Web3.0: China's Compliance Survival Rules

What is Web3.0? Even for the veterans who have been in the cryptocurrency industry for more than a decade, it is difficult to give a sufficiently accurate answer to this question in a few words. In fact, as early as 2006, Berners-Lee, the father of the World Wide Web, had already proposed the concept of Web3.0, but at that time Satoshi Nakamoto had not yet emerged, and the concept of Web3.0 naturally had nothing to do with blockchain. It was not until 2014 that Gavin Wood, the former CTO of Ethereum and the founder of the Polkadot project, officially linked Web3.0 with blockchain, building the current biggest consensus in the extremely confusing concept of Web3.0 - blockchain technology is the way to realize Web3.0.

How did Web3.0 become popular? This is also thanks to a hearing on the development of the digital economy held by the US Congress at the end of 2021. At this hearing, a congressman made an ambitious public statement: to ensure that the web3.0 revolution takes place in the United States. For a while, the world was in an uproar. Will Web3.0 become the key to dominating the world in the next 20 years?

The SAJI team has been paying attention to and researching web3.0 for a long time. Today, we will discuss with you a series of practical questions: Under the current regulatory environment, is it possible for Web3.0 to take root in China? Should it be copied as is or given a new look? What is the cost of compliance?

What is Web3.0?

Although Web3.0 is not a new thing as mentioned above, in fact this concept has been accompanied by huge controversy since its birth. After the introduction of blockchain technology, Web3.0 has become more controversial. There are a thousand Web3.0s in the eyes of a thousand people.

Accompanied by huge controversy, no one can see clearly the future of Web3.0, but whether it is criticism or praise, we must first understand what Web3.0 is.

In fact, Web3.0 is not a rigorous term. It is an emerging concept created by venture capital companies and Internet practitioners to describe the next generation of the Internet. To understand Web3.0, we have to mention the two concepts of Web1.0 and Web2.0.

The so-called Web actually refers to the Internet, and Web1.0 is the initial form of the Internet. It is generally believed that Web1.0 is a one-way link between the network and users, and the Internet platform produces and manufactures information and data for users to browse. The characteristic of Web1.0 is the one-way transmission between Internet content and users. The platform is a one-way output of content, and the user is a one-way receiver of content. In other words, the Internet in the Web1.0 era is like a canteen where everyone eats from a big pot. The big companies are responsible for buying vegetables, washing vegetables, cooking vegetables, and serving vegetables. Whether users like it or not, they have no choice but to eat it obediently, pay the bill and leave.

Entering the Web2.0 era, which is the current period of Internet development, users are no longer just passive recipients of products provided by Internet giants, but are also creators of Internet content. Internet content has changed from one-way transmission to two-way interaction between users, and the Internet plays more of an information interaction platform. However, in the Web2.0 era, the content created by users does not belong to themselves, and most of the income generated by their works is obtained by Internet giants. In the process of absorbing the income from user creation, the giants continue to grow themselves and become an unshakable virtual "Leviathan". In layman's terms, Web2.0 is a buffet restaurant opened by a giant on its own territory, hiring some users to buy vegetables, wash vegetables, and cook for them, while other hungry users take their own knives, forks, and plates to be self-sufficient. Whether you are cooking or eating, you have to pay for the giants on their territory, so in the end, it is the giants that make the most money.

What Web3.0 wants to do is to raze the restaurants that are enclosed by large companies to the ground and build a snack street where everyone can open a restaurant and make money based on their own abilities. Every restaurant has an open kitchen, and the food can be delivered to the user's table after it is served by the chef. The money paid by the user can go directly into the chef's pocket, without middlemen making a profit from the price difference. This process of "eliminating middlemen" is also the process of "decentralization".

At present, there are mainly the following views on the understanding of Web.3.0:

1. Web3.0 is a new generation of network that allows users to own network data.

This understanding of Web3.0 comes from the famous hearing of the US Congress. At the hearing, congressmen and experts and scholars cooperated with each other to explain the nature of Web3.0 in a way that was as simple and easy to understand as possible, and intuitively expressed the importance of Web3.0 to the development of the Internet and the national strategic layout. At present, this is also the most well-known and accepted view among the public:

Web 1.0, for “read”;

Web2.0, which is “read+write”;

Web3.0 is “ readable + writable + ownable ” (read+write+own).

This view highlights the core feature of Web3.0: data can be held. It is also based on this feature that people who hold this view believe that the reason why Web3.0 is the future development direction of the Internet is that it gives users the ability and right to truly own "data content" . On the one hand, users "create and earn", and are no longer inferior to the platform in terms of profit distribution; on the other hand, it greatly weakens the market dominance of Internet giants, perfectly embodying the idea of ​​"decentralization".

2. Web3.0 is a completely decentralized future Internet

This view also has many supporters on the Internet, mainly based on the role played by Internet giants in the network as the core judgment indicator. Those who hold this view believe that the mission of Web3.0 is to take the Internet back from the hands of big companies and truly make the Internet a paradise where everyone is equal and distributed according to work. Therefore, those who hold this view believe that:

Web1.0 is a “semi-centralized” network;

Web2.0 is a “centralized” network;

Web3.0 is a “decentralized” network

(3) Web1.0 and Web2.0 are essentially about transmitting information and focusing on consumption; while Web3.0 is about transmitting value and creating wealth.

Those who hold this view regard the blockchain anti-tampering and data holdability functions in Web3.0 applications as core evaluation indicators . Based on this, those who hold this view believe that Web1.0 and Web2.0 are information Internets, while Web3.0 is the value Internet. The most essential difference between Web3.0 and the previous two networks is that it makes data holdable, thus giving data economic value. From then on, the illusory data becomes a commodity that can be confirmed, quantified, and priced . Therefore, Web3.0 is delivering value and creating wealth. NFT and big data are the best proof that in today's era, data is a new type of key production factor.

In addition, Gao Xinmin, Vice Chairman of the Internet Society of China, also expressed his views on Web3.0. He believed that there is no unified definition of Web3.0 at present, but there are three understandings: (1) Web3.0 is synonymous with the next generation of the Internet; (2) Web3.0 is represented by the Internet, mainly based on perception networks, and expanded to communication networks between people, things and things; (3) Web3.0 is a network that supports basic data information, structures data and develops new applications.

In the final analysis, from the various and complex views on Web3.0, we seem to be able to find that in realizing the vision and blueprint of Web3.0, decentralization, data ownership, benefit redistribution and diversified interaction seem to be the greatest common denominator and common characteristics of many Web3.0 ideas.

What is the relationship between Web3.0 and the Metaverse?

"If Web3.0 is the next generation of the Internet, doesn't it coincide with the positioning of the Metaverse?" This must be a question on the minds of many readers. Indeed, as the digital twin of the real world, the Metaverse has opened up a feasible development path for human society by bringing together high-speed communication networks, cloud computing, VR/AR, brain-computer interfaces, Unreal Engine and other technological "single products". What qualifications does Web3.0 have to compete with it for the honor of "the next generation of the Internet"?

In fact, we believe that Web3.0 and the metaverse are not in conflict, and Web3.0 itself can even be included in the concept of the metaverse, because the relationship between Web3.0 and the metaverse is "progressive". In other words, the metaverse is both an advanced Internet form that aggregates and connects technologies such as Web3.0, and Web3.0 itself is a transitional form of the metaverse . In this sense, we can regard Web3.0 as a "primary metaverse" or "the real form of the metaverse under current technical conditions."

We believe that the ecosystems and industrial clusters within Web3.0 and the Metaverse will form a situation of high overlap and interactive development for a long time from now on , until the maturity, commercialization and aggregation of various technologies exceed the critical value that Web3.0 can accommodate, forming a real Metaverse. Before that, the Metaverse will walk on the vast land for a long time in the form of a merged Web3.0 shell.

Current status of China's Web3.0 industry development

At present, China has begun to develop Web3.0 industries, which can be divided into five categories: (1) digital collections ; (2) virtual digital people ; (3) games ; (4) social networking ; and (5) supply chain . Compared with overseas, China's Web3.0 industry has a certain gap in quantity and quality. This is largely related to China's strict supervision of cryptocurrency and various measures to prevent financial risks. In addition, as a newly born emerging technology, blockchain technology has insufficient research on related legal systems, imperfect legislation, and unclear law enforcement standards, which have also become important factors restricting the development of Web3.0 industry in China.

At present, the digital collection industry is the best developed, most dynamic, most liquid, and most popular industry among the five Web3.0 industries. According to the "2022 Digital Collection Research Report! NFT: The Differentiation Path of Value Capture between China and the West" released by the Computing Power Think Tank Research Institute, the scale of China's NFT digital collection industry is currently growing rapidly, but a more obvious differentiation has emerged. At present, the first echelon of NFT digital collections is represented by eight digital collection platforms represented by Whale Phantom. These eight companies are not only backed by large companies, but also have a complete range of qualifications and certificates. The second echelon is represented by platforms such as a certain art and a certain return. This type of digital collection platform has a large number of active users, high liquidity of digital collections, and strong platform stability. Finally, there are many third-tier digital collections, which have developed to date to hundreds of large and small.

However, we also noticed that the development direction of China's Web3.0 industry, represented by NFT digital collections, seems to be different from that of the overseas NFT market. The Chinese NFT market has explored a "currency-free" development path on the road to legal survival. By issuing digital collections on the alliance chain and restricting the development of the secondary market, the financial attributes of NFT have been abandoned to the greatest extent. This is the Chinese transformation of NFT, and it is also the price of legal development of the digital collection industry .

Looking at other Web3.0 industries, their development in China is also facing some difficulties, which are caused by their own technical limitations and lagging legal research. The virtual digital human industry, which is mainly developed by Internet giants such as Yiyi and Mango-shaped local TV stations, is also facing compliance issues. For example, to use virtual digital humans to hold concerts and conduct commercial performances for the public, administrative approval and certain qualifications are required . In the virtual digital human industry, issues such as copyright of works, marketing models of digital humans, and whether digital humans have the right to name, portrait, and reputation often cause disputes and controversies.

In terms of blockchain games, no company has yet been able to successfully pass the review and obtain a game license, and legally and compliantly carry out P2E and X2E blockchain games in China. On the one hand, there are often many criminal activities in the current market that are disguised as blockchain games and commit fraud, which seriously disrupts China's financial order and social stability; on the other hand, the imperfect development of blockchain games themselves, strong financial attributes and low playability, and the difficulty in distinguishing them from ICO and other behaviors are also important reasons for their long-term "notoriety" in China. Therefore, it is even difficult for the big cake of Web3.0 games to have room for compliant development in China . Even if some large companies are brave enough to explore, they often implement specific actions overseas.

Is it possible for Web3.0 to survive legally in China?

A glimpse of the leopard can reveal a part of the story. So, is it possible for Web3.0 applications to survive in compliance in China? Let us first give a conclusion: Yes, but compliance transformation is required. In the final analysis, the core of compliance transformation is determined by the regulatory thinking of the regulatory agency. Therefore, understanding the regulatory thinking and red lines is a must for Chinese Web3.0 entrepreneurs.

1. China’s Web3.0 industry is led by the government and developed from top to bottom

By observing the development of China's Web3.0 industry from the perspective of popular overseas industry tracks such as digital collectibles, virtual digital humans, and blockchain games, we can conclude that: Web3.0 applications are not absent in my country at present, but their development is restricted to a certain extent.

But if we expand our horizons, we can find that China's blockchain applications are exploring the realization of on-chain value transfer in the fields of digital bills, cross-border payments, energy trading, etc.; through on-chain collaboration functions, data sharing, smart manufacturing and distributed energy production in the fields of medical care and government affairs are realized; in the supply chain field, it has also realized on-chain evidence traceability of agricultural products, industrial products, electronic medical records, electronic invoices, judicial evidence, etc. In addition, we should not forget that the promotion and pilot work of the digital RMB is also being vigorously promoted.

These blockchain technology applications are also part of the Web3.0 industry, and these areas are booming under the leadership and support of the government .

Admittedly, these fields all have certain thresholds, and it is not easy for entrepreneurs to participate in them. In addition, throughout history, the government-led development model has certain drawbacks in technological innovation, especially in achieving breakthroughs and leading in key technology fields (this is also an important reason why many people currently believe that Web3.0 is difficult to survive in China). However, we should also see that the government-led development model has a significant effect on the stability of the social economy and the maintenance of financial order, which is also in line with the current national conditions of our country . Therefore, if Web3.0 wants to survive in compliance in China, it needs to grasp the bottom line of social stability and develop in compliance.

2. Financial security is a red line

Due to the complexity of the current international situation and the slowdown in economic growth caused by multiple factors such as the epidemic, maintaining financial security and stability has become the biggest red line for current technological innovation. Since the P2P boom, resolving various types of shadow banking and preventing systemic financial risks have become the direction of our government's efforts. After all, financial security is related to the most basic social stability and people's well-being.

The "de-monetization" compliance transformation of NFT digital collections was generated and implemented under this idea. However, in fact, due to the inherent financial attributes of NFT, even after the transformation, the speculation and financial risks it carries can only be reduced but not completely eliminated. On April 14 this year, the China Internet Finance Association and others jointly issued the "Initiative on Preventing NFT-Related Financial Risks", calling on the market to stop the improper speculation of NFT digital collections, return them to the category of ordinary commodities, and achieve healthy development of the industry. This also means that the NFT digital collection industry has officially entered the regulatory field of vision, and the next step may be to introduce regulatory measures to rectify the digital collection industry.

Therefore, current Web3.0 entrepreneurs must grasp the red line of financial stability and do a good job of preventing speculation during the process of technological innovation and marketing development.

Final Thoughts

With the introduction of laws such as the Cybersecurity Law, the Data Security Law, and the Personal Information Protection Law, new requirements have been put forward for the collection, processing, flow, and storage of corporate data. At the same time, intellectual property protection has increasingly become an important area that cannot be avoided in the Web3.0 industry, and there is a possibility of legal risks if you are not careful. Due to the length of the article, we will not discuss it today. However, the Sajie team must remind you that the current compliance business of Web3.0 enterprises, compared with the compliance of traditional enterprises, requires a more comprehensive and systematic knowledge system. In the construction of the compliance system, it is necessary to maintain a holistic, sensitive and long-term perspective for a long time to effectively prevent various legal risks .

China is neither a paradise for the wild growth of Web3.0 nor a barren land. It can be said that there are two keys to developing the Web3.0 industry in China: a clear business mind and a sound and meticulous compliance construction that keeps pace with the times .