The Status of Blockchain in Asia, From “China Internet Report” Author, Edith Yeung
Is Asia gaining ground in the technology race? Edith Yeung, advisor at 500 Startups, partner at Proof of Capital, and author of “China Internet Report” (link to new 2019 report below) shares why Asia is the place to be for blockchain adoption. For a VC who spends half her time in Silicon Valley, she recognizes that there is an economic hunger that drives adoption differently from Hong Kong to Singapore, Mainland China to the rest of the region. The sheer size of populations in China, India, and Southeast Asia means that adoption can reach mass scale quickly, and things can happen here in days and weeks versus months or years.
Edith sits down with Editor-in-Chief, Angie Lau, in this value-rich conversation on the role of China, the impact of technology, and why there may be coordinated focus on blockchain by President Xi Jinping.
Listen to the podcast version
See Related: "China Internet Report" 2019 -- click here
Co-authored by South China Morning Post, Abacus News, and Edith Yeung, the annual China Internet Report 2019, published July 10, 2019, delves deeper and broader into China’s drive to be a global leader for innovation, and examines the opportunities and challenges for its technology-led industrial transformation. The annual report includes a comprehensive overview of China’s top industry players and new entrants. It will also highlight the year’s most significant trends that outlines the Chinese internet industry's impact, such as:
- Why China’s tech companies are now the ones leading innovations
- How China is racing ahead with 5G
- AI development in China is making significant advances
- How social credit is becoming a reality in China
Welcome to another episode of “In Conversation With.” We are on location in Taipei, Asia Blockchain Summit, and just flying in from Shanghai is Edith Yeung. She is an advisor of 500 Startups, but also a founder of a new fund, a new venture capital fund called Proof of Capital and you are here in the blockchain crypto space. You are also the author and the creator of the China internet report, so you are a visionary, you see what the landscape is and, you're assessing this ecosystem. Edith, what do you see?
First off, Angie, thank you for having me. I'm really excited to be here.
I think the name of this particular conference, called Asia Blockchain Summit, right? I think Asia is definitely the place to be in terms of blockchain adoption or in general. I think all the crypto activities, as much as I spend half of my time in Silicon Valley, there's a really interesting technology researcher from Stanford, Berkeley there, but at the end of the day I think Asia in particular, we are in Hong Kong, Mainland China, or Taipei, places where people are craving for new inventions. Think about how WeChat Pay and Alipay, in terms of fintech, have completely changed the way how people use transactions in Mainland China. I think as much as there is really interesting technology coming up from the US, adoption is all going to happen in Asia.
It is interesting that you say the technology talent pool is very much alive in Silicon Valley. It is the adoption, the real-life enterprise that’s actually happening in Asia. Why are we so hungry for it here in Asia?
Think about, in some way, Hong Kong for a long time was always sort of, “Hey, we're going to be a financial hub.” But similar to the US, there is too much infrastructure, and if you're trying to change behavior by changing a legacy system, it's quite hard to do versus in Asia, in many countries, starting with China 5-10 years ago, the credit card penetration is still less than 3 million. You are talking about over a billion people now on WeChat Pay when you had nothing. And new technology will completely change; it's not even changing anything, it’s finally giving you something that you can use.
And that's why in many cases now, like in the web 1.0 or 2.0 days, I felt like I had to convince a lot of the Silicon Valley entrepreneur or technologists, “Hey, come and do something in Asia.” Now we're blockchain, I don't have to convince them; they want to come. And that's why you see so many international Americans, Europeans, wanting to come learn because the whole landscape environment, is craving for it because we didn't have anything to start with. And let's say... Let's make payments and remittances cheaper, easier, and blockchain technology can potentially empower and enable that and make it so much cheaper to try to do transactions cross countries. Or if you look at the crypto exchange and trading space, everybody knows the Top 10, starting with Binance, OEX, and BitMEX. They all started in this part of the world. And not long ago in the mining area, the top miners are pretty much all in China. That's why a lot of international entrepreneurs and founders all want to come here and learn.
What are they learning, and what are they missing out on? What is the greatest cultural divide, or naivete that happens when they land here?
First of all, I think all Asians work super hard. Angie, I’m sure that it's not just 996, you probably know, it’s 24-7. And a lot of my friends from Silicon Valley are just amazed by the work ethic. If you want to launch something… and don't get me wrong, I learned so much from spending so many years in the valley and they are very thoughtful about building technology, that are very bulletproof in some way… But the speed is very... If you talked to any Chinese contributors, we talk in literally in days and weeks on when certain things will launch, And I think a lot of the Asian entrepreneurs are not afraid to make mistakes and just a launch fast, fail fast, and really iterate again, and again.
Well, it's speed to market. So that's number one, and you're interacting with the market. They're telling you what they want. Your consumers are telling you what they want, what's wrong with your product in real-time. You can iterate and innovate, versus it happening in a bubble or a vacuum, where you assume maybe you do some focus-grouping or some studies and then you try to come up with a product.
It is too slow.
And then also, on top of that, in addition to human and mentality, it's also the regulatory environment for good or bad. China has a love-hate relationship with crypto versus blockchain and us Asians have sort of gambling blood. I think sometimes I sort of make fun of it. Anything that the Chinese government is trying to block is probably something big.
So in many senses, even though you're not supposed to use RMB to buy crypto, there is no law to necessary it. It's just that obviously we want to do things by the book, but in the US, let's say for Coinbase, it can take down at least two to three years to get a day-by-state money transmitter license. It just takes a long time so in many cases, coming to Asia you can just launch it and see what happens.
And of course, we want all the entrepreneurs to do things by the book, and be compliant and legal at the same time, because a lot of these laws, even the government here, they are very entrepreneurial too. I think the Chinese government, Taiwanese government, Hong Kong government, they want more businesses to come in. So in that sense, that's why there's no concrete wall. They just want to see, "Hey is this is something?” Then there will be regulatory restrictions. Now it’s more or less, “we welcome you and we'll see what happens; launch it.” And in fact earlier this year, President Xi actually publicly said, “Hey, we believe blockchain will be part of creating China’s future in terms of technology alongside with robotics autonomous cars and artificial intelligence.”
So all of a sudden, this year there are about 196 companies officially registered in all the major cities in China that have a license that lets them work on blockchain-related things. And then on top of that, Baidu, Alibaba, and Tencent, even though they're not completely decentralized or public blockchain companies, they do have a lot of private blocking enterprise projects and platforms that they are pushing. So it's a very exciting time to be this part of the world, seeing all sides that everybody is pushing forward for this.
Geopolitically right now you have U.S.-China trade wars; you have that tension that exists and really it's technologically based if you think about it. Is the US regulatory side driving talent to Asia? And is that something that is receptive on the China side, or the Asia side?
I think that, for me as a technologist, it pains me sometimes that technology really should not be political, and unfortunately now is sometimes the centerpiece of the conversation, and I think what's happening now in the US, unfortunately, a lot of the particular foreign investment is not even allowed to invest in some of the sensitive technology, one. And then on top of that, the U.S. government is now being more restrictive on certain visas, particularly for Chinese to enter the country. So, in that sense it's too bad, because I think that the U.S. historically has been so open and supportive and such a great melting pot. Everybody wants to go there. Now, it's more or less seems like the trust is sort of broken and a lot of the entrepreneurs want to come take Asia to explore opportunities. It seems like people are excited and welcomed, so I think it's great for us, this part of the world, to see more and more talent, not just from Asia alone but also worldwide that want to come here.
I was just in Vietnam. I was just in Vietnam and really taking a look at the ecosystem there. I'm here today over the course of a couple of days in Taiwan. It's really these economies that are trying to participate with the big boys in the global economy. Does blockchain allow countries like these, emerging markets, frontier nations, predominantly here in Asia and developing markets to be sure, does blockchain allow these nations to leap-frog and play with the big boys on a global stage?
To start with, if you think about me putting my master hat on, we always like to talk about, "Hey, where are the unicorns? Where is the talent?” I think worldwide, I know for the crypto side to start with, let's say, starting with exchanges. Coinbase worth about a billion; okay that's a US company, but I am very sure Binance, BitMEX are already at the unicorn level, if not more in terms of transaction volume. On the mining side, companies like Bitmain, Canaan, these already at the unicorn level as well and those are all in China.
It’s not even leaf-frogging; I think it's already leading. But of course, I think the blockchain community, the crypto community is very international, very global. I can see this community in New York, I can see them in Berlin, and they have been very global from day one because the crypto community, particularly from the developer side, you really could be anywhere… in Vietnam, in a garage...
Yeah, decentralized. Truly decentralized. China is receptive to this? I mean, blockchain is one thing but making cryptocurrency illegal really undermines the ability for blockchain projects to capitalize and work on their projects.
That's right, and I think there have been rumors that the PBOC has be thinking about... is it possible to have a tether of RMB? And in some ways, the whole essence of blockchain, of course, absolutely should be decentralized. So the other day, really funny, after President Xi talked about blockchain in the future for China and technology, I started seeing these TV shows that talk about blockchain on CCTV
Oh, very coordinated. Where did they get this content all of a sudden?
I in the way that they explain there's no word of decentralization at all. It is distributed. It is a really robust data architecture. It is about transparency.
But it's permissioned and it's still centralized blockchain. So, they did not talk about the decentralization aspect of the technology.
I was actually watching that with my mother and my mother said to me, “ I finally understand what blockchain is about!” It's really interesting to see how in some way, I think that's why I said earlier about the love-hate relationship, I think this is not just a Chinese government challenge. It’s worldwide.
No it’s really not. And I really think that this conversation is now evolving to: is it centralized or decentralized? We often talk about the technology itself, and it's a fantastic technology that allows for that transparency and all the rest. But it's the decentralization that actually makes it powerful and dangerous.
That is correct, and I think all governments, not just China, are trying to form theses, frameworks, and trying to see… let’s say like this whole Facebook's launch of Libra. Immediately, the US government was asking Mark Zuckerberg, “What are you guys doing?”
And in some sense, what really gets me excited is to think about how the web 2.0 platform is now trying to learn from the WeChat Pay and Alipay, and even the social networks are trying to become a bank. And are they going to be? I don't know, but certainly in some sense, two billion people of monthly active users on Facebook is at least seven or eight times the population of the U.S.. So in that case, wouldn’t that be interesting? Looking at them, as the internet nation states, and the pushing even though I don't think they're completely decentralized either. But we will see. I think it's a great validation of what's happening.
What are the trends in blockchain right now in China? Where are the markets that are going to be created for the future?
I think China, in 2017, saw so many ICO projects, and that's why the Chinese government got really scared because… In Mandarin, there is this word 韭菜, which stands for “chives”, which is really stand for people who really have no idea what they're doing and retail traders. And on September 4, they basically stopped all of that... And I remember that day really clearly, because bitcoin price literally dropped like crazy. So in that sense, a lot of these projects, particularly ICO’s, are a big no-no in China. I think the theme for 2017, early 2018 was so much around the infrastructure protocol level particularly focused on scalability. Everybody sort of said, "I'm going to be the Ethereum of China,” and there's so many of them. I don't see those anymore, but I do think that DFi, decentralized finance, regarding the transaction of loans or trading, or a decentralized exchange…
But isn't that already taken care of by WeChat or Alipay?
Those are definitely there in terms of transfer of value and payment. They're really, really well done. But I think from the crypto side, there are some really interesting products. For the last few days when I spent time in Beijing and Shanghai, more and more of these folks would have really strong trading backgrounds, now are providing some of the financial tools and services to help some of the retail traders to get more educated on the media side of things, where there is definitely a lot of education they needed.
And then also the trading tools, or DEX or financial instruments are now sort of up and coming, but then again, it’s because there's a lot of talent on the exchange side of trading and also on the mining side. I think that will continue to be a hot topic in China.
At the end of the day, do you think that we'll ever see mass adoption in China?
I think most of the Chinese traders, they're all doing it here, but they just can't say it. I don't have a particular number to back it up per se, but I heard a rumor that said that most of the top crypto exchange have more than 50% of their users from China. There's a lot of excitement already. But of course, all of them need to be careful also be respectful for the government.
Alright, give me a little snapshot, a little preview of China Internet Report for 2019, the biggest insight that you see for blockchain or crypto or innovation.
I think, surprisingly, the number one company in terms of blockchain is a company that you and I already know infinancials. They are the number one in terms of valuation, 150 billion as a private company in the world. They actually already have internally many blockchain projects, and in fact they want to push more and more enterprises on their blockchain ecosystem. Many of them are really sort of form of Hyperledger. At least they are pushing, so it is very exciting to see.
I think a big topic obviously is what’s going along with the China-U.S. trade war. Even though you want to ignore it, you can’t… So it’s a hole in the whole world of China, even though it seems like in these couple of days it is getting better. But on the hardware side, regarding the 5G for networking hardware also on the chipset hardware also related to mining as well, more and more of these companies will not only change government, but many of the players want more homegrown, so you don't rely on the U.S. too much.
What an intriguing insight into China and Asia and really from your perch to share that insight with us, we appreciate it.
Yeah, thank you for having me.
Edith Yeung, thank you.