Zhu Zhengguo in conversation with Xiao Feng: The evolution and integration from Web2 to Web3

Author: North Beta Capital

The 2023 Hong Kong Web3 Festival, co-hosted by Wanxiang Blockchain Lab and HashKey Group, and organized by W3ME, took place from April 12 to 15, 2023, at the Hong Kong Convention and Exhibition Centre. North Beta Capital, in collaboration with Hash Global, Alibaba Cloud International, and Hong Kong Cyberport, co-hosted the sub-forum on "The Evolution and Integration from Web2 to Web3" on April 12.

Any transformation is the result of a spiral ascent, and the evolution and integration of the two environments of Web2 and Web3 are worth our deep exploration. In the sub-forum, North Beta Capital's founder and chairman, Zhu Zhengguo, engaged in a "summit dialogue" with Wanxiang Blockchain's chairman and HashKey Group's chairman, Xiao Feng, discussing the evolution and integration from Web2 to Web3 from the perspectives of data, regulation, and cycles.

Left: Xiao Feng, Right: Zhu Zhengguo

Zhu Zhengguo: Today, we attempt to open the topic from a broader perspective -- the evolution and process of human digitalization. Today, we are in a world full of uncertainties, among which the process of human digitalization is the most certain. When we discuss digitalization, we must mention the most fundamental element in the digitalization process, which is data. When we discuss data, we will certainly talk about digital technology. I try to define the boundaries and connotations of digital technology, summarizing it in one sentence: "Any technology that helps us collect, transmit, store, process, and use data on a larger scale, at a lower cost, and with higher efficiency, as well as trust data, can be understood as digital technology."

Once we have sensor technology, we start continuously sensing and collecting data. More advanced sensors obtain more data, and at this point, we need to transmit data "at low cost, with high efficiency, and on a large scale," leading to the development of 3G, 4G, 5G, and including the 6G we are discussing today. To utilize this data, we need good storage and processing infrastructure. Different data has different usage scenarios, including the path of AI, such as the recently popular ChatGPT. Of course, blockchain plays a very important role in establishing trust in data.

In the process of humanity moving from informatization and digitalization to intelligence, from the user's perspective, we have moved from Web0 to the read-only Web1, then to the read-write Web2, and now we have entered the Web3, which is not only read-write but also ownable. I would like to engage in a dialogue with Dr. Xiao from the perspectives of data, regulation, and cycles.

Q1 Zhu Zhengguo: From the perspective of data informatization, digitalization, and intelligence, how does Mr. Xiao understand the future evolution and integration of Web2 and Web3?

Xiao Feng: From a digitalization perspective, the transition from Web1 and Web2 to Web3 can be seen as humanity's increasing demands on a series of network elements in the digitalization process. With higher standards, the self-evolution of network technology brings new changes. All changes, when viewed in conjunction with data, are simply about producing, transmitting, storing, analyzing, using, and trading data more cheaply and efficiently. The so-called trading leads us to the stage of data assetization. From this perspective, Web1, Web2, and Web3 are continuously advancing towards this goal.

If we consider the latest ChatGPT or GPT-4, humanity is about to complete this closed loop. Why do I say this? Because GPT-4 has completely turned the production of data, information, and knowledge into zero cost, allowing for rapid, large-scale, and low-cost production. This marks the arrival of the AIGC or AI generation era, which is the final closed loop. The previously mentioned 2G, 3G, 4G, 5G, and 6G are all aimed at better storing this data. The cost of producing data with GPT-4 will also decrease significantly, leading to a situation where knowledge may lose its value and be used freely. Not only looking at the changes from Web2 to Web3, but from the perspective of humanity's entire digital migration, the digitalization baseline is marked by the emergence of GPT-4 in 2023, suggesting that we may find ourselves living in a wonderful world of free knowledge in the future.

Q2 Zhu Zhengguo: The second question is from the regulatory perspective. Looking globally, what are the representative regulatory methods in the development process of Web2 that are worth referencing, including the collaboration, innovation, and competition? Additionally, could you compare the practices in Hong Kong with those globally?

Xiao Feng: First, the most fundamental difference in Hong Kong's regulatory rules is that a common law jurisdiction has a high tolerance for technological, social, financial, and commercial innovation. One point of common law is that anything not prohibited by law is permissible. Legal innovation is always lagging behind; you can only tolerate innovation under common law if you fully recognize that anything not prohibited is permissible, especially concerning financial innovation.

Financial innovation has significant externalities. If you do anything in this area without a considerable margin for error, your capacity to act will be greatly limited. This is very different in Hong Kong, and I believe all common law jurisdictions have this advantage.

Of course, the advantage of law is one aspect; the other aspect is the government's willingness. The law allows it, and the government encourages it, making it the best place for Web3 innovation. The Hong Kong Special Administrative Region is such a place, and the government is seriously considering how to support everyone in this endeavor, which is why legislation is being developed step by step. Last year, there was a revision of the Anti-Money Laundering Ordinance, and in the second half of this year, there will be legislation on stablecoins and other supporting legislation to prepare for Web3 entrepreneurship. For example, on the afternoon of the 15th, the chairman of the Hong Kong Company Law Reform Committee will share how to amend Hong Kong's laws to provide a clearer legal status for Web3. Obtaining legal support in Hong Kong is very important.

Returning to the first question, all new technologies will inevitably collide with reality.

For example, we can start with Web2. In the United States, the level of monopoly formed by large software companies or internet platforms after their growth actually exceeds that of AT&T back in the day. Later, it was found that Microsoft's level of monopoly was even more severe, as everyone used a single Windows operating system, which bundled the browser. However, the legal and business governance sectors in the U.S. did not take the same approach as with AT&T and break Microsoft into pieces. If they had done so, it would have been self-defeating for the U.S. Why did this happen? Because the marginal cost of the digital economy approaches zero, the more digitalized it becomes, the easier it is for monopolies to form in certain areas due to specialization, which is an unavoidable trend.

Since the marginal cost approaches zero, it becomes very difficult for others to compete with you. You have a first-mover advantage, and for others to do the same, there is almost no market space left. This creates a conflict that requires an adjustment of the entire legal system. Now, what methods are being used for antitrust? You can also legislate anew. For example, internet platforms possess a large amount of data generated from user behavior. We have many legislations stating that users should have some rights to this data, including rights to benefits, ownership, and portability, meaning they can take their data from one platform to another, and the right to be forgotten, allowing them to request the deletion of their data when they are no longer internet users. Such legislations have emerged from the EU to the U.S. and China. Are they implementable? Not at all, unless you completely abandon the internet.

However, in Web3, using distributed ledgers and smart wallets resolves these issues. Everything is inherently self-managed and self-proven within your own created wallet, not belonging to any blockchain platform or system. Is legislation needed? No legislation is required.

Is there legislation on public chains? Has anyone legislated on Bitcoin? Has anyone legislated on Ethereum? No, but when you adopt a Web3 system, all legal requirements are inherently met. Whether it is data or competition, there will ultimately be significant conflicts, but these conflicts cannot be resolved through administrative or legal constraints. For regulatory bodies, these issues exist, but we actually have a very lightweight method to resolve them at a low cost, just as I mentioned earlier.

Zhu Zhengguo: Recently, we have seen active participation and support from the Hong Kong SAR government and the Chief Executive in various Web3 conferences, providing a lot of encouragement for our industry from top to bottom. Last week, the Financial Secretary, Mr. Chan, and today in this meeting, also mentioned the need for appropriate regulation to promote development. Can we understand this as Hong Kong being one of the best soils for the entire Web3 industry in the next three to five years?

Xiao Feng: Objectively speaking, I agree with your viewpoint. The law allows for this, and the government has a strong willingness to do this. However, having just these two points is not enough. The third point is that everyone present today has gathered in the Hong Kong SAR, which has fully demonstrated its charm. Just the registration for this event has nearly 13,000 participants, indicating that Hong Kong has a bright development prospect in the next three to five years. There are laws that allow you to do this, the government has a high willingness, and so many participants have gathered, whether they are developers, investors, or users. With these three conditions combined, we can draw such a conclusion.

Q3 Zhu Zhengguo: Regarding cycles, I have two questions. First, we objectively feel that compared to Web2, Web3 is faster; a cycle comes quickly and goes quickly. Second, everyone wants to know, as a seasoned expert in this industry, what advice can you give us to better understand cycles, embrace cycles, and navigate through cycles?

Xiao Feng: Let me first answer the second question. If I were to give advice, I would have only one suggestion: you really have to believe in this; you need to have faith. Without faith, when you encounter setbacks, difficulties, or bear markets, you might just exit.

This statement came after GPT-4 was released. I consulted an AI scientist about why only OpenAI succeeded. His answer was that only those few people at OpenAI believed they could solve these problems. Those individuals believed that AI should be developed this way when they were in college. Other large internet platforms or tech companies in the U.S. did not think this was the right path. Therefore, those who believed succeeded, and Web3 entrepreneurs must also have faith; only by firmly believing in this can they succeed.

As for the first question, what is the difference between the foundational protocols of the internet, such as IP and TCP, and blockchain protocols? Blockchain's foundational protocols, whether Bitcoin or Ethereum, come with a token model, allowing them to capture the value of the network within the protocol. We can capture the value of the Ethereum network, but the internet does not have this.

Thus, you will never find, if you look at the history of the internet, that during the infrastructure construction phase, so many people thought about participating. Why? Tim Berners-Lee, who invented the World Wide Web, is still struggling; he hasn't made much money from his great invention. However, the founder of Ethereum reserved 550,000 ETH for himself, which, if not sold, would be worth 600 to 700 million dollars today. Therefore, blockchain truly provides an incentive for founders, and this incentive is substantial. This is also a significant reason why so many people have flocked to blockchain over the years. The internet only allows for profit at the application layer, but blockchain enables profit at the foundational layer, which is the biggest difference.

Zhu Zhengguo: Finally, I will try to summarize our dialogue in eight words: "Because we believe, we see." Thank you, everyone!