Blockchain Service Network – Key to Digital Currency Interoperability?

As central banks advance their work on central bank digital currency (CBDC), they are faced with questions on how to ensure interoperability with other digital assets. To unravel the interoperability conundrum and provide a robust digital ecosystem for the economy, China has launched the Blockchain Service Network (BSN). Although in its early stages, the BSN remains a unique attempt to build a global interoperability network that connects digital assets both across borders and networks.

Many central banks are exploring central bank digital currency (CBDC), but China is at the cutting edge of exploring interoperating their e-CNY with other digital currencies and payment systems. The Blockchain Service Network (BSN) is a government-backed infrastructure network that bridges various distributed ledger technology-based networks. It was founded in April 2020 by Red Date Technology, a Beijing-based software company, and six other private and public sector agencies, including China UnionPay, China Mobile and the State Information Center. For regulatory compliance purposes, the governance of the BSN was split up into BSN China (for private permissioned blockchains) and BSN International (for public permissionless networks) while preserving a certain level of interoperability.

BSN International is expected to launch a Universal Digital Payment Network (UDPN) and integrate CBDCs and stablecoins from various countries in collaboration with international banks and technology companies in 2021. The payment network is supposed to introduce a standardized digital currency transfer method and payment procedure for various information systems. Ultimately, banking and insurance mobile applications will be able to initiate digital currency transaction payment processes using UDPN.

BSN China is expected to serve as a domestic public infrastructure network that will facilitate the development, deployment, operations, maintenance, and regulation of low-cost consortium blockchain applications. (Consortium blockchains grant assess only to selected participants, whereas private blockchains keep write permissions to one entity, although read permissions may be more open, whereas with public blockchains, access and interaction with the network is unrestricted and the identity of its participants is semi-anonymous.)

Rather than starting from scratch, developers can leverage the BSN to build their applications efficiently by choosing desired components from a broad menu of integrated systems. Developers would be able to deploy their distributed applications (dapps) with a single private key across different networks, while servers running on the BSN are designed to be compatible with the blockchains of any participating member.

A network of public city nodes that are linked via the internet form a nationwide (and in the future, worldwide) physical city node blockchain service network. In effect, public city nodes serve as BSN data servers that developers can deploy their applications to using a dedicated channel for transaction processing, data communication, and storage. These disparate channels are supposed to ensure “absolute privacy” of each application while allowing data allocations across multiple channels. Participants and end-users can access those applications at no cost. Currently, the BSN spans various cloud environments and portals, including 108 public city nodes, connecting over 80 cities across mainland China and eight public city nodes in other countries around the world.

The BSN has been integrating public blockchains into the network based on unique capabilities they offer with a focus on building ecosystems with strong use cases. Several public blockchains such as Ethereum, EOSIO, Tezos, Neo, Nervos, IrisNet, and most recently Consensys Quorum have already been onboarded there. The BSN aims to integrate with 30 to 40 public blockchain networks by June 2021. Collaboration with interchain protocols COSMOS and Polkadot are focused on developing an Interchain Communications Hub.

Through the hub users can tap into data generated by outside applications while getting cross-chain services between blockchains adapted in the network. For example, an Ethereum-based dapp would be authorized to access real-time logistics data generated by a dapp built on Hyperledger and processed through the Interchain Hub. The BSN envisions this becoming a standard protocol for dapps from different blockchains, allowing them to call each other with just a few lines of code.

This aim of this collaboration was to provide developers outside China with a standardized development environment to build and run dapps on public blockchains. The public blockchains are supposed to be adapted to the Chinese market with public blockchain nodes that are installed on top of the BSN, so that Chinese developers can access all nodes from all public blockchains via one gateway and one simple monthly plan.

In the localized version for the Chinese market, the network will convert the decentralized public blockchains into permissioned ones, while replacing their native tokens with direct payment by the Chinese currency renminbi to cover transaction fees on these blockchains. This is considered to be the most direct and effective way to ensure regulatory and supervisory compliance and encourage adoption among users within China. Unlike the localized version, the global version of the BSN will allow public decentralized blockchains.

According to industry experts, the BSN is supposed to serve as the backbone of China’s Digital Silk Road ambitions. Others argue that the BSN will encourage the development of digital currencies, stimulate internationalization of digital assets, and expand Chinese developers’ access to the global crypto industry. Regardless of the underlying motivation, thus far, the BSN is the only large-scale network that aims for seamless interoperability between international digital assets and applications across public and private blockchain networks.