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China’s Big Tech: From Free Development to Strict Regulation

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After a decade of explosive growth, China’s tech sector lost hundreds of billions of dollars in less than two and a half years of the state’s large-scale regulatory campaign. China’s five largest Big Tech companies lost nearly 50% of their combined market capitalization. While in 2020, Tencent had larger capitalization than Facebook and most other American companies, today America’s Apple with its market value of $2.7 trillion exceeds the capitalizations of Tencent, Alibaba, Baidu, Meituan, JD.COM, and Pinduoduo combined. Following the start of the regulator’s probe into its activities, DiDi alone lost over 90% of its market capitalization. Generally, China’s tech sector lost its former foreign investor appeal. In the first quarter of 2022, investment into it fell by 42.6% in quarterly terms or by 76,7% in annual terms. Over 200,000 employees were fired from internet companies over the last year.

Nonetheless, it would be a mistake to think that Chinese authorities wanted to stifle the development of China’s tech sector. Beijing successfully applied its regulatory measures to address almost all its problematic areas in the sector’s development. Chinese authorities demonstrate their commitment to creating a fully controlled regulatory environment for the so-called platform economy. Regulatory measures are intended to increase the social responsibility of businesses and bring companies and their activities compliant with national security demands.

Recently, due to a national economic slowdown brought by the COVID-19 pandemic, as well as uncertain external conditions, Chinese authorities are eager to show both businesses and investors that there will be no political pressure put on Big Tech. Vice Premier of the State Council Liu He supported the platform economy and expressed his hope that tech companies will play a constructive role in reviving national economy. Liu He, who is considered one of China’s top officials in charge of the economic bloc (along with Premier Li Keqiang), also welcomed businesses to attract financing at both domestic and foreign capital markets. By doing so, Beijing likely wants to revive investor optimism and demonstrate that China is far from anathematizing tech giants.

Nonetheless, the already adopted regulatory measures should not be expected to weaken. Given that for the last decade China’s tech sector has been developing practically regulation-free, it is now clear that the past development dynamics will no longer be. Using regulations, Chinese authorities drew red lines for China’s Big Tech. Chaotic capital expansion, monopolist practices, and uncontrolled use of data are categorically prohibited to businesses by rules that can no longer be broken. Those companies that want to attract financing and actively work on international markets without leaving the domestic market will likely have to look for additional compromises. One possible scenario is transferring a certain share of a company to the state and appointing party officials to the company’s board of directors, thereby granting more control leverages and making their activities more transparent.

The last decade is often called the golden era in the development of China’s technological sector. Over a short period of time, many companies have grown from small startups into international tech giants. Back in 2020, six out of the world’s ten largest unicorn companies (i.e. companies with a capitalization over $1 billio) were Chinese. ByteDance Ltd. still remains the world’s most expensive startup, with a capitalization of $140 billion. However, 2021 marked a turning point in the development of China’s Big Tech: within a year, China’s technological sector lost more than $ 2 trillion in capitalization amid toughening regulations. Although Beijing has shown some leniency to tech companies, the long-term trend for tough sectoral regulations is likely to remain. To better understand the logic behind these changes, we need to follow the transformation of the state’s development priorities that determined the regulations for tech companies.

National Innovations and National Champions

Even though China had established its “global factory” status by the late 1990s-early 2000s, the share of added value created directly in China was small: 14.5% for electronics and computers, 28.1% for telecommunication equipment, and 27.5% for home appliances. China maintained its status as a “global factory”, entrusted with overseeing “knock down” assembly, simple, labor-intensive, or environmentally harmful manufacturing. China’s authorities realized that given the growth of China’s economy and of its population’s income, this development model would inevitably drive China into a middle income trap. On average, China’s GDP per capita in 1995–2005 grew by over 10% annually, while in some years, for instance in 1994 and 1995, it reached up to 25% and 29%. Obviously, the existing economic development model (i.e. exporting finished products manufactured through an abundance of cheap labor force) ran its course. The best way out of the predicament was seen in increasing the share of added value, diversifying specific advantages, using innovations as an important economic development resource, and also gradually transforming the growth model by using the potential of China’s colossal domestic market.

In 2006, China published its 2020 Medium to Long-Term Plan for the Development of Science and Technology. This plan noted the importance of national innovations as the main goal of developing science and technology in the next 15 years. Plans involved stimulating national innovations through investment, tax benefits, and targeted funding. A major part was assigned to public procurement. Thus, China developed its first paradigmatic document defining the state’s subsequent policies and priorities focused on developing technologies and innovations. This document launched the growth of “national champions”, or private tech companies that were looked on favorably by the state and enjoyed every consequent priority in the state’s policies. This was a form of mutually advantageous cooperation: a business was given certain preferences, while local authorities, first off, demonstrated consistent compliance with the policies proclaimed by central authorities, and secondly, met their own region’s needs for economic development. Provinces competed in attracting the largest numbers of tech companies. Often, provincial authorities concluded exclusive partnership agreements with a locally headquartered company. Such a company gained direct access to the regional market and was also prioritized when it came to participating in governmental contracts. Virtually every large Chinese tech company (Alibaba, Tencent, Huawei, Inspur, etc.) had the exclusive partner status in one or even several Chinese provinces, and essentially became a monopolist provider of the goods and services it specialized in. Additionally, these companies received major subsidies from local authorities, which sometimes covered over 30% of their expenditures. Later, “national champions” became a means of self-expression not only for local authorities, but for some national regulators as well. This, in particular, explains the apparent lack of coordination between the People’s Bank of China and the China Securities Regulatory Commission. The latter approved the IPO of Ant Group, Alibaba’s financial technology subsidiary, in record time, while China’s Central Bank saw this IPO as a source of systemic risks for the stability of China’s financial system.

It would, however, be a mistake to suppose that preferences and subsidies granted by the state were the main factors for China’s growth of internet giants. The companies that subsequently grew into tech giants built their business on meeting the current market needs; they managed to predict the trends in market development. For instance, Alibaba and Tencent were founded when no more than 2% of Chinese were internet users. In 2005, the figure climbed to 10%, then to over 30% in 2010, and today, China has nearly 1 billion internet users, which is more than the combined population of the US and the EU. Alibaba correctly focused on the tremendous potential of e-commerce and on the unmet consumer demand, particularly in China’s rural areas. Tencent, in turn, adapted internet services to Chinese customer preferences, thus significantly improving customer experience. Ant Financial, Alibaba’s financial technology subsidiary, started developing mobile payments; this subsidiary was established because a trust problem between customers and suppliers necessitated creating an online version of banks’ letters of credit to be used on Alibaba’s e-commerce platform.

It is also important that China’s tech companies operated in a relatively closed domestic internet space with severely limited competition from foreign players. Nonetheless, foreign investors rated very highly the objective market prospects of China’s tech companies. For instance, Alibaba’s IPO brought in $21.8 billion, and the entire company was valued at $167.8 billion at the time it went public.

China’s authorities tried not to limit the development of tech companies in any way, sometimes even disregarding their own legislation. For instance, Chinese law prohibits involving foreign capital in China’s internet sector, yet China’s internet companies circumvented this prohibition by establishing so-called Variable Interest Entities (VIE); companies were registered mostly in offshore account, bearing the same name, along with a claim to the assets and profits of the parent corporation. China’s authorities primarily cared about tech companies handling the urgent tasks of facilitating economic growth and social development. For instance, internet companies fill in all the gaps that emerged in the online space following the ban on popular foreign internet services; they create a favorable environment for internet users and improve user experience. “China’s internet” has replicas of all popular international services such as Facebook, Google, Twitter, WhatsApp, Wikipedia, Quora, and YouTube; consequently, “China’s internet” developed as a “thing in itself”, discouraging users from using circumvention tool to access banned resources.

E-commerce services benefited small business development while also handling the important social task of creating jobs and overcoming poverty. In 2014–2017 alone, online retail in rural China grew from $27 billion to $189 billion. The so-called Taobao villages (named after Alibaba’s domestic online trading platform) helped farmers establish their own channels for selling their goods, thereby creating about 840,000 jobs. In turn, Ant Financial, Alibaba’s financial technology subsidiary, issued 100 billion yuan worth of loans to 2 million people from the poorest rural areas in a single year.

Overall, financial technology companies were helping to resolve the problem of giving several hundred million people with no credit history access to financial products. Traditional banks preferred to work with large state enterprises to whose aid the state would come should things go south, while loans to small business and individuals were issued on a leftover principle. Consequently, China’s authorities viewed financial technology companies as a quick way of handling the growth problem of small and medium-sized business that, however, accounted for nearly half of the national GDP growth and over 60% of urban jobs.

The state prioritized the role of the internet sector in furthering socioeconomic development in its Internet Plus action plan, which was first announced by Li Keqiang, the Premier of China’s State Council, in 2015. Presenting the annual report on the government’s activities, Li Keqiang said that the Internet Plus plan would entail broadly integrating internet services with traditional economic and industrial sectors. According to the Premier, this plan would guarantee the internet’s decisive role in optimizing the locations of manufacturing factors and to give economic development a new impetus. The plan envisaged lowering barriers for tech companies’ IPOs, accelerated construction of digital infrastructure and related high-tech manufacturing facilities, and introducing cloud computing technologies and big data into the work of governmental bodies.

The leaders of tech companies increasingly influenced the opinions of China’s top state officials. Tencent’s founder Ma Huateng, for instance, became a member of the National People’s Congress. Incidentally the very phrase “Internet Plus” was used by Ma Huateng even before Li Keqiang announced the program. Therefore, some speculate that the head of Tencent influenced the formation of the new concept of digitalizing the economy. His competitor, Jack Ma, the head of Alibaba, repeatedly spoke about the importance of big data as a new source of economic growth. His recommendations were allegedly reflected in the 13th five-year development plan (2016–2020). Whether or not this is true is impossible to verify, but a separate article is devoted to introducing a national big data strategy.

In any case , China’s tech companies set new world records as they developed at lightning speed during the 12th and 13th five-year plans. The P2P lending sector, for instance, grew by over 200% annually. Alibaba and Tencent virtually became monopolists on China’s mobile payment market, with each company having over 700 million users. Before the pandemic, the revenues of DiDi, China’s vehicle-for-hire company, grew by more than 10% annually. Alibaba’s Yu’e Bao, an asset management product which offered an extremely low entry threshold of just 1 yuan, became the world’s largest money market fund by the late 2010s,, managing about $9 billion. With time, it became clear that tech companies could no longer develop unsupervised as their activities began to generate systemic stability risks. The sanctions against Alibaba, which ended with the cancellation of its IPO and a record $2.8 billion fine, are often taken as the starting point of the “regulatory winter”. Indeed, Alibaba’s case became the largest in China as regards the amount of financial penalty assessed. However, the first regulatory steps had been taken long before this case. All the potential risks posed by tech companies and, accordingly, all regulatory steps taken in their regard can be divided into three parts: combating chaotic capital expansion; anti-monopoly regulations; and threats to data security.

Chaotic Capital Expansion

Back in 2017, China’s President Xi Jinping in his address to the 19th Congress of the CPC proclaimed that China had to win “three difficult battles”: a battle against poverty, a battle against environmental pollution, and a battle against financial risks. These risks began to emerge after 2008 when Beijing decided to offer $585 billion. worth in economic stimulus money. The funds were supposed to go to the economy’s real sector and to infrastructural construction. However, central authorities contributed only one third of that amount; the rest had to be contributed by local governments. Since local authorities could not legally take out loans directly from banks, they relied on affiliated companies, local government financing vehicles (LGFV) that essentially acted as creditors.

This created a colossal demand for loanable funds, and the banking sector could not fully meet it, partly because of regulatory restrictions. . Hence, so-called shadow banking began to develop. CEIC Data reports that from 2008 to2017, shadow banking in China tripled from 20% to 60% of the GDP. Shadow banking is generally understood as off-balance sheet assets of traditional banks meaning loans issued by trusts, pawnshops, and micro lenders. The general problem with these schemes is, as the name suggests, that they are conducted out of sight of banking supervision, and therefore, may pose risks to the stability of the financial system.

This is, for instance, exactly what happened with P2P lending platforms. Their numbers in China peaked at 5,000, while they only numbered in dozens in other states. After one of the largest platforms, Ezubao, defaulted and 900,000 investors lost $7.3 billion, regulators began to look closely into the specifics of China’s P2P platforms. It turned out that instead of being merely informational go-betweens connecting creditors and borrowers, as is the case everywhere else, Chinese P2P platforms acted as quasi-banking structures: they accumulated investors’ funds guaranteeing them high returns and issued their own loans. In 2018, the Executive Group’s Office for Special Risk Management in Internet Finance issued “Notifications on Greater-Intensity Normalization of Online Asset Management and Establishing Supervision.” In particular, this document notes that currently active P2P platforms must: obtain a license to work; stop creating reserves out of investor funds,;act solely as intermediaries between creditors and borrowers; cap loan total costs at 36% interest rate (China’s supreme court capped total loan cost in 2015);operate solely via a depository bank; and cap loans per single borrower at 200,000 yuan for natural persons and 1 million yuan for legal entities. Companies were given a year to ensure they were compliant with the new norms. However, not a single company could become compliant, and by 2021, China had no P2P platforms at all.

In September 2020, China’s Central Bank announced comprehensive regulatory measures to regulate the activities of all tech companies offering financial services. Under these rules, any company that is not officially a financial enterprise, but has two or more financial divisions, should be registered as a financial holding. To be licensed, a company should have registered capital of at least 5 billion yuan. The new regulations extend to non-financial companies managing commercial banking bodies with assets totaling over 500 billion yuan, and to non-financial companies managing non-banking financial bodies with assets totaling over 100 billion yuan. Such companies should request a license from China’s Central Bank and, if this license is issued, add “financial holding” to their name. If a conglomerate is denied a license, it must sell or transfer its shares and control of its financial divisions. These rules cap loans issued to natural persons at 300,000 yuan and loans issued to legal entities at 1 million yuan. Simultaneously, a loan cannot exceed one third of a person’s average income for the last three years. Finally, new rules mandate that micro lenders may not attract bank funds or stockholder funds in amounts exceeding the amount of the company’s net assets. Also, the amount of funds attracted by issuing bonds and by securitization may not be more than four times the company’s net assets. Additionally, if a micro lender or an internet finance platform issues a loan together with a bank or other financial institutions, the micro lender’s or the internet finance platform’s share in the loan should be no less than 30%.

These rules appeared before Alibaba’s founder Jack Ma delivered his seditious speech at the Bund Summit financial forum in Shanghai. So, while the cancellation of Ant Group’s $37 billion IPO is often labeled as regulators’ “revenge” for Jack Ma’s arrogance, a much more likely reason seems to be that Ant Group did not comply with the new regulatory rules. Ant Group’s placement memorandum for investors said that consumer loans and loans to small businesses brought in 39.4% of the company’s revenues. For example, as of June 2020, outstanding loans issued via Ant Group’s platforms totaled 1.73 trillion yuan (261 billion dollars.). About 98% of these funds were either underwritten by banks or securitized. In other words, Ant’s balance sheet carried only 2% of loans. Traditional banks and investors carried risks for all the other loans that had in fact been issued by Ant Group.

In December 2020, the Politburo of the Central Committee of the CPC announced at its meeting that China would combat “chaotic capital expansion.” Rénmín Rìbào, the party’s main newspaper, explained that chaotic capital expansion refers to the logic of gaining profits at any cost, when development is detrimental to public interests. Therefore, a purely economic component was augmented by a social factor motivating Beijing to regulate the tech sector. In the thinking of Chinese authorities, financial stability goes hand in hand with the needs of building a harmonious society. Therefore, regulation means not only minimizing risks for the financial system, but also eliminating factors that provoke social instability.

Steps taken to combat the online education market fit into this framework as well. China’s State Council first mentioned the need to regulate online education and reduce school studentworkload back in 2018. Already in 2021, Chinese authorities first prohibited foreign investment in education and then mandated converting all online education tech platforms into non-commercial organizations. The two largest players on the market, Yuanfudao and Zuoyebang, were fined $389,000 for misleading marketing practices. Needless to say, these restrictions came as a shock to a sector that had accumulated at least $100 billion in investment. Nevertheless, as declining birthrates create serious demographic problems, regulating the sector that averagely consumes,30% of families’ annual income, and exacerbates social stratification between urban and rural populations became a political priority.

The food delivery sector also began to pose certain social instability risks. On the one hand, it was rapidly gaining popularity: from 2016 to 2020, the number of people ordering food online doubled to 400 million people. Two companies, Meituan and Ele.me, were virtually monopolists in this area. However, in an effort to take over the largest possible market share, each company tried to use its competitive edge aggressively through algorithms that optimize logistics This manifested primarily in delivery times and the range of foods offered. However, media and social networks eventually began to report horrendous labor conditions of delivery personnel who had to break traffic rules and work overtime if they wanted to meet rigid delivery deadlines; most importantly, the companies fined delivery personnel for smallest delays regardless of objective circumstances such as traffic, weather, time of day, etc. In 2021, an official from the Beijing Municipal Human Resources and Social Security Bureau went to work undercover for one of the companies and personally ascertained the harsh working conditions. Two months later, China’s State Administration for Market Regulation (SAMR) and six other state agencies developed regulations mandating that food delivery services extend basic social guarantees to their employees, including minimal wage-compliant earnings, and the ability to form trade unions. Additionally, companies were prohibited from using the harshest algorithms and were mandated to give employees more time to complete every delivery. Also, companies were mandated to set up special rest and food areas for employees and issue them special gadgets (like smart helmets) that would enable them to use their smartphones hands-free. Later, eateries complained about food delivery aggregators charging excessive fees. In February 2022, Chinese authorities mandated that companies reduce fees charged to food businesses.

Combating chaotic capital expansion applied to the online games market, too. Back in 2018, China’s authorities suspended issuance of approval for new games by relevant regulators, and in 2019, the authorities prohibited people under 18 from playing games after 10 p.m. They also mandated that companies ensure compliance with these requirements via, among other things, compulsory user identification. In August, China’s largest state media labeled games as “spiritual opium,” and soon the authorities prohibited children under 18 from playing online games for over a combined total of three hours a week. Tencent, the largest manufacturer of online games, was forced to increase its expenditures on complying with new regulations (including user verification). In 2022, the company’s revenues demonstrated negative dynamics for the first time since its 2004 IPO. Additionally, as a goodwill gesture, the company promised to earmark $7.7 billion for social “universal welfare” goals, another slogan China’s leadership frequently reiterates.

Anti-monopoly Regulation

Officially, China adopted anti-monopoly legislation back in 2008, and China’s Supreme Court heard the first anti-monopoly case of two Chinese IT-companies (Qihoo 360 Technology Co. Ltd. and Tencent Holdings Ltd.) in 2014. The two companies marketed rival products (antiviruses 360 Safeguard by Qihoo and QQ Doctor by Tencent) and used dubious competitive practices. Ultimately, Qihoo upgraded its 360 Safeguard product and it started blocking QQ’s pop-up ads. Tencent, in turn, also upgraded its QQ messenger, and it stopped working on computers that had the 360 Safeguard antivirus installed. In other words, consumers had to choose “one out of two”, a phrase that will be incorporated into Chinese antitrust law for several years… Although China’s Supreme Court recognized that these actions caused some harm to businesses, the specific economic damage, expressed in the loss of the customer base, was considered insignificant back then. The existing antimonopoly legislation of the time was too general and did not account for the specifics of internet business.

In November 2020, two weeks before an antimonopoly probe was launched against Alibaba, draft antimonopoly rules for internet companies were published. They were adopted in less than six months with minimal changes. Under these rules, a monopoly means practices, including digital platforms, that deliberately limit the compatibility of their own products with competitors’ products. Forcibly routing internet traffic and blocking a competitors’ hyperlinks for the purpose of restricting client access is prohibited. Additionally, the practice of “choosing one out of two” when online marketplaces prohibited sellers from simultaneously cooperating with other online trading platforms is held to be inadmissible. Fake advertising, paid-for client reviews, and other misleading information was prohibited as well.

Additionally, harsher measures were adopted for antimonopoly regulation of companies working with online payments, internet finance, and financial technology. Under these rules, any non-banking company holding over half the market, or two companies holding over two thirds of the market, or three companies holding over ¾ of the market will be subjected to an antimonopoly probe. Should China’s Central Bank notice any signs of monopolism undermining the principles of business security, efficiency, fairness, and reliability, it may file a grievance with relevant antimonopoly bodies and spearhead an antimonopoly probe even if the company’s business does not comply with the above criteria.

The verdict in the Alibaba case was the most high-profile outcome of an antimonopoly campaign. The company was fined a record amount of $ 2.8 billion, which totaled 4% of its 2019 annual turnover in China. China’s State Administration for Market Regulation found that Alibaba had systematically violated antimonopoly regulations: it forced sellers selling goods on its e-commerce platform to work solely with Alibaba’s platform. Trading on other e-platforms was forbidden; otherwise, the company threatened to hide the seller’s goods in its search results and to cut them from any promotion campaigns.

After the demonstrative punishment of Alibaba, top managers of all the largest Chinese internet companies were summoned for a talk with the regulator. They were reminded that monopolistic policies were inadmissible. Later, almost every one of them was fined for various violations of antimonopoly legislation: for exclusive agreements on distributing musical context (Tencent), for failure to disclose information about mergers and acquisitions (Baidu, Shenzhen Hive Box), and for promoting inaccurate information that misleads customers (JD.COM). Another major case involved food delivery service aggregator Meituan, who was fined $530 million for exclusive agreements and for using its monopoly to force customers to choose “one out of two.”

Antimonopoly regulation of China’s tech companies stemmed from the objective need to whip into shape the market environment and create conditions for healthy competition. This process was closely tied to combating “chaotic capital expansion”, analyzed above. China’s tech giants aggressively used non-competitive methods to push out smaller players. For instance, when China introduced regulations for financial technology platforms, Alibaba’s subsidiary Ant Group and Tencent’s WeChatPay service were virtually monopolists in the mobile payments market. These companies divvied up a market of 1 billion users, although officially another 233 Chinese companies were licensed to engage in the same activities. Beijing knew that without requisite regulations, tech giants would become a backbone force hard to control even at the level of state. For instance, even though China’s Central Bank mandated that all mobile payments operators process transactions using a specialized clearing platform controlled by the regulator, companies repeatedly violated requirements for relevant supervision of capital movement. Finally, looking at the global practice that involved EU and US authorities conducting antimonopoly probes against global giants such as Amazon, Beijing realized it was time to act. Some may even go so far to say that China managed to catch up with and overtake its international partners. Today, China has instituted a very strict regulatory regime for tech companies; this is particularly true for protecting, processing, and transmitting data.

Data as a National Asset

In 2013, ex-NSA employee Edward Snowden publicized information about American secret services using vulnerabilities of IT systems throughout the world to garnish intelligence information. This made China ponder the influence data may have on national security. In 2017, Cybersecurity Law went into force mandating, among other things, storing all data on Chinese users in China. Subsequently , technological confrontation with the US had an even greater influence on Beijing’s data policy.

The US has a competitive edge (fundamental research, qualified personnel, hardware/firmware) in practically all key technologies such as artificial intelligence, while China outstrips the US only in quantity and quality of data. This led to Chinese authorities placing a particular emphasis on regulating turnover of data as a crucial national asset. In 2021, China passed the “Data Security Law” and “Personal Information Protection Law” (PIPL). Under these laws, data is viewed as a national asset, another production factor on par with labor, land, capital, and technology. Data is also categorized by importance: regular data, key data, personal data. Cross-border transmission of key and personal data is rigidly regulated. This procedure may be conducted only after this data has been comprehensively checked by appropriate authorities.

Under PIPL, the confidentiality of user personal information was further stringently protected. The law mandates that the multitude of mobile apps and services have no right to deny their services to a user who refused to submit their personal information, except for the cases when this information is absolutely necessary for the proper functioning of an app. Users now have the right to receive specific information on how, where, by whom, and for what purpose their personal information is used. Companies must obtain user informed consent to use, store, and process their personal information. Users may revoke their consent at any time. The laws rigidly regulates cross-border data exchanges. If a company accumulates a large array of data about Chinese citizens, then, before conducting any data exchange with foreign partners, this company must undergo a strict cybersecurity check and obtain approval from the appropriate Chinese authorities.

China’s vehicle-for-hire company DiDi was the main “victim” of the new data protection legislation. DiDi launched its IPO on the New York Stock Exchange just when the relevant data security legislation was in the works. Merely a few days after DiDi’s $4.4 billion IPO, China launched a probe against DiDi regarding its compliance with data protection standards. The company was mandated to remove its apps from app stores and stop attracting new users. The probe against DiDi – concluded only when the company announced it was delisting itself from the American exchange.

The demands of US regulators to disclose information raises security concerns to Chinese authorities. The US demands that all companies listed on American exchanges grant the Public Company Accounting Oversight Board (PCAOB) unobstructed access to audit and accounting reports. Previously, Chinese companies ignored this demand citing Chinse legislation that prevented them from disclosing such information to international partners and regulators. In 2020, however, the US passed the Holding Foreign Companies Accountable Act (HFCAA). Under this act, should any company listed on American exchanges fail to provide data and accounting reports for three years, it will be forcibly delisted. China’s vehicle-for-hire company DiDi works on the domestic market and accumulates sensitive data concerning movements of millions of Chinese citizens. Naturally, such a company launching an IPO with the potential condition of transmitting these data to the US is a very risky step. Although the authorities did not publicly say so, from a regulator’s point of view, the main condition for companies like DiDi to continue operating is to prevent uncontrollable cross-border transmission of data.

As for domestic information security, Chinese authorities started regulating the use of algorithms by companies. The State Internet Management Office together with the Ministry of Industry and Information Technology and the Ministry of Public Security announced measures that have been in place since 2022. Under these rules, companies must not use recommendation algorithms for illegal purposes, for instance, for undermining national security. News sites whose work is based on algorithms must undergo a special licensing procedure; recommending fake news is prohibited. Additionally, companies are mandated to inform users about the recommendation service’s basic principles, purpose, and operating procedures; users should also have the option to opt out of receiving recommendations created through the use of algorithms. Companies also must provide users with the option of choosing or removing tags the algorithm uses to form recommendations. Finally, users may not be subjected to price-based discrimination based on an algorithmic analysis of their online behavior.

***

After a decade of explosive growth, China’s tech sector lost hundreds of billions of dollars in less than two and a half years of the state’s large-scale regulatory campaign. China’s five largest Big Tech companies lost nearly 50% of their combined market capitalization. While in 2020, Tencent had larger capitalization than Facebook and most other American companies, today America’s Apple with its market value of $2.7 trillion exceeds the capitalizations of Tencent, Alibaba, Baidu, Meituan, JD.COM, and Pinduoduo combined. Following the start of the regulator’s probe into its activities, DiDi alone lost over 90% of its market capitalization. Generally, China’s tech sector lost its former foreign investor appeal. In the first quarter of 2022, investment into it fell by 42.6% in quarterly terms or by 76,7% in annual terms. Over 200,000 employees were fired from internet companies over the last year.

Nonetheless, it would be a mistake to think that Chinese authorities wanted to stifle the development of China’s tech sector. Beijing successfully applied its regulatory measures to address almost all of its problematic areas in the sector’s development. Chinese authorities demonstrate their commitment to creating a fully controlled regulatory environment for the so-called platform economy. Regulatory measures are intended to increase the social responsibility of businesses and bring companies and their activities compliant with national security demands.

Recently, due to a national economic slowdown brought by the COVID-19 pandemic, as well as uncertain external conditions, Chinese authorities are eager to show both businesses and investors that there will be no political pressure put on Big Tech. Vice Premier of the State Council Liu He supported the platform economy and expressed his hope that tech companies will play a constructive role in reviving national economy. Liu He, who is considered one of China’s top officials in charge of the economic bloc (along with Premier Li Keqiang),also welcomed businesses to attract financing at both domestic and foreign capital markets. By doing so, Beijing likely wants to revive investor optimism and demonstrate that China is far from anathematizing tech giants.

Nonetheless, the already adopted regulatory measures should not be expected to weaken. Given that for the last decade China’s tech sector has been developing practically regulation-free , it is now clear that the past development dynamics will be no more. Using regulations, Chinese authorities drew red lines for China’s Big Tech. Chaotic capital expansion, monopolist practices, and uncontrolled use of data are categorically prohibited to businesses by rules that can no longer be broken. Those companies that want to attract financing and actively work on international markets without leaving the domestic market will likely have to look for additional compromises. One possible scenario is transferring a certain share of a company to the state and appointing party officials to the company’s board of directors, thereby granting more control leverages and making their activities more transparent.

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The Development of Artificial Intelligence in China: Advantages and terms of development

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Artificial intelligence in China is facing unprecedented development opportunities and has many advantages in terms of development. Let us make a few considerations in this regard.

1) International trends

Significant progress has been made in the IT environment and the technological level of human society between big data, cloud computing and the Internet, which are closely related to AI and have developed quickly. AI has started to have a significant impact on the structure of human society and the dual human-machine environment is gradually developing into the third human-machine-intelligent machine environment. The cooperation and coexistence of humans, machines and intelligent machines will become the new normal of the social structure. Such harmonious coexistence is hopefully not only a need for social development, but also provides a distinct place for AI.

Throughout the international community, the development trend of science and technology, as well as AI, is an important sign for human society to keep moving forward after entering the IT field at every level, and is the general trend of international scientific and technological development. Recovery and development inject positive energy into China, and this is also a period of unique development opportunities for China’s AI.

2) AI must be guided by the national strategy

Looking back to the process of AI development in China, we can see that the public’s understanding of AI, the development of its industry, and the government’s emphasis on it have all undergone major changes.

As mentioned above, the State’s top leadership encourages the development of artificial intelligence. President Xi Jinping, Prime Minister Li Keqiang and others have provided great support and clear instructions to the development of AI and robotics in China and have defined target requirements. The State Council, the government and the relevant departments have formulated and released relevant strategic and development plans, such as the three-year Internet+ Implementation Plan, Intelligent Manufacturing 2025 and, in the past, the Robotics Industry Development Plan 2016-2020, etc. The national strategy and government promotion are the source of the healthy development of China’s AI technology and industry. Without the country’s overall political coordination, AI will be impossible to achieve since it is only with the Chinese strategic support that it will be able to make great strides.

3) Internal development needs

AI development is a need for the transformation and upgrading of national industries. The development of intelligent industry and economy requires the continuous innovation of AI. The AI industrialisation is the general trend of national development.

China’s economic and social growth is facing new opportunities and challenges. The lack of dividends in labour, the advent of a society with a rising average age, the needs for elite talents and the development of key technologies must be solved one by one through development. The development of AI and intelligent machines can lead to the “replacement of humans by machines” and to industrial transformation and upgrading. It will provide new momentum and become a new trend for innovation. It cannot be said, however, that the development of AI can solve all economic and social problems, but it is safe to say that the AI industry can create good opportunities to solve the existing economic and social problems. The Chinese social progress and economic development urgently need the effective presence and participation of AI. The industrial transformation, upgrading and reconstruction of China’s growth also provide a “useful place” for the development of AI technology and industry.

4) The advantage of intellectual resources

Although China’s AI has started late and has gone through a long and winding development path, it has unique advantages in terms of intellectual resources.

Firstly, AI focuses on software and the Chinese have a good tradition and special wisdom in this regard. Wu Wenjun, known as the father of Chinese Artificial Intelligence, has emphasised that China is not only suitable ground for the mechanisation of mathematics as a typical mental work, but also fertile ground for the mechanisation of all kinds of AI. Ancient China was the birthplace of the transformation of mental work into factual achievement – although it was seen as an intellectual achievement and not as a practical application: suffice it to say that gunpowder was not used in wars, but was mostly used in recreational events.

Secondly, China currently has sound foundations, effective means and a wealth of experience necessary to develop the true mechanisation of mental work. The shushu method (by “art of predictions” we mean a series of methods for predicting the future developed in pre-imperial China, which played a significant role in the history and culture of the country), used to study even mathematics in Chinese history, is similar to the algorithm currently used to study AI.

China has a huge Internet user base, the largest number of netizens and talents, who form an important advantage in terms of resources of the AI group. Netizens are people who share a common interest and active engagement in improving the Internet, thus making it an intellectual and social resource. The term was widely adopted in the mid-1990s as a way to describe those who inhabit the new geography of the Internet. Internet pioneer and author Michael F. Hauben is credited with coining and popularising the term.

Thirdly, a large number of repatriated experts sent by China to study AI abroad have become the cornerstone and the academics of research and development on the subject, and are also extremely important for the industrial application and training of a new generation of teachers and professors.

Fourthly, China’s pro-reform and opening-up development environment will continue to attract more overseas students and foreign experts engaged in this field to join the common path of improving AI on a global scale.

China’s AI technology and industry is in the best period of development opportunities, provided that the talent strategy is well formulated and implemented, so that there is no longer the need to go abroad to learn, and a national school can be created.

5) The preliminary foundation of the industry

Compared with the robot industry, China’s AI industry started very late, but in recent years it has made great progress in its research achievements and industrial transformation, which is not in the same situation as it was years ago. In the current context of deep development and wide application of big data, cloud computing and the mobile Internet, national and foreign IT companies have seized the opportunity to implement the AI industry. Taking the smart voice sector as an example, its potential market is worth 10 billion US dollars: China’s Baidu, and the US Amazon and Google are conquering the top positions, and competition from smart voice cards of technology giants has begun to take shape.

The increase in the size of China’s voice industry is mainly due to the following three reasons: (i) the government’s political and financial support for the research, development and industrialisation of intelligent voice technology has created a favourable environment for the development of the voice industry; (ii) voice technology suppliers continue to optimise product performance, further deepening the application of intelligent voice in vehicle information service systems, smart homes and other fields; and (iii) the popularisation of 5G networks (5th Generation), big data development and cloud computing provide a strong guarantee for intelligent voice applications. These three reasons are also the fundamental basis for the development of this industry in China.

At present, information technology giants take intelligent voice as an entry point and proactively implement development in the field of AI. Internationally, Internet companies such as Google, Apple, Microsoft, Amazon, IBM, Facebook, etc., which have proactively promoted the research, development and application of intelligent voice technology, have taken this as an entry point to initiate the scheme of the entire AI field. At the same time, Chinese national companies such as Baidu, Tencent, Alibaba, iFLYTEK, Xiaoi Robot, Spichi, Yunzhisheng, BGI and Jietong Huasheng are proactively implementing AI based on intelligent interaction (voice and text).

Besides the intelligent voice industry, China also has some innovative products and industries in other aspects of natural language processing. Furthermore, image processing, machine learning, smart driving, smart home, smart sensors and other fields have also been planning the arrangement of elements that will make China’s related software independent. China’s AI industry is gradually taking shape and its standardisation also needs to be strengthened.

6) Financial Assistance

With the fast development of the economy and the unprecedented improvement of national strength, China’s monetary and financial supply has a respectable international status and has invested massively at home and abroad. In recent years, the national capital market has paved the way for the development of the AI sector. With such progress, it will be able to create cutting-edge industries. These new giants of national entrepreneurship could evolve exponentially in a short time. At the same time, a talent or a business idea could sprout from even a small company or a single, as yet unknown manufacturer.

The capital market’s enthusiasm for intelligent robots has caused the stock horizon to show a rare pattern. Investment in the robotics industry has increased and the amount of robotics industry’s financing has more than tripled. At the same time, the number of mergers and acquisitions in the robotics industry is also increasing year by year. Many listed companies have been involved in the mergers and acquisitions of robotics companies. Some national companies have started to turn to foreign markets, thus giving way to a larger scale of development.

With the further implementation of the Made in China 2025 plan, the potential energy of China’s robotics industry will be further released. There are signs that once the country has fully introduced an AI strategy, national and foreign financial capital will be invested in the AI industrial chain with the same enthusiasm as for intelligent robots. (9. continued)

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New archaeology dives into the mysterious demise of the Neanderthals

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BY SARAH WILD

For more than 350 000 years, Neanderthals inhabited Europe and Asia until, in a sudden change by evolutionary standards, they disappeared around 40 000 years ago. This was at around the same time the anatomically modern human Homo sapiens emerged from Africa.

With their distinctive sloped forehead, large pelvis and wide noses, Neanderthals leave in their wake one of the great mysteries of human evolution.

They lived during the middle to late Pleistocene Epoch, about 400 000 to 40 000 years ago. Neanderthals lived in Eurasia with traces discovered as far north as present-day Belgium and south to the Mediterranean and southwest Asia.

They were not the only hominid (human-like) species in existence on the planet at the time. Other archaic human groups such as Homo floresiensis and Denisovans, also walked the earth.

Human species

‘At the time of the Neanderthals, there were several human species and suddenly 40 000 years ago, all disappeared but one,’ said Prof Stefano Benazzi of the University of Bologna, Italy.

He is a physical anthropologist leading the Horizon-funded SUCCESS project to research the earliest migration of Homo sapiens in Italy. ‘It’s important to understand what happened,’ he said.

We already know more about Neanderthals than any other extinct humans, thanks to thousands of excavated artefacts and fossils, as well as several nearly-complete skeletons.

There are a number of competing theories as to why the Neanderthals disappeared, such as climate change, the aggression of Homo sapiens, possible competition for resources, or even that Neanderthals disappeared because they interbred with Homo sapiens. Some human populations alive in Europe and Asia today have as much as 3% Neanderthal DNA.

Benazzi investigated what happened to Neanderthals in Italy around the time that Homo sapiens arrived out of Africa.

‘In Italy, we have a lot of (dated) archaeological sites, and we have a good overview of the different (technological) cultures falling in the time period of interest,’ he said.

Neanderthal extinction

A number of scholars argue that climate change may have pushed Neanderthals towards extinction. While that may have been true in other places, it was not the case in Italy, Benazzi explained.

The SUCCESS project analysed the pollen from paleolake (ancient lake) cores using minerals collected from ancient stalactites. These calcium icicles which hang inside caves are effectively climate time machines, and researchers can decode what the climate was like when they formed.

Through this approach, the SUCCESS project reconstructed the paleoclimate (prehistoric climate) between 40-60 000 years ago. In contrast to ice-core analysis from Greenland, there were no data indicating catastrophic climate change in Italy, making it unlikely to have killed off the Neanderthals.

They closely examined a period of around 3 000 years when populations of Neanderthals and humans may have co-existed by excavating seven sites they once inhabited. They investigated the cultural and tool-making differences between the last Neanderthals and the first Homo sapiens in Italy.

Homo sapiens in Italy used specific types of technology including artefacts such as shell ornaments and projectiles like arrowheads. In fact, SUCCESS unearthed the earliest evidence for mechanically delivered projectile weapons in Europe.

Weapons mismatch

Neanderthals would have found themselves at a severe disadvantage to their Homo sapiens relatives in terms of weapons technology. However, that meeting in Italy may never have happened.

Recently discovered remains in southern Europe show that at least one Neanderthal had been alive 44 000 years ago while the oldest Homo sapiens remains have been dated to 43 000 years ago. It is possible that they overlapped, but none of the current evidence shows that, Benazzi said.

Each region is different. ‘The result we get here (in Italy) doesn’t mean that we’re going to get the same results elsewhere,’ he said.

In the PALEOCHAR project, Carolina Mallol, a geoarchaeologist at the University of La Laguna in Spain and currently a visiting professor at UC Davis in the United States, is raking through the ashes of time, seeking traces of Neanderthals’ lives and hints of their demise.

Fire sediments

The goal is to study microscopic and molecular charred matter from ancient fire sediments to see what organic material they left behind.

‘The handicap of the archaeologist is that the human world is organic, and we can’t get at it,’ said Mallol, who studies Neanderthal sites such as El Salt and Abric del Pastor in Spain.

When organic matter, such as meat or plants, is thrown in a fire, the heat dehydrates it, ultimately destroying its DNA and proteins. But fatty molecules called lipids can survive if the fire does not get hotter than about 350°C, as Mallol and colleagues show in their investigations.

‘PALEOCHAR was designed to explore how far we can take the analytical techniques to squeeze molecular information from the organic black layers (in the fire),’ she said.

Paleolipidomics (the study of ancient fats) has been used to study lipids in Roman amphorae, Egyptian mummies and even prehistoric leaves.

Biomarkers library

When it comes to ancient human sediments, ‘we are the first ones to apply (these techniques) systematically,’ she said. They also expanding the known lipid biomarkers, which are like molecular “barcodes” specific to species, families or even metabolic pathways.

‘With biomarkers, you can distinguish herbivores from carnivores, conifers from angiosperms,’ she said.

Mallol and colleagues set up the world’s first AMBILAB, which stands for the Archaeological Micromorphology and Biomarkers Research Lab, based in Tenerife, Spain, which trains researchers in the techniques of soil micromorphology and lipid biomarker analysis.

The questions about Neanderthals, such as why they went extinct, are very ambitious, said Mallol. ‘Those questions require that you first determine who they were and how they lived with a lot of information –– and we don’t have that information yet,’ she said.

With each new piece of information, archaeologists and scientists burrow deeper into the mystery of why our closest relatives suddenly disappeared while Homo sapiens managed to survive.

Research in this article was funded via the EU’s European Research Council and this article was originally published in Horizon, the EU Research and Innovation Magazine. 

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Distributed Ledger Technologies (DLTs)- as a counter to the growing threat of Centralisation

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The Cyber era which found its genesis with the advent of the global internet- through the US Department of Defense funding ARPANET experimentations in the late 1960s[1] – embodies the liberal spirit of laissez-faire and the freedom of expression and has grown rapidly from about 3 billion internet users in 2018,[2] to over 5,385,798,406 internet users, – or 67.9% of our total population – as of June 30, 2022.[3] Attempts, however, have been made to curtail users ability to access what is on the internet through the development of national intranets- examples being China’s great firewall,[4] Russia’s sovereign internet,[5] Iran’s National Information Network,[6] and North Korea’s Kwangmyong network.[7] What these national intranets have in common is centralised management in terms of websites and social media that are accessible, and information that is available to the citizens. Each of these states has the ability to distort truth, to rewrite the narrative, and to determine what is fact and force-feed it to their citizens by filtering opposing content and through restricting/blocking access to alternatives. ‘Centralisation’ here refers to concentrated power in the hands of one group, that allows for unilateral decisions to be made on behalf of the entire population or network.

The threat of centralisation also persists within the private sphere/realm, with tech companies having found themselves at the centre of a new debate in the press media. While tech companies focusing on social media may have first formulated/established themselves as outlets for expression of their user base they have now been taking strides in the opposite direction by censoring user posts and content. Recent instance include Pinterest which in 2019 began blocking any and all search results concerning vaccinations.[8] Similarly, Facebook in 2020 began deleting ‘events’ that aimed at organising protests against home quarantine during the start of the COVID pandemic.[9] Twitter in 2021 extricated over 70,000 accounts that were linked with the ‘QAnon’ conspiracy that threatened public order.[10] This was part of Twitter’s policy of removing posts and deleting accounts that broke their platform’s rules. While in each of these instances the concerned tech company may have arguably acted with good intention, their ability to simply flick a switch and unanimously censor content is deeply troubling. The control that social media companies exerted even over influential people culminated with the permanent suspension of U.S ex-President Donald Trump’s Twitter handle.[11] This incident is exemplary when it comes to determining the power of web censorship that is imbued within the hands of social media companies.

How can DLTs help counteract centrality?

‘Distributed Ledger Technologies’ (DLTs) can be used to counter the growing threat of centralisation from both state actors and monolithic tech-companies. There are various kinds of DLTs- such as Directed Acyclic Graphs (DAG), Holochain, Block Lattice, and the most renowned of all being- Blockchains.[12] Quintessentially, DLTs are distributed peer-to-peer networks that utilise a majority consensus for transactions to be verified and then stored as data on a public ledger. For simplicity sake this article will utilise blockchains to illustrate how DLT networks function.

‘Nodes’ are individual peers within a Blockchain network that maintain a record of the ledger thereby being involved in the process of storing, verifying, and distributing the full set of data with other participant nodes on the blockchain.[13] This “ledger of records” is immutable- allowing for data, events, and transactions to be time-stamped on chain, thus creating a verifiable log of all network user’s micro-history. The key features of a DLT are that they are ‘immutable’, ‘trustless’, and ‘verifiable’ with transactions being easily accessible/viewable by anyone in the entire network and it is these qualities that become instrumental when countering centralisation.

Take for instance the ostracisation of some Iranian national banks in 2012 and Russian national banks in 2022 from the ‘Society for Worldwide Interbank Financial Telecommunications’ (SWIFT)- an international banking system which executes international financial transactions.[14]  These instances demonstrate the current weaknesses/drawbacks of our existing financial system- as failure to comply with international norms has resulted in the enforcement of ‘one-sided’ economic sanctions. This cuts off these Banks’ and thereby the nation’s access to the global market as most exchanges occur using SWIFT via the U.S. Dollar and has the secondary effect of debilitating the economic strength of the local currency. Cryptocurrencies, however, are not restricted by these same limitations and were thereby used as a hedge by citizens both in Ukraine and in Russia to save the value of their savings by transferring them from fiat currencies into digital cryptocurrencies.[15] DLTs moreover are resistant to external influence as the transactions (here referring to both financial transactions and any information that is ingrained on-chain) occurring on them are ‘immutable’, which means that once the network/chain is set up- the data time-stamped onto the ledger can no longer be tampered with by third-parties and will continue to exist on-chain permanently. Similarly, attempts made to restrict transactions to -and- between users from a particular region will prove ineffectual as no single entity has control over the entire network.

A second advantage/strength of DLTs is that the ‘consensus mechanism’- the process through which nodes coordinate to add transactions to the network- is designed in such a way so as to allow for the entire process to be ‘trustless’. The immutability of the DLT grants participants on the network the ability to engage in transactions with one-another without having to trust one-another or rely on a third intermediary such as banks or centralised tech platforms to execute the transaction. Moreover, these financial transfer are instant- a real life example being witnessed during the 2022 Russian invasion of Ukraine where individual netizens across the world were able to make direct donations totalling $42 million in 6 days to the Ukrainian Government after they posted their verified wallet address/public key- circumventing the restrictions imposed through bureaucracy.[16] Furthermore it can be argued that the public nature of the digital ledger of transactions grants greater transparency to the public on how exactly the donated money was and can be spent. This is due to the fact all transactions made on-chain (the sending of cryptocurrency to the donated address and the spending of this donated amount on other things) become visible through inputting the public key address on tools such as BSCscan or Etherscan which display all existing transactions.[17] The astounding feature of this whole process is that this can be executed while granting anonymity to the donators- as the only way to identify which address belongs to whom is if the donator somehow revealed that the corresponding wallet belonged to them.

To summarise DLTs have a low barrier to entry as anyone with an internet connection and who is willing to invest time and energy into understanding how the crypto space/system works is able to utilise it. DLTs are designed to be resistant to censorship as every node is independent and the network therefore decentralised. Therefore, a good way to test the strength of a DLT is to measure/assess how easy it would be for a government, corporation, or any external third party (venture capitalist firms, hackers, hacktivists) to shut down or interfere with the network. To shut down or effectively change a decentralized network would require ownership or control of over half the nodes or systems. Even individual countries are incapable of exacting their influence on these independent networks. Algeria, Nepal, Northern Macedonia, and China have all passed laws that decreed the trading and purchase of cryptocurrencies and the utilisation of their underlying blockchains as illegal further blocking user access to websites where cryptocurrencies could be purchased or exchanged making user access difficult but not impossible.[18] Technologies such as Virtual Private Networks (VPNs) grant users the ability to circumvent censorship and allow citizens of even the most authoritarian regimes accessibility.[19] The immutable, anonymous, and decentralized (cross-border/international) nature of DLTs therefore make it very hard for countries to police and regulate crypto transactions. In fact, this was a point argued by Indian Finance Minister Nirmala Sitharaman who called for mutual cooperation and a common solution between countries to tackle the global dilemma posed by cryptocurrencies during a high-level panel discussion organised by the International Monetary Fund (IMF) in April, 2022.[20]

This makes it evident that for the first time in the history of humanity a series of systems are implemented that are capable of resisting State influence which has historically enjoyed its power unperturbed. What has made all of this possible is the invention of ‘smart contracts’, which is immutable computer code, existing on-chain, that allows for the terms and conditions of an agreement between two parties to be carried out without the intervention of a third-trusted party.[21] The contractual clause- such as the release of funds in the form of cryptocurrencies (Bitcoin, Ethereum, Monero etc.) is executed automatically when the necessary preconditions (the fulfilment of services) have been successfully met. Smart contracts allow for the development of decentralised applications and offer increased versatility.

How to discern a centralised DLT from a truly decentralised DLT

DLT networks attempt to adhere to the tenets of decentralisation, at least ideologically, however, the harsh reality is that many of them simply masquerade themselves as being decentralised while falling short of the benchmark. ‘Solana’ is a fine example of an open-source blockchain that despite utilising smart contracts, and supporting decentralised applications (‘dapps’) is still quite centralised. For consensus and for adding transactions to its blockchain Solana utilises a hybrid proof-of-stake model combined with what it has termed as ‘proof-of-history’- where ‘leader’ nodes are chosen randomly for validation for fixed periods of time- thereby lowering latency and increasing throughput.[22] While Solana currently has 1975 validator nodes running giving the illusion of decentralisation- just 32 nodes hold a third of the total staked supply of SOL (a.k.a cumulative stake) and thereby validate a third of all transactions![23] This is dangerous as this implies that 32 of the largest nodes could potentially collude to halt the network. Secondly, once a DLT is up and running outages should virtually be impossible provided the DLT is decentralised enough as no one can collude to temporarily shut off the network. Solana witnessed six outages during the month of January 2022 for periods lasting longer than 8 hours,[24] during which time they halted the entire chain to identify and fix the issues before restarting the chain- something indicative of the centralised nature of this network. Finally, according to a 2021 report by Messari over 48% of Solana’s token allocation at its genesis were allotted to venture capital firms with only a very small fraction going to the public through lock drops or pre-launch sales.[25] Any DLT having almost half of its initial token allocation allotted to VC firms cannot be said to adhere to the ideologies of decentralisation as only a sliver of the entire allocation was even purchasable/attainable by the public. It is for these reasons that Solana can be categorised as a fairly centralised blockchain.

Bitcoin- the original progenitor of all blockchains- currently having over 15000 reachable nodes active all throughout the world- serves as a prime example of a DLT that truly mirrors the ethos of decentralisation.[26] Bitcoin fulfils the core tenets of decentralization with its blockchain being immutable, trestles through by utilising ‘proof-of-work’ (PoW) for consensus, and transparent with all the transactions on its blockchain being verifiable through services such as BScscan.[27] Moreover, the initial coins were distributed through the mining of blocks- which could be carried out by anyone with a Graphic Processing Unit (GPU) available within Personal Computers- further implying/meaning that bitcoins were openly accessible/earn-able by the public. Furthermore, and in direct contrast to Solana, Bitcoin is leaderless and since its inception in 2008 has never experienced any outages. To enact any change or upgrade to the Bitcoin network requires over 51% of the nodes on the network to acquiesce. Some criticisms have arisen that make reference to the top 6 (centrally managed) mining pools that when combined amount to over 75% of the total computing power in Bitcoin- a fact which would allow them to validate or cancel transactions, conduct double-spending and create coins from thin air.[28] However, the cold-undisputed truth remains that Bitcoin has never, since its inception, witnessed any such collusion that has resulted in a 51% attack- therefore, for all intents and purposes, Bitcoin stands as the apotheosis of decentralisation.

Conclusion

The conveniences afforded through the proliferation of the internet have simultaneously given rise to increasing avenues of centralised control to both national governments and monolithic state companies. In fact, Twitter Founder Jack Dorsey himself has grown despondent at this centralised nature of the internet and recently announced plans to create a new decentralised platform to combat it- terming this as the new Web5.[29] However, this article has also made clear how DLTs and their underlying crypto assets provide a unique solution to countering the growing threat of centralisation. Truly decentralised networks cannot be stopped by the government through some obscure law because the only law in crypto is ‘immutable computer code.’ Neither can cryptocurrencies on these networks be confiscated as they are private assets truly owned by the individual key holder. Governments are aware that DLTs and cryptocurrencies are a frontier they do not exercise sovereignty over and are actively adopting stances to oppose them. Therefore, it can be said that the true test of a DLTs decentralised nature will be to observe how each of them respond to increasing censorship from state and tech influence. It is the author’s opinion and belief that DLTs will remain relevant and continue to grow undeterred because digital assets and their underlying technology are firmly located at the heart of the next technological revolution that is reshaping the world across societies and economies.


[1] Andrews, Evan. 2019. “Who Invented The Internet?”. HISTORY. https://www.history.com/news/who-invented-the-internet.

[2] Morgan, Steve. 2019. “Humans On The Internet Will Triple From 2015 To 2022 And Hit 6 Billion”. Cybercrime Magazine. https://cybersecurityventures.com/how-many-internet-users-will-the-world-have-in-2022-and-in-2030/.

[3] Internetworldstats. 2022. “World Internet Users Statistics And 2022 World Population Stats”. Internetworldstats.Com. https://www.internetworldstats.com/stats.htm.

[4] D’sa, Douglas Daniel. “How has China been using Artificial Intelligence (AI) to build a digital system of Social Control in East Turkistan (Xinjiang)?.” (2021).

[5] Epifanova, Alena. “Deciphering Russia’s “Sovereign internet law”: Tightening control and accelerating the Splinternet.” (2020): 10.

[6] Eyvazi, Mohammad Rahim, Safiye Rezaee, and Mohsen Mohammadi Khanghahi. “The role of the national information network in strengthening the independence and national security in the second step of the Islamic Revolution.” Islamic Revolution Research 10, no. 4 (2022): 29-55. (double check this one)

[7] Williams, Martyn. 2022. “A Peek Inside North Korea’s Intranet”. North Korea Tech – 노스코리아테크. https://www.northkoreatech.org/2015/07/06/a-peek-inside-north-koreas-intranet/.

[8] Telford, Taylor. 2019. “Pinterest Is Blocking Search Results About Vaccines To Protect Users From Misinformation”. The Washington Post. https://www.washingtonpost.com/business/2019/02/21/pinterest-is-blocking-all-vaccine-related-searches-all-or-nothing-approach-policing-health-misinformation/.

[9] Ghaffary, Shirin. 2020. “Facebook Is Taking Down Some, But Not All, Quarantine Protest Event Pages”. Vox. https://www.vox.com/recode/2020/4/20/21228224/facebook-coronavirus-covid-19-protests-taking-down-content-moderation-freedom-speech-debate.

[10] Conger, Kate. 2021. “Twitter, In Widening Crackdown, Removes Over 70,000 Qanon Accounts (Published 2021)”. Nytimes.Com. https://www.nytimes.com/2021/01/11/technology/twitter-removes-70000-qanon-accounts.html.

[11] Twitter. 2021. “Permanent Suspension Of @Realdonaldtrump”. Blog.Twitter.Com. https://blog.twitter.com/en_us/topics/company/2020/suspension.

[12] The Zenon Team. 2020. “Network Of Momentum- Leaderless BFT Dual Ledger Architecture”. https://github.com/zenon-network/zenon.network/releases/download/whitepaper/whitepaper.pdf.

[13] ​​Florian, Martin, Sebastian Henningsen, Sophie Beaucamp, and Björn Scheuermann. “Erasing data from blockchain nodes.” In 2019 IEEE European Symposium on Security and Privacy Workshops (EuroS&PW), pp. 367-376. IEEE, 2019.

[14] Tulun, Teoman Ertuğrul. “SWIFT System Turns Into Economic Sanctions Instrument.” (2022).

[15] Lau, Yvonne. 2022. “They Fled Russia With Little Cash. Here’S How Cryptocurrency Saved Them”. Fortune. https://fortune.com/2022/03/30/russia-ukraine-war-cryptocurrency-sanctions-capital-controls-refugees-cash-oligarchs/.

[16] Taku, Nitasha, and Jeremy Merrill. 2022. “Ukraine Asked For Donations In Crypto. Then Things Got Weird.”. Washington Post. https://www.washingtonpost.com/technology/2022/03/03/ukraine-cryptocurrency-donations/.

[17] Cernera, Federico, Massimo La Morgia, Alessandro Mei, and Francesco Sassi. “Token Spammers, Rug Pulls, and SniperBots: An Analysis of the Ecosystem of Tokens in Ethereum and the Binance Smart Chain (BNB).” arXiv preprint arXiv:2206.08202 (2022).

[18] Orji, Chloe. 2022. “Bitcoin Ban: These Are The Countries Where Crypto Is Restricted Or Illegal”. Euronews. https://www.euronews.com/next/2022/04/27/bitcoin-ban-these-are-the-countries-where-crypto-is-restricted-or-illegal2.

[19] Varvello, Matteo, Inigo Querejeta Azurmendi, Antonio Nappa, Panagiotis Papadopoulos, Goncalo Pestana, and Benjamin Livshits. “VPN-Zero: A Privacy-Preserving Decentralized Virtual Private Network.” In 2021 IFIP Networking Conference (IFIP Networking), pp. 1-6. IEEE, 2021.

[20] PTI. 2022. “Cryptocurrency Could Be Used For Money Laundering And Terror Funding, Says Indian Finance Minister”. Business Insider. https://www.businessinsider.in/cryptocurrency/indian-finance-minister-says-that-cryptocurrency-could-be-used-for-money-laundering-and-terror-funding/articleshow/90933116.cms.

[21] Zheng, Zibin, Shaoan Xie, Hong-Ning Dai, Weili Chen, Xiangping Chen, Jian Weng, and Muhammad Imran. “An overview on smart contracts: Challenges, advances and platforms.” Future Generation Computer Systems 105 (2020): 475-491.

[22] Yakovenko, Anatoly. 2017. “Solana: A New Architecture For A High Performance Blockchain V0.8.13”. Solana.Com. https://solana.com/solana-whitepaper.pdf.

[23] Beach, Solana. 2022. “Dashboard | Solana Beach”. Solanabeach.Io. https://solanabeach.io/validators. Accessed on 6th September, 2022.

[24] Nicolle, Emily, and Bloomberg. 2022. “Solana’S Sixth Outage This Month—And Founder’S ‘Lol’ Tweet—Frustrates Traders”. Fortune. https://fortune.com/2022/01/25/solana-founder-anatoly-yakovenko-crypto-crash-blockchain-instability/.

[25] Watkins, Ryan. 2022. “Power And Wealth In Cryptoeconomies”. Messari.Io. https://messari.io/report/power-and-wealth-in-cryptoeconomies.

[26] Bitnodes. 2022. “Bitnodes”. Bitnodes.Io. https://bitnodes.io/. Accessed on 12th September, 2022

[27] Cernera, Federico, Massimo La Morgia, Alessandro Mei, and Francesco Sassi. “Token Spammers, Rug Pulls, and SniperBots: An Analysis of the Ecosystem of Tokens in Ethereum and the Binance Smart Chain (BNB).” arXiv preprint arXiv:2206.08202 (2022).  

[28] Gervais, Arthur, Ghassan O. Karame, Vedran Capkun, and Srdjan Capkun. “Is bitcoin a decentralized currency?.” IEEE security & privacy 12, no. 3 (2014): 54-60.

[29] Ramage, Jack. 2022. “Move Over Web3. Former Twitter CEO Jack Dorsey Wants To Launch Web5 Based On Bitcoin”. Euronews. https://www.euronews.com/next/2022/06/15/move-over-web3-former-twitter-ceo-jack-dorsey-wants-to-launch-web5-based-on-bitcoin.

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Pakistani Intelligence Agencies ignite Tribal Conflicts in Pak-Afghan Region

According to the intelligence information, Pakistani intelligence community supported by some international rings want to once again spread dispute and...

South Asia9 hours ago

Changing Regional Security Paradigm: A Challenge to Kashmir and Options for Pakistan

The post-cold war world has witnessed shifts in international and regional security paradigms. Due to globalization, easy migrations, advanced technologies,...

Central Asia12 hours ago

Shanghai Cooperation Organization Summit and Later Developments: The Politics Analyzed

The summit’s mood was a somber one, toned down by Ukraine war, mounting global economic and environmental crises. Important developments...

Green Planet14 hours ago

A Healthy Environment is Now a Universal Human Right: But What Does the Recognition Mean?

On July 28, 2022, the United Nations General Assembly (UNGA) adopted a resolution that “recognizes the right to a clean,...

Middle East17 hours ago

Public opinion surveys challenge the image Arab leaders like to project

Several recent public opinion surveys send a mixed message to autocratic reformers in Saudi Arabia, the United Arab Emirates, and...

Green Planet19 hours ago

The Ravages Of Earth: Natural And Man-Made

Italy has suffered a terrible drought, and its longest river, the Po, ran dry.  It is about 400 miles in...

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