Alibaba Pushes Blockchain for China Stops Short of Cryptocurrencies

Jack Ma on stage at an Alibaba event. The founder of the e-commerce giant has repeatedly stressed that Alibaba will never take part in cryptocurrency mining, but supports blockchain technology.
Jack Ma on stage at an Alibaba event. The founder of the e-commerce giant has repeatedly stressed that Alibaba will never take part in cryptocurrency mining, but supports blockchain technology.

Shanghai, CHINA – It’s no big secret that cryptocurrencies such as Bitcoin are anathema to China. As the world’s largest cryptocurrency by market capitalization and allegedly one of a growing number of methods by which wealthy Chinese surreptitiously bring capital out of the Middle Kingdom, Bitcoin is no buddy of Beijing. But instead of ban all things cryptocurrency-related, including the blockchain technology which underpins cryptocurrencies, China has instead adopted a gated approach, blocking out what it deems are the undesirable uses of blockchain technology, but letting through core blockchain technology itself. After all, even the Great Wall of China had checkpoints to let people through. So when it comes to blockchain patents, it should come as no surprise that Alibaba, led by its effervescent founder Jack Ma leads the pack. Ma is known to be close with Beijing and owns important media outlet South China Morning Post, based in Hong Kong. It has been instrumental in the support and development of NEO, a cryptocurrency protocol which observers have dubbed “the Ethereum of China.”  CEO of Alibaba’s financial arm, Ant Financial, the main backer behind NEO said,

“We are the most patented company in the world of blockchain technology.”

A search of patent applications last year confirms his statement. Of the 406 patent applications related to blockchain in 2017, Alibaba had 43, second only to the People’s Bank of China which filed 68. Alibaba’s blockchain patents covered a wide variety of areas, including invention, design, and utility. But because the lead from Beijing has been anti-cryptocurrency, despite having taken a favorable view, much to the surprise of observers, of Ethereum, ranking it the world’s number one blockchain, Alibaba has had to pursue more actively other blockchain applications disassociated from its use to support financial instruments.

T-Mall workers at a logistics center in Suzhou, Jiangsu Province, China.
T-Mall workers at a logistics center in Suzhou, Jiangsu Province, China.

One of the most relevant use cases for the Chinese technology giant has been in logistics. T-Mall, China’s Amazon equivalent is an e-commerce giant where almost anything can be purchased. Through its subsidiary Lynx International, Alibaba has integrated blockchain technology to track information in its cross-border logistics services. Leveraging the power of an immutable, decentralized ledger, Lynx can track records of shipment information such as production, transportation, customs, inspection and any third party verification required. According to Lynx technical director Tang Ren,

“Although the concept of blockchain has only recently started to emerge, it has a very wide range of applications.”

More recently, another of Alibaba’s subsidiaries, T-Mall in partnership with Cainiao adopted blockchain technology for its cross-border supply chain. Similar to the Lynx project, blockchain is being used to track information about shipments from over 50 countries.

In 2016, IBM announced a collaboration with key food producers and distributors including Dole, Golden State Foods, Kroger, McCormick and Company, Nestlé, Tyson Foods, Unilever, and Walmart to reduce contamination in the global food supply chain. Known as a the hyperledger, the private blockchain would allow the world’s largest food companies to track every food item from farm to fork. China has had many high profile food scandals, including infant formula tainted with melamine which led to the deaths of several infants and injured hundreds of others. For the Chinese, food security has always been a serious issue and sensing an opportunity to fix the issue, Alibaba entered into an agreement with global accounting powerhouse Pricewaterhouse Coopers to address these issues, forming a “Food Trust Framework” that will aim to track food products from farm to fork.

Chickens in a yard.
Chickens on the blockchain. Some of the biggest food producing companies are teaming up with retailers to ensure greater food safety by leveraging the blockchain.

But Alibaba is not stopping there. In a nation of almost 1.4 billion people, healthcare records are notoriously archaic. With limited computerization, health data is still largely recorded on paper. To address this issue, Alibaba, will be working with the Hangzhou government, where the e-commerce giant was founded to create a “trusted environment for transactions” using the blockchain to provide a decentralized ledger for patient medical records, which can be accessed by doctors efficiently and consistently. One of the biggest issues with healthcare in China is that patient medical history records are patchy at best, leading often to misdiagnosis and failure to recognize long term symptoms of chronic conditions in patients.

But for all its progress in the blockchain, there’s still one area where Alibaba will not go – cryptocurrencies. Beijing has barely concealed its disdain for Bitcoin and its brethren, claiming (with little supporting evidence) that cryptocurrencies serve as a tool for criminal activities and money laundering. So Alibaba, whose founder Jack Ma is closely ingratiated with the Chinese Communist Party is quite content to sing the same tune when it comes to cryptocurrencies as well. Although other large Chinese technology firms such as JD and Tencent were open to accepting cryptocurrencies, Alibaba’s Ma drew a line in the sand and toed Beijing’s line,

 “I said honestly, I know very little about it, and I’m totally confused. Even if it works, the whole international rules on trade and financing are going to be completely changed.”

Lynx’s Jing echoed his boss’ sentiment when he noted that the cryptocurrency sector was full of rampant speculation not dissimilar to the dot com bubble of the 90s adding that his company had “drawn a clear line with ICOs.” Initial Coin Offerings or ICOs are where companies issue their own digital currencies for the purchase of products or services from the issuing company.

But for all its avoidance of cryptocurrencies, Alibaba has built substantial infrastructure to support its own cryptocurrency if and when it should ever decide to do so. Through Ant Financial, the investment arm of Alibaba, it backed NEO, a highly successful cryptocurrency protocol, which has the tacit support of Beijing and which was also unsurprisingly listed as one of the top five blockchains by the Chinese government. Last October, Alibaba also had cryptocurrency advocates in anticipation of a break with its “no-cryptocurrency” policy when it news leaked that it had set up virtual cryptocurrency mining nodes, but as Alibaba quickly squelched such rumors soon after the news broke, issuing a statement on Weibo (a Chinese microblogging platform) stating that the peer-to-peer nodes were for the company’s content distribution network and not for cryptocurrency mining.

At a conference in Thailand, Ma continued to sound the warning about cryptocurrencies when asked by an audience member what his thoughts on Bitcoin were,

“We should be cautious about Bitcoin. Its underlying technology, however, is really powerful. I pay more attention to a cashless society and the blockchain technology. And I am not shameful to say that I don’t know about Bitcoin.”

Ma’s alleged “lack of knowledge” about Bitcoin may be more ostensible than actual. If and when China eventually adopts its own cryptocurrency, which is not unthinkable given its propensity to raise barriers in technology in order to develop its own capabilities, Alibaba will most certainly be one of the cornerstone companies that will take advantage of such a decision. If so, China would be following a tried and tested formula for developing its own technologies, a formula which it has proved works well for its political masters. It banned Facebook so as to develop its own social media, blocked Twitter to develop Weibo, blocked eBay allowing Alibaba’s Taobao to grow unchallenged, so there’s no reason to think that cryptocurrencies are likely to be any different. Over in Tsinghua University, long held to be a bellwether of China’s future economic and political policies, a senior professor who spoke on condition of anonymity said,

“China can’t afford for cryptocurrencies to become dominant, because they represent a decentralized source of economic power. In China, power is centralized. So whilst the Chinese government will no doubt pursue cryptocurrencies, they will certainly do so on their terms and through centralized means.”

The bans on ICOs and cryptocurrency exchanges in China therefore should be viewed as par for the course in light of China’s technological development. But such restrictions have not stopped China’s citizens from continuing to pursue both Bitcoin and other cryptocurrencies. Perhaps one day, China’s Bitcoin enthusiasts may subscribe to Beijing’s Bitcoin, but till then, technology giants like Alibaba will continue to skirt around the issue, building the blockchain that can eventually support such a direction.