Promoting the healthy development of Web3 and helping Hong Kong integrate into the wave of innovation and technology

Author: Qiu Dagen, Legislative Council Member

In recent years, the Hong Kong SAR government has strongly supported the development of the Web3 ecosystem, and Cyberport has established a Web3 base earlier this year. The financial budget for this year also announced an allocation of HKD 50 million to promote the development of the Web3 ecosystem, including facilitating cross-sector business cooperation and organizing international conferences. In order to learn and master the cutting-edge development and industry trends of Web3, I have been in communication with hundreds of innovative technology teams over the past year, and I can say with certainty that Web3 is still in its infancy and has great prospects.

At present, some Web3 application solutions are highly anticipated, but in order to be widely adopted by the public on a large scale, three factors are indispensable: firstly, the underlying technology still needs time to develop and mature further; secondly, the public needs to understand the application scenarios of Web3 and adapt to the various changes brought by new technologies to society and life; thirdly, policies and regulations need to keep up and support the orderly and compliant development of Web3.

Hong Kong’s well-regulated data circulation is conducive to development

Hong Kong definitely has the potential to become a global Web3 hub. Firstly, the backbone of Web3 is Distributed Ledger Technology (DLT), which fundamentally changes the way many data (personal information, transaction data, asset data, etc.) are generated and stored. Therefore, the degree of freedom and soundness of a region’s institutions are crucial for cultivating the Web3 ecosystem. Under the principle of “One Country, Two Systems”, Hong Kong enjoys a high degree of autonomy, and its legal and judicial systems are recognized by the international community. As a competitive international financial center, Hong Kong’s financial regulatory system has reached international standards, and it also enjoys robust legal protection in terms of free data circulation and privacy, making it an ideal location for developing Web3 businesses.

Secondly, the Chinese people are the driving force behind the current wave of technology, especially in the development of underlying technologies. Although they are scattered around the world, once large-scale Web3-related companies settle in Hong Kong, they may trigger a clustering effect and attract these talents to develop in Hong Kong, enabling Hong Kong to enjoy the dividend of core technical personnel.

Finally, with the Policy Statement on the Development of Virtual Assets in Hong Kong released by the end of 2022, as well as the virtual asset trading platform (VATP) licensing regime implemented by the Securities and Futures Commission (SFC) from June 1 this year (with a one-year grace period), many Web3 practitioners anticipate the introduction of more policies that are in line with virtual assets and tokenization, encouraging them to engage in financial innovation, launch Web3-related products to test market response, or gain practical experience in different application scenarios through sandbox arrangements.

Now is a critical moment for Hong Kong’s development of Web3. While ensuring stability and orderliness, we also need to encourage technological innovation in order to attract elites from all walks of life. However, in recent months, some wrongdoers have taken advantage of the opportunity of the SAR government’s promotion of Web3 development to come to Hong Kong to engage in illegal activities, such as using pyramid schemes to promote “air coins” for fraud. Others operate illegal platforms for fundraising. These operators eventually abscond or go bankrupt, tarnishing Hong Kong’s reputation and greatly undermining the healthy development momentum of Web3. Therefore, regulatory agencies should closely monitor and cooperate with law enforcement agencies to prevent criminals from using the name of Web3 to make money in Hong Kong.

To give the public a correct concept of Web3

Specifically, the Securities and Futures Commission (SFC) should disclose as soon as possible the operators who have no intention of applying for a license or who fail to obtain a license, so that citizens can avoid trading with “doomsday” platforms. The government should also address the exaggerated and misleading advertising content of some platforms and be cautious of retail investors. In addition, many citizens do not have a deep understanding of the various applications of Web3 and the importance of Web3 to their personal lives and finances. They mistakenly believe that Web3 is just about trading cryptocurrencies. Biases and a lack of relevant knowledge increase the chances of citizens being deceived and make it difficult for legitimate Web3 products to become popular. The government should strengthen public education, take the lead in launching reliable Web3 application solutions and scenarios, familiarize citizens with them in their daily lives, and in the long run, regulate Web3 products through legislation to ensure that citizens can use or purchase Web3 products in a transparent, compliant, and secure manner. This is the reasonable safeguard.

Recently, the former Chief Executive of the Hong Kong Monetary Authority, Norman Chan, mentioned that the term “virtual assets” may easily confuse citizens into thinking it is equivalent to cryptocurrencies. Therefore, it should be renamed as “digital assets,” a view that the author strongly agrees with. The connotation of “digital assets” is broader and deeper than that of purely virtual assets or cryptocurrencies. It represents the tokenization of various tangible and traditional assets, commodities, services, rights, etc., in the new era of Web3, creating many unprecedented application scenarios through DLT technology and smart contracts. We hope that Hong Kong will usher in a day of mature development of Web3 and take on an important role in this technological trend.

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