Despite crypto ban, China’s technology talent rides the global web3 wave – TechCrunch

Despite China’s sweeping ban on cryptocurrencies, domestic web3 talent flourishes quietly, with many venturing outside the country’s borders.

From offering crypto derivatives to creating NFT games, Chinese web3 entrepreneurs’ footprints are far-reaching all over the world. We spoke with a dozen Chinese founders and investors to find out how this group is trying to build global web3 businesses while still retaining their roots in China and benefiting from their home country’s rich technology talent.

Many of them asked for anonymity. Some do not want to draw the attention of the authorities because there are no clear rules for operating in China and serving foreign users, and others want to avoid being branded as “Chinese” at a time when China’s geopolitical tensions with the West are high.

Exploratory state

Many believe that the current state of the internet, or web2, has been overly dominated by centralized, rental-seeking companies such as Google and Meta. Part of the appeal of web3 is to reclaim the internet through distributed ledger technologies such as blockchain, which promise to provide greater decentralization and user ownership.

Cryptocurrencies and non-fungible tokens are two popular uses for blockchain that have attracted billions of dollars in investment, but they are far from the only uses for the technology.

China is still figuring out what it wants from web3, but it obviously will not miss anything. In 2019, President Xi Jinping personally praised the role of the blockchain in the technological revolution.

What China does not want are the crash prices of cryptocurrencies that have plagued the market in recent months. It seems to encourage a more controlled, centralized version of the web3 blockchain should be managed by trusted organizations instead of anonymous computers on the open web and bring productivity to areas that the government deems appropriate.

It is no surprise that China moved to ban initial coin offers and crypto-based transactions due to their economic risk, but it is a gray area when it comes to other blockchain applications. While China has warned against the use of NFTs as financial securities, it is being rebranded as “digital collectibles”, which can only be purchased using China’s fiat currency RMB, has little liquidity and is tasked with promoting copyright protection.

Some of China’s web3 developers are following the direction given at the top, joining in to build the infrastructure for digital collectibles. Other utility cases have also received a nod from the government. Alibaba’s financial affiliate Ant Group, for example, has developed a number of blockchain services for purposes such as using blockchain to verify legal evidence and tracking food supply chains for security reasons.

Some argue that cryptocurrency, which is seen as a store of value, is like the bread and butter assets of web3. Without it, web3 will not be able to operate to its full potential. Those in China who have this view have largely focused abroad, serving international users and raising money from offshore institutions.

Plenty of talent

In recent years, a number of Chinese web3 startups have moved their devices abroad in the wake of the country’s cryptocurrency crash, but they are not directly giving up on China. They follow a handbook proven by previous generations of technology companies: resident offshore, conducting some operations in China, and going after foreign markets.

“Where else are you going to find thousands of skilled engineers?” says a China-based employee of a crypto exchange, asking not to be named.

China played a key role in the early development of the blockchain industry, creating a generation of cryptocurrencies. Some of the world’s largest crypto exchanges, including Binance, FTX, KuCoin, Crypto.com, OKX and Huobi, started in the Greater China area. The world’s largest crypto mining company Bitman was founded in Beijing. The Chinese conglomerate Wanxiang was Ethereum’s first corporate investor and gave birth to the crypto-investment powerhouse HashKey.

“There are seven million programmers here, and they have proven time and time again that they can innovate,” said Herbert Yang, general manager of Asia for Dfinity. The a16z-backed company headquartered in Zurich came looking for projects in China that could be distributed on the blockchain network because the country offers “a large pool of technical talent.”

Other international organizations turn to China for the same reason. The Ethereum Foundation, the organization behind the second largest cryptocurrency, sponsored the “ETH Shanghai” hackathon to draw developers to the blockchain network. The virtual version of the event attracted nearly 1,000 developers this year, with an estimated 60% from China, according to the event’s organizer Mask Network, a startup that brings web3 features to web2 platforms.

Chinese crypto companies moving abroad are trying to bring in Chinese employees, but most of them are resorting to retaining a certain presence in China. While crypto-friendly countries such as Singapore have guidelines for attracting foreign talent, local governments often set quotas to protect domestic employment. Employees with families in China are reluctant to relocate in the first place.

For web3 startups that have been trying to hire in China for the past two years, the timing was ripe. The cryptocurrency reached historic highs last year when China’s breakdown of the Internet industry was well under way. Large-scale redundancies and reduced wages led many workers from the likes of Tencent and Alibaba to seek opportunities in the web3 frontier.

Others voluntarily quit their jobs at established technology companies to ride the web3 wave, either because they are lured by blockchain’s technological potential or the chance to accumulate wealth quickly. Alibaba’s fintech affiliate Ant Group, for example, has lost dozens of its employees to web3 startups in recent months, TechCrunch learned.

Top product managers

It’s no news that technical attire employs workers in China while serving international users. Zoom had hundreds of R&D employees in China before Western media outlets questioned the security of their practice across data. Alibaba-owned Lazada and Shopee, Southeast Asia’s e-commerce enemies, also have significant operations in Shenzhen, an export and technology talent center.

For many technology companies, China is still a desirable place to hire, thanks to a decade of groundbreaking growth and competition in the Internet sector. Companies such as Alibaba, Tencent and TikTok owner ByteDance have received recognition from Silicon Valley and beyond for innovation in their respective fields.

“Chinese-based projects are good at managing and designing business-to-consumer products,” suggests a Chinese worker at a US-based blockchain startup. “They are obsessed with data analytics and spend a lot of time fine-tuning products.”

China’s strength in web3 lies less in building blockchain’s underlying infrastructure, but more in developing applications for users, several crypto investors and entrepreneurs said.

“The early opportunities in web3 lie in protocols [infrastructure for blockchain applications]but they mostly resolve transactions while the user experience is overlooked, “says a Hong Kong-based blockchain startup founder.

“Chinese are very good at building user experience. After all, China has given birth to a robust web2 ecosystem, he adds.

China’s technology workers are also known for being “hardworking,” said Curt Shi, an early investor in the move-to-earn app StepN and a partner in the Prodigital Future Fund, which looks for Chinese-based web3 projects that go global. While the overwork culture in China’s technology sector has caught fire in recent years, others see it as the country’s advantage.

StepN, for example, is run by entrepreneurs who emigrated from China to Australia. Like many entrepreneurs in the Chinese diaspora, it benefits from its original and adopted homes by keeping a small team in China as part of its international staff.

“That’s why it can have customer support 24/7, while many of the competitors can not,” says Shi.

A cultural issue

Despite the strength that Chinese-powered web3 startups can potentially muster, they face similar challenges as their web2 predecessors.

TikTok, which has been a pioneer in fast video sharing, is without a doubt the only Chinese Internet platform for consumers that has achieved global success in recent years. Without a significant presence on the ground in foreign lands, TikTok gained momentum early thanks to its parents’ ByteDance algorithm-driven content discovery machine developed in Beijing.

But entrepreneurs’ cultural understanding becomes critical in web3. The industry is still in its infancy, which means that a company’s ability to tell compelling stories is the key to early use. “Web3 companies need to resonate with their users culturally,” says a Singapore-based founder of a decentralized autonomous organization (DAO) originally from China.

Web3, as the proponents say, is in many cases community-driven. The technology on which blockchain is based has the idea of ​​consensus embedded. DAOs, for example, carry out decisions based on the collective consensus of their communities.

Chinese-founded web3 teams that lack the language skills to effectively communicate their ideas or understanding of other cultures may find it more difficult to win users in new markets.

“I’ve seen Chinese companies with good products, but they do not know how to talk to the international community,” said the DAO founder. “Just having a good product is no longer enough in web3.”