new financial system. The issue of sovereign digital currency is going to be really salient here. China, again is leading in that area. The CBDC, the digital RMB, for example, is being widely deployed now. You can get it on your wallet or on your phone. There are lots of pilot efforts to do this. It’s not necessarily itself based on blockchain. It’s not clear that it’s really not a blockchain-based currency. The idea is that blockchain would be used as part of this broader system to deploy the digital RMB and other digital currencies globally, and have them be interoperable.  

Blockchain would provide a good platform for doing that because of some of the security features and the technical advantages that you get from deploying blockchain. That’s still very much a work in progress. I’m actually drafting a paper on the Blockchain Services Network and how that will unfold globally and then how the U.S. government is likely to react to those kinds of developments. It’s definitely a very interesting part of the equation of U.S.- China relations going forward, because there’s a lot of concern in the U.S. about any effort to undermine the dominance of the dollar. And the reason that’s important is specifically because of things like sanctions, as we’ve seen in the case of Russia/Ukraine. Now there’s a lot of discussion in Washington, for example, about how the U.S. might sanction China in the event of any activity related to Taiwan.  

Part of that discussion would be how would China circumvent international payments systems that were dominated by the dollar like SWIFT and other interbank payments system infrastructure? It’s a sort of a salient issue. Going forward, it will be even more important as China develops blockchain and as countries around the world figure out whether they need a sovereign digital currency or not. There’s a lot still of debate about that. But China has, in the meantime, decided that was something that they would be leaders on. The PBOC, for example, has been very active in in developing and deploying the digital RMB. Blockchain is a piece of that, not the whole thing, but lots of other issues around the RMB convertibility that are complicated. But blockchain is definitely in the mix.  

AYALA: Yeah, wow, that is fascinating, the topic of sanctions and how this might impact Taiwan. I have just one final question for you right before we wrap up. We very briefly touched upon NFTs and the metaverse. These might be good topics for a future interview, and I’m just curious if you could give us maybe one final summary, I suppose, of how blockchain might tie in to that and how the metaverse might actually play a role in the future of U.S.-China relations. 

TRIOLO: Wow, Big question! That’s definitely at least an hour. 

AYALA: Another conversation, yeah. 

TRIOLO: There’s the practical application and use cases that fall under this idea of the metaverse. The metaverse is the idea of bringing together different technologies, AR/VR, gaming, and three-dimensional presence applications like Meta has developed, so instead of doing a two-dimensional thing like we’re doing now, we could be sitting next to each other in three dimensions at a table. There’s a coming together of technologies for people to be able to interact and transact in in a virtual environment. That’s basically what the metaverse is, and do it in more exciting and efficient ways.  

One of the big important parts of that is economics. That’s where the payment system comes in. Part of that metaverse development will include a payments layer, which will almost certainly be based on a blockchain platform. It could be Ethereum, which is which is widely used and is fairly easy to use. It could be a platform like that that’s used in the metaverse. Blockchain will definitely be a part of the metaverse development along with all these other technologies that are coming together. We’re all living in the metaverse in some way or another, depending on how much time we spend on our phone and everything. Coming together in an easier way, a three-dimensional way, that is the vision.  

Then there’s the geopolitics of the metaverse. Because again, China is not going to allow a metaverse that has cryptocurrencies or the payment system.  Next week, actually, I’ll be publishing an article on the geopolitics of the metaverse. When I was at Eurasia Group, two years ago we published a white paper on the geopolitics of the metaverse. It’s a really important question because there will be multiple metaverse. It will really be a multiverse of metaverses, because particularly China, whatever develops in China into what we can call the metaverse will be different because they’ll want to have more control over the content, and of course, from a regulatory point of view, they’ll want to have there will be more control over the over the payment system.  

Whatever develops in China will have much more government and regulatory oversight. Whereas in the West we’ll probably see different types of metaverses develop. We’ll maybe have a more public metaverse.  

There’s already a lot of corporate metaverses that are out there, that have very strong use cases. For example, Accenture, during the pandemic, onboarded thousands of new employees. They were all trained in a metaverse environment with headsets and all the rest. They deployed basically the biggest corporate metaverse ever, and it was used to train and onboard employees, so a very clear use case. They just found that that was that was more conducive to what they wanted to do because it was in the sort of more expansive virtual world where interaction was a little bit easier.  

Those are the kinds of applications, I think, that in China will become important for a metaverse. There will be sort of an enterprise version, things used for training and other things, and there will be this other sort of weird public metaverse that will include elements of the gaming industry and certainly AR and VR and XR applications.  

But that’s going to be different than what develops in the West. The question of whether they’ll be interoperable is a really interesting sort of geopolitical issue. And we touch on that in this article that I’m going to open up next week. But it’s a really important point going forward because already there’s a sort of a bifurcation of Web 2.0, obviously. This is a Web 3.0 metaverse world we’re in. Obviously these geopolitical tensions and bifurcations that we’re already seeing in not only the Web, but also in other parts of the technology stack, are going to carry over into the metaverse. So stay tuned! The metaverse is going to be a geopolitical battleground of great power competition across all elements of that metaverse. But it’s going to be a fascinating world to watch develop as we go forward.  

AYALA: Absolutely, I would love to talk about that more. And hopefully we can schedule a future interview to go more in-depth about that. For now, we are left with your article, which sounds very interesting as well, and will hopefully give us a little bit of background before we jump into our interview.  

So for our viewers, thank you so much for joining us today. We hope that you continue to engage with the National Committee’s programing and interviews. And if you like this topic, please let us know if you want to hear more about blockchain web3, NFTs, or just tech in general, write to us and let us know. Check out Paul’s article and take care. Thanks for watching and thank you so much Paul.  

TRIOLO: Thank you. My pleasure. What great questions and a great conversation.