Sino-US relations have become increasingly strained since 2019. Several rounds of discordant trade negotiations, the United States' imposing a technological blockade on China, the theory of internal circulation of China's economy, and the recent regulatory pressure on US-listed Chinese stocks, all indicate a rising trend of decoupling Sino-US relations. Lee Hsien Loong, the Prime Minister of Singapore, has repeatedly warned that this decoupling will cause indelible damage to the global economy. We are a venture capital firm focusing on Web3 area. We believe that Web3 as a new generation of Internet technology would help mitigate these risks.
The Internet was decentralized in the Web1 era. However, with the increasing number of Internet users, network efficiency requirements make the data more and more concentrated on the centralized platform for storage, calculation, and distribution. Coming from this age, the Internet had utilized a centralized business model evident in the Web2 era, and the giant platforms had seized the majority of value of the Internet at the application level. There are very similar big data nodes in the two biggest markets: Amazon, Facebook and Google in US, Alibaba, Tencent, and Baidu in China.
With Bitcoin as the starting point and the emergence of smart contract platforms such as Ethereum as a breakthrough, blockchain technology has progressively attracted the attention of most software developers in the world. After more than a decade of development, blockchain has indisputably become the underlying infrastructure of the next-generation Internet. All kinds of Internet services built upon blockchain are collectively referred to as Web3.
The Web1/Web2 Internet economy we are familiar with is actually regional, and it is vulnerable to be affected and cut off by regional policies because the users' data is consistently tracked and owned by the biggest regional internet monopolies. In contrast, Web3 ensures that the economic form of Web3 is genuinely global and unbreakable by its design. Because its bottom layer is a blockchain, the login ID of users is no longer given by or certified by an Internet application. They are now globally unified as the wallet addresses on the chain. With this new age of Web3, data will no longer be owned by a regional Internet platform. All transactions and behavior data are transparent globally, allowing the Internet economy to become more open. This will directly benefit the world economy as small and medium-sized countries or companies would have more opportunities and flexibilities to market products and provide services to global users as long as they are competitive.
Users still access Web3 through a browser, and there is no experience difference, but in essence, there are three major changes:
Web3 Internet is empowered with an independent identity layer. The underlying on-chain address is the user's identity, and users no longer need various applications to provide their identity settings and proofs. On such an Internet, users are allowed to log in to access all applications using the same address (identity);
Web3 Internet has a built-in financial function and its own currency. This native currency can be stablecoins of US dollars, Singapore dollars, or other cryptocurrencies. Thereby, the Web3 Internet can transmit value independently, while Web1 and Web2 can only support the transmission of information, and the transmission of value depends on the traditional financial infrastructure. Therefore, the economic efficiency of Web3 is at a higher dimension than that of Web2.
The user's behavioral data and social relationships are no longer owned by a particular platform but are bound to the user's address/identity. This way, users can easily carry them out and switch to services from other platforms.
The power of Web3 technology is specifically illustrated in five areas:
Economy and Finance Since the war between Russia and Ukraine, Europe and the United States have cut off Russia's SWIFT connection, which has dealt a heavy blow to the Russian economy. Anti-war activists worldwide quickly donated money to the Ukrainian people through Web3 networks such as Bitcoin and Ethereum as no government or international organization can cut off blockchain networks. Web3 technology can ensure regular trade and economic exchanges between people in extreme cases. From a technical point of view, trade and value transfer on Web3 are difficult to be cut off by regional authorities or organizations, just as the information transmission on Web1 and Web2 had been proven difficult to be disconnected.
Science and Technology Although Web3 cannot break the blockade of core science and technology, Web3 has shown great value in building a scientific community, encouraging data sharing on rare diseases, helping users realize the value of personal data with privacy protection, and breaking the bureaucratic illness seen often in science publishing.
More and more open source technology communities are using DAO (decentralized autonomous organization) to finance projects and govern the process of technology sharing and development. Interested people may browse www.gitcoin.com to see how new technology projects, especially those with a large public interest (public goods and services) that have been difficult to get funding in the past, can raise funding more efficiently around the world with the help of Web3. The open source community can give back to previous donors by airdropping tokens at targeted addresses, thus encouraging donors to fund new technology projects more actively in the future.
Social Relationships and Information Flow Former US President Donald Trump lost all interaction and contact with his supporters and fans when his Twitter account was blocked in January 2021. In Web2, the Internet platforms control all personal social relationships and data and largely control whether the information is transmitted. If Trump encounters this situation on a Web3 platform, he can immediately switch to another social platform and bring along all his fans. His relationship with fans is a peer-to-peer relationship between one address and another on the chain, which is not controlled by any platform like Twitter. Decentralized storage technologies such as IPFS and Arweave are also progressing quickly, making it more difficult to delete or mask information through a centralized platform.
Capital Markets All kings of asset certificates such as stocks, bonds, notes, commodities and fund shares can be tokenized, listed and traded on the STO exchanges. STO exchanges also need to comply with local securities regulations and are much easier to be regulated. Compared with traditional exchanges, STO exchanges have at least three advantages once they have sufficient liquidity : (i) trade are executed 7*24 non-stop around the world, across regions, time zones and even currencies; (ii) easily connected to the global decentralized finance "DeFi" ecology; and (iii) trading, clearing and settlement can be done simultaneously.
Human Resources Since the COVID-19 epidemic, people have been inclined to work online. The distributed office culture is taking shape, and the scale of the gig economy is on the rise. Web3 allows projects to grow and expand by a very few people from different regions around the globe, so much to the point where some team members have never even met offline. As Web3 itself provides built-in financial instruments, it fosters a more interconnected world proving to be much more convenient and efficient. Tasks can be easily delegated to more qualified people with different skills around the world. A collaborative economic model that is more global, flexible and efficient than in the Web2 era is emerging.
We think that the more convenient the flow of information and value is, the more regulatory role the government's public sectors need to play. Since all transactions and data are recorded on chain immutably, regulation will become more efficient as long as the government implements sufficient KYC, anti-money laundering and anti-terror measures on transactions with larger volume, sensitive information and strategically importance (because any intermediaries and platforms are no longer needed to provide data).
At a time of increasing tension between China and the United States, protectionism is rising worldwide. Just as Internet technology promoted globalization at the beginning of the 21st century, we expect Web3 technology to play the role of a new generation of Internet technology in protecting users' data privacy and connecting the world. Throughout the history of the development of technology and civilization, technology has been neutral, and the trend of technological development is unstoppable. Thus, governments should think about embracing new technologies and innovations while strengthening regulation and actively facing the new problems brought by new technologies. Countries such as the United States, Britain, France and Japan are actively embracing Web3 at the policy-making level, and we are optimistic that Web3 will help build a more open and sustainable global integrated economy.
Kang Shen Founding Partner of Hash Global