Despite China's strict bans on cryptocurrencies, domestic web3 talents are quietly thriving, and many of them are going outside the country.
From offering products derived from cryptocurrencies to creating NFT games, the influence of Chinese web3 entrepreneurs extends far around the world. A dozen Chinese founders and investors are trying to build a global web3 business, while maintaining its roots in China and using the rich technical potential of its native country.
Many of them asked to remain anonymous. Some do not want to attract the attention of the authorities because there are no clear rules for working in China and serving foreign users, while others want to avoid the label of “Chinese” in hard times.
Many believe that the current state of the Internet, or web2, is overly dominated by centralized rent-seeking corporations, such as Google and Meta. Part of the appeal of web3 is to reclaim the Internet with distributed ledger technologies such as blockchain, which promises to provide greater decentralization and user responsibility.
Cryptocurrencies and non-fungible tokens are two popular blockchain applications that have attracted billions of dollars of investment, but they are far from the only options for using the technology.
China is still figuring out what it wants from web3, but it clearly doesn't want to miss anything. In 2019, President Xi Jinping personally vouched for the role of blockchain in the technological revolution.
What China doesn't want is the drop in cryptocurrency prices that have roiled the market in recent months. This seems to encourage a more controlled, centralized version of web3 — the blockchain should be managed by trusted organizations, not anonymous computers on open network, and provide performance in areas that the government deems appropriate.
Unsurprisingly, China has decided to ban initial coin offerings and cryptocurrency-based transactions due to their financial risks, but there is a gray area when it comes to other blockchain applications. While China warned against using NFT as financial securities, it renamed it “digital collectibles”, which can only be bought using the Chinese fiat currency yuan, have little liquidity and are designed to promote copyright protection.
Some Chinese web3 developers are following the instructions from the authorities, joining the creation of infrastructure for digital collectibles. Other use cases have also received government approval. For example, Alibaba's financial subsidiary Ant Group has developed a range of blockchain services for verifying forensic evidence and tracking food supply chains for security.
Some argue that cryptocurrency, which is seen as a store of value, is like bread and butter in web3. Without this, web3 will not be able to work at full capacity. Those in China who hold this view have largely focused their attention abroad, serving international users and attracting funds from offshore institutions.
Over the past few years, dozens of Chinese web3 startups have moved their units abroad due to crypto repression in the country, but they are not abandoning China completely. They follow the principle proven by previous generations of technology firms: they live offshore, conduct some operations in China and strive to enter foreign markets.
China played a key role in the early development of the blockchain industry, giving birth to a generation of crypto-savvy talents. Some of the world's largest crypto exchanges, including Binance, FTX, KuCoin, Crypto.com, OKX and Huobi started their activities in the Greater China area. The world's largest crypto-mining company Bitman was founded in Beijing. The Chinese conglomerate Wanxiang was the first corporate investor of Ethereum and founded the HashKey crypto investment center.
Chinese crypto firms moving abroad are trying to bring their Chinese employees with them, but most of them resort to maintaining some presence in China. While crypto-friendly countries like Singapore have a policy of attracting foreign talent, local governments often set quotas to protect domestic employment. Employees with families in China are reluctant to move in the first place.
For web3 startups trying to hire staff in China over the past two years, the time has come. The value of cryptocurrencies reached historic highs last year, when repression against the Internet industry was in full swing in China. Large-scale layoffs and salary cuts have prompted many workers from companies such as Tencent and Alibaba to look for opportunities on the web3 frontier.
Others voluntarily quit their jobs at well-known technology firms to ride the web3 wave, because they are attracted either to the technological potential of the blockchain, or the opportunity to quickly accumulate wealth. For example, Alibaba's fintech partner company Ant Group has lost dozens of its employees in recent months for web3 startups, as TechCrunch has learned.
Despite the strengths that Chinese web3 startups potentially have, they face the same challenges as their web2 predecessors.
TikTok, which pioneered rapid video sharing, is perhaps the only Chinese consumer internet platform that has achieved global success in recent years. With no significant field presence in foreign countries, TikTok quickly gained momentum thanks to a Beijing-based content discovery machine based on algorithms developed by its parent company ByteDance.
But the cultural understanding of entrepreneurs becomes critical in web3. The industry is still in its infancy, which means that a company's ability to tell compelling stories is key to attracting first-time users. “Companies in web3 need to find a cultural response from their users,” says the Singapore-based founder of a decentralized autonomous organization (DAO), originally from China.
Web3, as its supporters say, is in many cases managed by the community. The technology underlying the blockchain has a built-in idea of consensus. For example, DAOs make decisions based on the collective consensus of their communities.
Chinese web3 teams that lack the language skills to effectively communicate their ideas or understand other cultures may find it harder to win over users in new markets.
“I've seen Chinese companies with good products, but they don't know how to communicate with international communities,” says the DAO founder. “In web3, it's no longer enough just to have a good product.”
