Chinese Army’s Blockchain Provider Approved for New Hyperledger Certification Program

Hyperledger, the open-source blockchain alliance backed by the Linux Foundation, has green-lit a Beijing-based firm that also serves the Chinese army to join its new certification program.

Only five companies are authorized Hyperledger Certified Service Providers (HCSP), allowed to offer support, consulting, training and professional services, including installation, configuration and troubleshooting, to other enterprises exploring blockchain technologies, Hyperledger said. 

The three U.S. members are IBM, Accenture and Chainyard, while the two from China are Ant Financial, formerly known as Alibaba’s Alipay, and Beijing Peersafe Technology.

Four months before the Hyperledger announcement, Peersafe raised a series C funding from Shanghai Civil Military Integration Development Fund, which invests in dual-use technologies that could be used for both civilian and military purposes. 

As the fund injected cash in the firm, Peersafe has fully embraced that partnership which could foster a deeper connection with its clients in the military and government agencies.

Founded in 2014 and one of the top three firms in terms of blockchain patents, with 14 approved and 55 pending as of June 2019, Peersafe provides infrastructure for blockchain-based platforms across China, including those created for the government. 

Peersafe claims to be the only Chinese firm that has all three government-issued qualifications: the Commercial Cryptography Product Category Certificate, Sales Permit of Information Security Products for the Ministry of Public Security and Software Supplier for Central Government Agencies.

But its involvement in the military side has been largely unexplored until now.

The new certification program has qualified Peersafe for Hyperledger Fabric, a distributed ledger technology intended as a foundation for developing applications such as a logistics tracking platform and a secured information system. 

Military use cases

Peersafe helped revamp a blockchain-based trade finance platform that has more than $53 billion transaction volume since its launch in January 2018 for China Construction Bank, one of the four major state-owned banks in the country. But its biggest applications for China could be for strengthening government control of the military.

Peersafe has already assisted Chinese police to secure footage and data transmission in its surveillance systems via trusted nodes, while providing encrypted communication services for the government. 

The official mouthpiece for the military, PLA Daily, detailed a plan in how to leverage blockchain technologies to enhance military management and national defence. 

According to a report published this month, the Chinese armed forces would use blockchain technologies to secure classified information and communications, evaluate military training performances and monitor logistics. 

For example, the system could be used to automatically submit shooting records onto a blockchain along with each soldier’s identity and timestamp of the training, and increase the reliability of the results. 

Citing IBM and Samsung’s blockchain-based logistics platform, the PLA Daily report said the army could also better manage its logistics with lower cost on a blockchain-based platform. 

The smart contract protocol could build “technical trust” and secure peer-to-peer communications where people from different departments can collaborate without approvals from higher levels, the report said.  

Adding to the military blockchain projects now being undertaken globally, Peersafe’s alliance with the Chinese army and security apparatus is likely to deepen as more applications of the technology are developed and applied to its use cases. 

War chest

The private equity fund that bought into Peersafe is part of Shanghai Guosheng Group, a state-owned investment company with over $7 billion assets under management. 

The state-owned investment giant set up the fund in 2017 amid Chinese president Jinping Xi’s push for civil-military technology integrations after he established and took the helm of the Central Civil-Military Integration Development Committee. 

One of the committee’s goals is to look for technologies that could be used for national defense and information security services in the military, the People’s Liberation Army (PLA). 

According to a report from the National Defense University titled Chairman Xi Remakes the PLA: Assessing Chinese Military Reforms: 

“China’s impetus for pursuing CMI (Civil-Military Integrations) as a core component of its PLA reforms is in large part a result of its reckoning with modern technology-driven warfare.”

The report indicated the civil-military integration initiatives could reduce China’s military budget as the nation is challenged by the recent slowing economic growth. 

When announcing the Shanghai Guosheng Group investment in June, Peersafe’ CEO Ting Yan said, “Existing use cases across different sectors and special qualifications in the industry have laid a solid foundation for the firm to expand into the military security industry.” 

“The fund will bring Peersafe a range of resources, including use cases for the military and state-owned enterprises,” Yan said. “Peersafe and the fund can benefit from shared brand effect, technologies, distribution networks and client base.”   

Army printer toner cartridges protected by blockchain cryptography

The extent of the blockchain universe opening up to Peersafe via the Chinese army is evidenced by the case of the printer toner cartridges developed through cryptography that’s led a merger of what could be the first profitable blockchain developer in the country.

Hengjiu Technology, a toner cartridge producer for printers, has a long-running partnership with the PLA to prevent eavesdropping bugs from entering this overlooked backdoor. 

Hengjiu borrowed heavily to pay $20 million for 71% of Minbo Information Technology, an information security and cryptography firm that’s been serving the Chinese army and other government security agencies for a decade, according to an equity transfer announcement filed with the Shenzhen Stock Exchange.

Military and government will be two of the driving forces for information security industry, Minbo said in its recent annual reports. 

In its 2016 annual report, Minbo said it was certified to build a quality control platform from military weapons and, according to its 2017 annual report, by the Fujian National Administration for Protection of State Secrets to repair or destroy computers and paper-based medium. 

Mionbo is applying to serve the government and military projects that include higher levels of classified information, according to Chinese news reports, as well as already holding top qualifications from government authorities including the State Cryptography Administration. 

In the acquisition filing, Minbo said it aims to make over $28 million net profit in the next six years, with at least $2 million net profit for 2019. According to a Chinese media report, it could become the first firm that makes a profit in that range in the blockchain industry as military contracts boost the bottom line.

A blockchain arms race

Blockchain for military uses is not spoken about loudly, but already pervasive outside China. The U.S. and Russia are also on the lookout for such technologies to improve their armies’ capabilities. 

The Defense Advanced Research Projects Agency (DARPA), the research arm of the U.S. Department of Defense, said in July it was starting to experiment with blockchain to secure communications and personnel data. 

DARPA aims to create a more efficient and secure platform to allow personnel from anywhere to transmit messages or process transactions that can be traced through numerous channels of a decentralized ledger. 

The application would be used in different ways, including facilitating communication between units and headquarters, and transmitting information between intelligence officers and the Pentagon, the agency said. 

DARPA also has been trying to develop an unhackable code—which blockchain could facilitate—because the technology offers intelligence on hackers who try to break into secure databases, it added. 

According to a March blog post by blockchain software company ConsenSys, the Russian Ministry of Defense is launching a research lab to analyze how blockchain technology can be used to mitigate cybersecurity attacks and support military operations. 

One of the priorities of the lab is the development of an intelligent system to detect and prevent cyber-attacks on important databases and weapons systems, the report said, citing the Russian daily newspaper Izvestia. 

The report warned the U.S. and other western militaries about the rise of blockchain adoptions in the Chinese and Russian armies. 

“It is critical for the future integrity of our key weapons systems and national security assets that we act now rather than waiting for a crisis to alert us to the dangers of cyber-attack on non-blockchain defended systems.”