In 2021, the global Web3 market size reached USD 3.2 billion and is expected to reach USD 81.5 billion in 2030, according to a recent report by Emergen Research.
With a promising future, China is looking to ride this Web3 wave. In 2019, Chinese President Xi Jinping endorsed blockchain technology and outlined a bold plan for blockchain development.
Web3 is defined as a collection of open technologies and protocols that support the use and storage of decentralized data. Built on blockchain technology, the Web3 ecosystem includes cryptocurrencies, non-fungible tokens (NFTs), decentralized autonomous organizations (DAOs), decentralized finance (DeFi), and more.
The World Wide Web was invented in 1989 by British scientist Tim Berners-Lee and was originally developed to share information between scientists in universities around the world.
Between 1991 and 2004, the first generation of the internet, also known as Web 1.0, was composed of links and homepages that were readable. The majority of its participants were content consumers, while the creators were mostly web developers who developed websites with textual and visual content.
Around 2004, the internet moved into Web 2.0, allowing individuals to not only read content, but create their own to be published on blogs and social media channels. It was during this stage of web development that data became increasingly controlled by a small group of companies that eventually became tech giants, including Amazon and Facebook.
As users in the internet ecosystem became concerned about how their personal data was being collected and used, their calls grew for more privacy, ownership, and control of their personal information.
This was one key reason that led to Web3’s development, reflecting a paradigm shift towards the development of a more democratized internet, according to crypto market intelligence firm Messari.
Decentralization: A myth?
First coined by Gavin Wood, co-founder of Ethereum, Web3 was envisioned as a decentralized version of the internet, one free from the dominance of big tech.
Web3 was created to facilitate the development of open, autonomous, and decentralized technologies within internet ecosystems, enabling trustless infrastructure and removing central monopolies. This stage of web technology evolution was expected to give individual users power over their data, identity, digital assets, security, and transactions.
But some observers have raised questions about whether Web3 truly brings about decentralization. According to a recent report by the United States’ Defense Advanced Research Projects Agency (DARPA), cryptocurrency, a key Web3 asset, is more centralized than thought due to “unintended centralities in distributed ledgers.”
A good example is bitcoin. While the cryptocurrency network was originally envisioned to be fully decentralized, it has become highly centralized today, with its system dominated by large and concentrated players, including bitcoin miners and owners.
According to a study by the National Bureau of Economic Research, the top 10,000 individual investors in bitcoin control around one-third of the cryptocurrency in circulation. At the same time, the top 10% of miners control 90% of the bitcoin mining capacity, and just 0.1% control 50% of mining capacity.
The launch of ApeCoin, the native token of the Bored Ape Yacht Club (BAYC) ecosystem built around a collection of NFTs on the Ethereum blockchain, also highlighted that cryptocurrencies may not be as decentralized as claimed.
In March this year, ApeCoin tokens worth USD 380 million were given out to founders, executives, and early backers of Yuga Labs, including investors at the venture capital firm Andreessen Horowitz. Notably, there is a striking similarity between ApeCoin’s centralized ownership and the funding structure of conventional companies backed by traditional venture capital firms.
While blockchain technologies are decentralizing forces, the crypto industry is highly centralized. Crypto exchanges are dominated by major platforms such as Binance, one of the world’s leading cryptocurrency exchanges, which captured 30% of spot volume market share in March this year.
Meanwhile, MetaMask and OpenSea, two of the most widely used applications in Web3, are blocking users based on their locations, which runs contrary to Web3’s ethos of decentralization.
A different vision of Web3
Decentralization appears to be an ideological foundation of power and not a technical property of the Web3 system, according to a recent study on bitcoin’s early years. It remains to be seen if Web3 can truly decentralize ownership and decision-making, and empower its users around the world.
Meanwhile, China has come up with a different vision of Web3, comprising a tightly controlled, state-led configuration of blockchain. The Chinese government is promoting a specific type of Web3 with a combination of centralized and decentralized features.
A good example is China’s sovereign digital yuan (e-CNY) which is blockchain-based. The digital currency was developed with the aim of advancing the growth of China’s digital economy, improving the efficiency of transactions, tackling illicit activities, and facilitating online payments.
While the digital yuan can provide a high degree of financial inclusion to users, using fintech to reduce the cost of providing financial services, the technology is highly centralized, with the country’s central bank controlling every aspect of it.
The Chinese government has also endorsed blockchain technology and invested significantly in its development, despite having imposed a ban on crypto. In September 2021, China made headlines around the world when it banned all cryptocurrency transactions to curtail financial crime and prevent economic instability.
While cryptocurrencies have been banned in China, companies working in Web3, including DeFi and NFTs, are not banned outright in the country. A new class of Web3-native companies has emerged across various sectors of the economy, including social media, gaming, and extended reality, such as metaverses.
Still bullish on blockchain technology, the country has put in place Web3 decentralized infrastructure set to be the country’s next big tech focus. Earlier this year, Yao Qian, director of the Science and Technology Supervision Bureau of China’s Securities Regulatory Commission, endorsed Web3 as the key to the future of China’s internet.
To speed up the development of its version of Web3, China’s state-backed Blockchain Service Network (BSN) will launch its first major international product in August this year. The new non-crypto blockchain—BSN Spartan Network—will facilitate blockchain technology’s deployment for enterprises in international markets and will not involve cryptocurrencies such as bitcoin or ethereum.
BSN was founded by Red Date Technology, which is headquartered in Hong Kong, and backed by the State Information Center (SIC) under China’s National Development and Reform Commission (NDRC), as well as China Mobile, a state-owned telecommunications company.
Aimed at companies operating cloud computing infrastructure, BSN touts itself as a one-stop shop to deploy blockchain applications in the cloud, a process that is typically costly and time-consuming. Another advantage is that applications built via BSN infrastructure would be interoperable as the company bridges different blockchains and protocols.
Acknowledging the challenge of going global amid Chinese government backing, Red Date Technology CEO Yifan He stated that the international version of the platform will be open-source, allowing participants in the public domain to inspect the code for any potential backdoors.
Unlike “traditional” blockchains which are decentralized and transparent, most blockchains in China are consortium blockchains, also known as permissioned blockchains, which are centrally controlled and are able to limit who can participate in the network. While ambitious, and with the support of the government, it remains to be seen if China’s vision for Web3 will be universally used and accepted.