A peek into China’s stance on web3

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Web3 has come to be known as the internet built on decentralized blockchains that power applications like cryptocurrencies and NFTs. The catch-all term is sometimes used interchangeably with crypto, but in China, the government is pursuing its own path in web3 that so far has excluded all things crypto-related.

Earlier this week, the Beijing Municipal Science & Technology Commission, Administrative Commission of Zhongguancun Science Park released a white paper on the so-called Internet 3.0 that offered a peek into China’s stance on web3. The paper caught the attention of Binance founder Changpeng Zhao, who said in a viral tweet that “web3 [is] all over the places” in the document.

It’s worth noting that the white paper is from Zhongguancun, the Chinese government’s designated high-tech industrial zone that’s home to some of the country’s better-known tech firms, and may not necessarily reflect the official position of Beijing’s municipal government, let alone the nation’s top policymakers. Zhao also seems to have conflated what the Commission dubs Internet 3.0 with web3.

Nevertheless, the document hints at how some Chinese officials are discussing terms like Internet 3.0 and web3.

The white paper defines Internet 3.0 as “a three-dimensional space that combines virtual and real realms with a highly immersive interactive experience. It will greatly improve the interaction between people and information and the efficiency of economic activities. It’s characterized by a high level of intelligence and the advancement of virtual-real integration.”

Web3 is just one element within this new immersive world. The paper goes on to explain that Internet 3.0 “includes the essence of the metaverse and web3. Its concept embodies the transition of human society and economy from reality to virtuality, from virtuality to reality, and the virtual-real integration.”

In other words, Internet 3.0 isn’t just web3 but comprises AR/VR, the metaverse (however you define that) and other concepts that highlight the integration of the virtual and real worlds.

Changes in Hong Kong

The white paper arrives at a particularly interesting time given Hong Kong recently implemented its new regulatory regime for cryptocurrencies, allowing licensed exchanges to serve retail investors, a departure from mainland China’s crackdown on all forms of crypto trading.

The new crypto-friendly regulation, however, only applies to people in Hong Kong and remains off-limits to mainland users. King Leung, head of fintech at InvestHK, the city’s foreign direct investment department, explained in an interview with Coindesk that licensed exchanges in the city are obliged to follow the rules of different jurisdictions around the world. That includes barring users from mainland China, where crypto is banned, from accessing their services through IP address blocking. This practice has become the standard for major exchanges since China outlawed crypto transactions in 2021.

Still, changes in Hong Kong are boosting confidence among crypto investors and developers in mainland China who view it as a sign of the country’s softening stance on digital assets. As one Chinese founder of a decentralized identity startup told me: “Hong Kong has historically served as the testing ground for mainland China. The [new regulatory regime] shows that the government is watching and experimenting.”

The reality on the mainland

The white paper signals that China is open to incorporating web3 in its future internet in some capacity. Impressively, it mentions Gavin Wood, a co-founder of Ethereum, and how he was the first to expound the concept of web3, a set of inclusive protocols that provide basic modules for application developers, enabling them to build applications in new ways. The paper also references how artist Beeple’s record-breaking Christie’s auction helped bring NFT into the mainstream consciousness.

As for how web3 might manifest in China in a tangible way, the paper echoes Western technologists in maintaining that web3 enables read-write-own, allowing users to not only consume and create information but also own their data. The paper argues that in the new world where reality and virtuality merge, a new economic system will emerge, and “web3 will serve as a crucial foundation for identity verification, data authentication, asset trading and regulation in the metaverse.”

The statement appears a good sign for blockchain adoption in China. In fact, the country’s public and private sectors have been cautiously exploring blockchain across a range of fields that don’t involve cryptocurrencies, which regulators worry can spark speculation and market volatility. Furthermore, instead of censorship-resistant public blockchains, China encourages the use of consortium blockchains that are governed only by selected participants rather than anyone out in the public.

Ant Group, the fintech affiliate of Alibaba, for instance, launched a consortium blockchain for small enterprises and developers to build “trust in multi-party collaborations, including in areas such as supply chain finance, product provenance, digital invoices and charitable donations.”