Ethereum (ETH) is the world’s second-largest cryptocurrency by market capitalization, and the platform of choice for many blockchain, digital token, and decentralized finance projects. But behind the success of this technological innovation lies a controversial question: is Ethereum really independentor is it under the influence of China, a country that has an ambivalent, even hostile attitude towards cryptocurrencies?
The Links Between Vitalik Buterin and China
Vitalik Buterin is the co-founder and best-known face of Ethereum. Born in Russia, he grew up in Canada and became interested in Bitcoin in 2011, before launching Ethereum in 2015 with other developers. But Buterin also has a personal interest in ChinaYes, the stayed for three months in 2015, learning the language and connecting with the local blockchain community.
Xiao Feng’s Support
One of these contacts is Xiao FengVice President and Executive Director of China Wanxiang Holding Co, Ltd, a Chinese conglomerate active in various industries, including automotive, real estate and financial services. Xiao first met Buterin in December 2014 via WeChat, and they agreed to see each other in Shanghai in April 2015. Xiao said he sees in Buterin a genius “ and that he wanted to work with him to promote the development and the application of blockchain technology in china.
Wanxiang Financial Support
Xiao offered to do a donation of US$500,000 to the Ethereum Foundation on behalf of Wanxiang Blockchain Labs (WBL), a company that did not yet exist at the time. The donation was to be made by DataYes, a subsidiary of Wanxiang founded in 2013 to provide data and investment management solutions for financial entities. But Xiao’s generosity didn’t stop there. He also promised that Wanxiang would continue to fund the foundation for the next year, so developers can focus on their work to help the Ethereum mainnet to be launched as planned.
Wanxiang’s Involvement in the Ethereum Ecosystem
There is no doubt that Buterin made a strong impression on Xiao. Buterin has been named WBL’s “Chief Scientist” when the company launched in the second half of 2015. A Facebook post from 2016 quoted Buterin as one of the co-founders of WBL, alongside Xiao and Bo Shen, the co-founders of Bitshares, a decentralized exchange. Buterin announced that he was retiring from an active role at Fenbushi Capitala blockchain investment fund co-founded by Xiao and Shen, in January 2018although the fund’s website continues to feature him as an adviser. Shen remains with Fenbushi to this day.
In May 2016, Xiao and eight colleagues joined Buterin on a ‘blockchain expedition’ in the United States that started in San Francisco. Later that year, Xiao convinced the Ethereum Foundation to move its Ethereum developer conference to Shanghai by offering to sponsor the entire event, with the added bonus that revenue from ticket sales and other sponsorships would go directly to the Foundation.
Wanxiang has also invested in several projects based on Ethereum, including A123 Systems, an American manufacturer of lithium-ion batteries, and Fisker Automotive, an American manufacturer of plug-in hybrid cars which it acquired in 2014. Wanxiang renamed the company Karma Automotive and its car Revero, and announced its intention to develop an electric car complete based on the Ethereum blockchain.
Wanxiang also has participated in the development of the Blockchain Services Network (BSN), a Chinese blockchain development platform that aims to reduce the cost and facilitate communication between different blockchains. The BSN was launched in April 2020 with the support of the Chinese government and several public and private companies. The BSN plans to integrate Ethereum as one of the public blockchains available on its platform, which could increase the demand and use of ETH in China.
The Risks of Chinese Centralization
The Ethereum Chinese Connection is not limited to Wanxiang. An archived version of the Ethereum Foundation website shows a trio of individuals bearing the official title of “Chinese partner”. (No other country is entitled to this privilege.) Among these three partners – Jerry Liu, Bin Lu and Houwu Chen – two seem to have worked at Alibaba Group, the Chinese e-commerce giant. Lu was a developer at Alibaba, while Liu held the title of senior product expert.
Although China has an attitude notoriously antagonistic towards all things cryptocurrency, this summer has seen the Hong Kong-based International Bank of China (BOCI) – the unit People’s Bank of China Global Investment Bank of the continent – broadcast for 200 million RMB of tokenized securities on Ethereum. Transacting via ETH on the mainland remains technically prohibitedbut the BOCI movement was seen as a means of bolster the growing adoption of digital assets in Hong Kong. It could also signal new favoritism for Ethereum by the People’s Bank of China – who formerly employed Xiao at its Shenzhen branch in the Special Economic Zone.
In August, a subsidiary of Wanxiang, Hashkey, became one of the first exchanges to receive a license in Hong Kong, allowing retail investors to trade certain digital assets. A member of Hong Kong’s legislative council expressed hope that this could lead to “interconnected” exchanges of virtual assets between Hong Kong and Mainland China in the near future.
Xiao compared Ethereum to Blockchain Highlander, claiming that there can only be one. Last December, he gave a speech at the Global Blockchain Summit 2022 in which he predicted: “ a scenario where a blockchain protocol stack will converge around the Ethereum network, like what happened with the internet in the 20th century “. Xiao explained how the Internet was made up of disconnected protocols in its early days that eventually “merged into the TCP/IP protocol stack (…) The current multi-chain blockchain phenomenon is similar to when Internet protocols had no not yet been “unified”. Thus, according to him, Ethereum will be the only player in townthe other channels being relegated to the rank minor appendages of this complex and unstable machine. However, if Xiao relies on the usually unrealized fantasies of the Ethereum Foundation for his transactional predictions, he – and any nation-state that would bet on a single horse in this race – risk of being disappointed.
The geopolitical context adds a layer of complexity to this case. Wanxiang is considered one of China’s largest “non-state” conglomeratesalthough the Chinese Communist Party exerts influence on private companies thanks to the presence of “Party committees” in their boards of directors. Wanxiang also has a controversial background, including ties to North Korea., where it has exclusive mineral import contracts. Wanxiang has also been associated with key figures in American politics, including Joe Biden and Donald Trump.
These risks of Chinese centralization of Ethereum raise important questions about the independence and the future of this blockchain. As Ethereum continues to grow and evolve, it is imperative that the blockchain community examines these questions carefully and asks for clear answers.
The future of Ethereum as a decentralized and global blockchain ultimately depends on the transparency and accountability of its key players.
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