China is simultaneously developing two ambitious projects that aim to digitize key parts of its economy and, if successful, may have broad implications for economies beyond its borders. Often conflated, the Digital Yuan (数字人民币, shùzì rénmínbì, also known as e-CNY) and the Blockchain-based Service Network (BSN, 区块链服务网络, qūkuàiliàn fúwù wǎngluò) are distinct technologies—and the success of either is not uniquely predicated on that of the other. But experts, as well as the organizations spearheading these projects, suggest that they have the potential to augment one another in the future. 

What is the Digital Yuan, or e-CNY? 

With the Digital Yuan, China is attempting to become the first major economy to introduce a central bank digital currency.  Through early pilot programs, the People’s Bank of China (PBOC) issued more than 20 million digital wallets, and the Chinese government made the payment system a technological showpiece of the 2022 Olympics in Beijing. Designed to serve as a digital analog to cash, the Digital Yuan circulates via a “two-tiered” system, where the PBOC authorizes partner institutions—which so far include the major state-owned banks as well as the financial arms of Tencent and Alibaba-affiliated Ant Group—to distribute the currency to consumers. Consumers then store and spend digital yuan using “wallet” apps operated by these companies or with specialized devices called “hardware wallets.”

What is the BSN?

Launched in April 2020, the BSN is a global framework for the deployment and operation of a broad range of blockchain applications. (See DigiChina Knowledge Base entry.) According to the BSN’s official Medium page, the BSN seeks to provide developers and companies the opportunity to effectively build next-generation decentralized applications (DApps), interoperable under one uniform environment. The BSN is seen as the infrastructure technology for complete nationwide interconnectivity. If successful, it may offer a convenient way to share data, value, and digital assets between anyone on the network. The ambition of the BSN development efforts suggests that the Chinese government sees decentralized blockchain infrastructure as the backbone of a potential new phase of the global internet. The BSN is China’s attempt to lay its foundation. 

Is e-CNY a blockchain technology? 

Although the BSN signals the high strategic value China's government places on developing blockchain technologies, e-CNY is not one of them. PBOC officials have confirmed that it does not use distributed ledger, or blockchain, technology because it would be unsuited to handle anticipated transaction volumes. Setting it apart from many blockchain-based digital currencies, e-CNY requires that users associate some piece of identifying information with their digital wallet before they can store or transact the currency, under a principle PBOC officials call “controllable anonymity.” 

The BSN and e-CNY also have an important difference in scope. While e-CNY is narrowly focused on financial applications, a blockchain-based layer of or alternative to the internet, if widely adopted, could have a much broader range of uses—financial and otherwise.

Is there any connection between the two projects? 

Though the projects are distinct, some analysts see the e-CNY and the BSN as two sides of the same coin. Center for a New American Security scholar Yaya Fanusie has argued that once the BSN platform is fully operational, e-CNY would be the logical first-choice of payment platforms for any applications that require one. This is especially true for cryptocurrencies, since the BSN only allows permissioned cryptocurrencies like e-CNY, which have gatekeepers for participation, as opposed to permissionless blockchains, open to all, such as the one that powers Bitcoin. 

According to the BSN’s development outlook document, the Chinese government aims to develop a global universal digital payments network (UDPN) “enabling a standardized digital currency transfer method and payment procedure for any information system.” The development outlook claims that the UDPN will support central bank digital currencies from different nations. This indicates that the BSN does overlap with China’s efforts to promote the global use of central bank digital currencies, including its own e-CNY.