Tencent's Blockchain helps Centralized institutions

Tencent's Ambitious Blockchain Whitepaper

Like most Australians on the ANZAC day, I was fortunate enough that I have had the better half of the afternoon free.

I have prepared for the occasion: A jug of rosemary tea in hand and a ray of the setting sun in my study - in Sydney China-Town, for the task at hand is a daunting one - reading Tencent's newly published Blockchain Whitepaper.

The Whitepaper is in Chinese - that part isn’t a problem, as Chinese is my native tongue. The difficulty comes from what is not written in the whitepaper. The Chinese whitepapers often illustrate what is desirable, claim it done, and typically leave a fair bit of architectural elements out. However, not completely out, as traces are found here and there. Solving the design in it is similar in nature to crime case investigation: corpse here, broken window there, the reader has to decipher what kind of technological wizardry has happened.


Why Blockchain?

This whitepaper is better read from the bottom up, page number 52, right before the reference list. The first item in the FAQ section explained it all:

Q: Will decentralization be bad for the centralized institutions?
A: The value of Blockchain is in fact to allow central institutions to reach consensus with one another, form alliances, construct ecosystems around them. Such ecosystems will naturally centralize them further, and tremendously reduce their operational costs.

While this may sound surprising to a western reader, it addresses the major criticism Blockchain receives in China: it's decentralized. It is common sense in China that having central control is better than not having it, and having a strong central control is obviously better than having a weak one - similar to what the U.S. used to have pre-Trump. A lot of attempts have been made to mend Blockchain of its short-comings, and re-introduce central controls in place, after all, the Chinese are remarkably creative and industrious. You would think that it is only a matter of time till a solution will be produced, and I am reading it, all 58 pages glittering with the golden lining by Sydney's setting sun.

What I have not prepared myself to is the required shift in mindset, hence I have encountered a lot of challenges at first. For example, Tencent's system contains an access control layer, whose purpose is to 'manage client's enquiry access to the Blockchain data'. Such a design usually begets a question: who is assigned to manage client’s access? The answer of course, as revealed later is: centralized institutions.

Permissioned Blockchains aren’t new - most of the global financial institutions envision the future of Blockchain permissioned, and some of my work involve R3 Corda’s architecture. However, most permissioned Blockchains, or distributed ledger technologies, assume nodes within the network bearing equal power. This does not appear to be the design Tencent’s Blockchain whitepaper outlines. Two examples are given:

One example is the warning mechanism. It is explained in this whitepaper that a situation where a node is dishonest (compromised) is exceptional, hence, by design nodes would normally work to achieve consistency, not consensus. When a compromised node is discovered, the system then would switch to a Byzantine fault tolerance algorithm. But what happens if the records are contaminated before the switch is triggered? The warning mechanism will kick in: sending SMS, phone-calls, WeChat messages and E-mail to operational personnels. How would these key people solve the contamination? It would be a Herculean task on distributed-ledgers, however, this becomes simpler if you are Hercules - by introducing a super-node, or super-user-across-nodes, which is what I believe happened.

The other is the risk control module. It monitors the crypto-assets trading activities in the Blockchain with mature algorithms used in payment systems such as the one employed in WeChat. Tencent’s WeChat had more mobile transactions over the Chinese New Year only than PayPal had during the entire year - a well known example of efficiency in control. I have no doubt that WeChat's algorithm is capable. However, the question that arise is, who runs it? would Tencent package that risk control algorithm and ship it to other centralized institutions so the node owners can run it themselves? It does seem to me, that Tencent is potentially positioned to play a central role in the system's operation, not just a construction.

Tencent's ambition, in the right political context

Half of the whitepaper is about the vision, and most of which is about the multiple areas of development in Blockchain technologies. Tencent’s appetite covers all the areas Google Alert would have told you about Blockchain in the last year, so I allow myself to skip listing them. What I have to bring up is the part on China's politics, since these issues are perhaps new to my readers and carries considerable implications, I shall elaborate and share my insights.

This Tencent blockchain whitepaper narrated: ' In February 2016, China's central bank governor Zhou Xiaochuan pointed out: "Digital currency must be issued by the central bank; Blockchain is a candidate technology." '. PBOC also conducted researches and tested a Delivery-versus-Payment (DVP) platform with digital currency embedded in it. In the latest five-year plan (one can see the resemblance to the USSR style"), Blockchain was listed to be prioritized in research and deployment.

Those familiar with China's politics know that not even one item on that 5-year plan will be left unfinished, by hook or by crook. If the 5-year plan includes a 10% growth in GDP , by the end it will be precisely 10%. If it turns out to be impossible, a combination of fake projects, environmental sacrifice or one form of profit or the other, it would be possible in the end. In the worst case, if the 5-year plan says every Chinese will own a smartphone, then one third will afford to buy one, one third’s daily bread will be robbed so that they can buy one, and the last one third will obtain normal phones branded 'smart'. This is how mighty and powerful the 5-year plan is. The logic behind it carries a clear message: The party represents truth, and it is omnipotent, hence it must be able to execute its own plan.

After Blockchain gets a passing mention in the 5-year plan, a bevy of ministries co-published a Blockchain whitepaper, on the path to reach there are standardization considerations. Is this whitepaper a part of the actions to please the lords? I am inclined to think not, by the self-important tone it was written. It certainly look like Tencent is sincerely envisioning a world run with Blockchain supported technologies, and itself as one major infrastructural core player who runs a Blockchain. Fortunate for them, they are doing it under a favourable political climate!

WeiWu Zhang - Biosnap:

Weiwu Zhang is an encryption and distributed computing technology expert. He is a Blockchain architect and an open-source advocate involved in a broad range of projects from FinTech solutions to IoT. Weiwu has a wealth of experience serving enterprises from governmental and financial institutions to innovative startups. He is often speaking in international conferences on topics such as digital identity, security and disruptive data sharing technologies.