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Many blockchain firms founded by Chinese individuals can't wait to return to China since the country promoted the fast development of the technology, but industry insiders and experts have warned of potential blockchain-related fraud.

"There are dozens of Chinese blockchain firms in our alliance, many of which plan to move back [to China]," a Chinese businessman surnamed Wang told the Global Times on Tuesday. Wang operates a blockchain firm in Jakarta, capital of Indonesia. The Southeast Asian country has seen an influx of blockchain firms since 2017 when the issuance of digital currencies was banned in China.

The trend was reversed abruptly after Chinese President Xi Jinping made remarks about the importance of blockchain technology in the new round of technological innovations and industrial transformations on October 24.

Wang said that blockchain firms in Indonesia have been uplifted by the policy shift in China. "These companies plan to move their research and development (R&D) teams back [to China], while leaving funds overseas," Wang said, noting that many have issued initial coin offerings [ICOs], which remain illegal in China.

As overseas blockchain firms are contemplating returning to China, domestic companies are rushing to announce their developments in blockchain. 

Wuhan Golden Laser, a commercial application solutions provider for digital laser technology, said on October 27 on the Shenzhen Stock Exchange that the company has creatively applied blockchain cashier-less stores and obtained several patents.

Another Shenzhen-listed firm, Xiamen Jihong Package and Technology Co, said on October 28 that it has signed a strategic cooperation agreement with digital-asset-trading marketplace Huobi China, and that the two sides plan to cooperate in blockchain-based product tracing, precision marketing and other aspects of their operations.

But the average person still struggles to understand what blockchain is and how it can be used in the real economy. 

According to its industry definition, blockchain is a decentralized ledger of all transactions across a peer-to-peer network. It's classified as a public chain, consortium chain or private chain. 

The consortium chain offers many of the same benefits as the private chain, such as efficiency and privacy, without consolidating power in only one party.

With characteristics such as decentralization, distribution and consensus, many domestic companies are attempting to apply the technology in industries including finance, product tracing and government services.

Application in real economy

Shenzhen-based Ping An Smart City has adopted blockchain technology for a pig farming project in East China's Shandong Province, and has built an "identity card" for each pig.

"With the advantage of being tamper-proof, irreversible and traceable, blockchain can be used to guarantee data security and improve tracing precision," the company told the Global Times on Friday. Besides the core elements of blockchain, the system also uses artificial intelligence technology to automatically collect and analyze data to ensure the original data is correct, it said.

Some of the most urgent problems that need to be tackled for large-scale application are data privacy and data sharing, as well as high transaction speed. Ping An has therefore adopted a consortium blockchain, whose transactions per second (TPS) are above 10,000, outperforming general TPS for consortium blockchains of about 1,000, according to the firm. It also uses a full encryption framework and leading cryptography technology to protect data.

Tencent, a domestic internet giant, disclosed in a blockchain whitepaper that since the company's blockchain-based invoicing was launched a year ago, it had issued nearly 6 million invoices by August 5, 2019.

State-owned enterprises (SOEs) are also hastening to grab a slice of the cake. On October 15, China Mobile, the State Information Center - which is affiliated with the National Development and Reform Commission - and four other SOEs announced internal tests of the blockchain services network (BSN), a national blockchain services infrastructure platform.

In August, the State Grid Corp of China set up a blockchain company, which has businesses covering blockchain R&D, product development and the establishment and operation of a public services platform, public information showed.

Caution urged

Bourgeoning investment opportunities are also driving local governments to release supportive policies.

Guangzhou in South China's Guangdong Province has taken the lead in establishing funds to support basic research on core blockchain technologies, aiming to promote the innovative development of the blockchain industry and technology.

According to a guide on measures to boost blockchain development recently released by Guangzhou, a blockchain fund worth 1 billion yuan ($142.6 million) will be founded to provide financial services for blockchain companies.

However, experts and industry insiders have urged local governments and companies to be more cautious.

Currently, blockchain technology is still in the exploration stage, and is yet incapable of servicing the real economy, Zhao Yao, a contract research fellow at the Institute of Finance and Banking under the Chinese Academy of Social Sciences, told the Global Times.

"We're not yet ready to handle emerging social, economic and financial risks brought about by the large-scale application of blockchain. Thus, it's worth pondering if government departments should support the technology," Zhao said.

There is still misunderstanding about the technology among Chinese people, Zhao said. 

"For example, some scholars claim that blockchain technology has a smart contract mechanism to guarantee speculative behaviors. But we should understand that a smart contract is not equivalent to a complete contract and therefore cannot prevent potential risks 100 percent," Zhao said.

Zhao said investors should be more cautious, as individuals and companies may "create" fraud by catering to the market appeal of the blockchain concept.

Wang Qiang, a Shenzhen-based blockchain engineer, told the Global Times that if a company issues digital currencies, it is quite likely to be a fraudulent blockchain company.