Conflux Co-founder Zhang Yuanjie: Public Blockchain is the Future of China's Web3

As a domestic Web3 Public Blockchain entrepreneur, Zhang Yuanjie, co-founder and COO of Conflux, believes that there are many misconceptions about China's Web3 industry.

"Web3 is just cryptocurrency, and China does not allow cryptocurrency," so there is no Web3 in China. Such statements are prevalent, but cryptocurrency is not Web3; it is merely a hot application within the current application ecosystem of Web3. According to Zhang Yuanjie, the reason for this perception is more due to the fact that "people involved in cryptocurrency hold a dominant voice and authority within the existing Web3 user community."

He believes that the statement "compliance of domestic alliance chains, non-compliance of public chains" is a major misconception, "there is no policy stating that public chain technology is prohibited domestically. The national regulatory authorities have left some opportunities to explore and experiment in this field, which is why we can operate normally in the country." As for the prevalence of alliance chains, he feels that this is entirely the behavior of Internet giants in the Web 2.0 era trying to seize the discourse power of blockchain, because "an alliance chain is just a disguised centralized database, representing outdated technology, and is a continuation of the past Internet data islands and data gatekeeping."

Regarding the current craze for digital collectibles, the chaotic cryptocurrency market, and the DeFi industry, Zhang Yuanjie believes that these do not represent the true Web3. "What Web3 really looks like has not yet been presented; currently, there are only ideas and underlying philosophical concepts, which have not yet been implemented at all."

Key Points of This Article:

1. In today's internet, large companies monopolize data, creating data islands, with traffic costs becoming increasingly expensive. Personal data is divided among a few big companies, and opportunities for internet entrepreneurship are becoming rarer, leading the entire industry into a stalemate. I believe that Web3 actually has opportunities.

2. If applications with daily active users in the tens of millions or even over a hundred million have not yet emerged, I believe the era of Web3 has not yet arrived, and the concept of Web3 has not been truly articulated.

3. Those who always mention tokens and token economics have actually fallen into the trap of money, no longer caring about the most essential daily needs of humanity, and no longer starting from the needs of users, but instead focusing all their attention on how to quickly create and harvest wealth.

4. In the entire blockchain world, true decentralization has never existed; it is more of a process of denouncing trust.

5. The belief that consortium blockchains are compliant while public blockchains are non-compliant is actually a misunderstanding that does not take the national laws seriously, mistakenly treating some of the propaganda from major internet companies as a form of national legal regulations.

6. If Web3 wants to go mainstream and reach more internet users, it needs to find a place to establish itself on Earth, which must comply with local laws and regulations and national conditions.

7. Web3 is just a technical component of internet entrepreneurship, not the whole thing; do not get the order confused.

Current Status of Domestic Public Blockchain Ecosystem

Conflux is a Public Blockchain, which is the underlying infrastructure of Web3. It can be considered a trustless distributed ledger, mainly used for the issuance of digital assets. The development theory of Conflux was established in 2018, and after 2 years of research and development, it was launched. Currently, it has been running for over 2 years without a single network outage and has successfully completed several hard forks.

Conflux mainly focuses on the domestic Web3 ecosystem, with over 8 million digital collectibles issued on Conflux, more than 3 million independent users, serving over 300 brand IPs, and incubating more than 70 companies scattered across the digital collectibles, Web3, and infrastructure sectors.

Last year, after the central bank issued a document to withdraw from digital currency trading, with the clarification of policies, what startups can do has also become clear. In addition, the popularity of digital collectibles over the past two years has led many enterprises to begin their explorations in the Web3 field, which is also a reason for the relatively rapid development of our ecosystem this year.

There are some interesting cases and applications:

Recently, Jay Chou released a metaverse blind box, which includes a previously unreleased single "New York Subway." The blind box has become very popular and even trended on Weibo, making it a typical case of digital assets reaching the general public.

Nayuki's Tea launched a digital human presale card last year and also placed digital collectibles on Conflux, with presale card sales approaching 200 million RMB within three days.

In addition, there are collaborations with some car brands, sports brands, and anime brands, such as Ford Mustang and Qin's Moon, which have made some attempts in Web3.

The field of digital collectibles has become very mature, but the entire market is in a contraction state, and many enterprises are actively exploring how to integrate digital collectibles with marketing, social networking, and the collaborative economy.

One case is the digital collectible application Tao Pai incubated on Conflux, which launched a series of digital collectibles called "Kaotai's Friends" featuring avatar designs. This brand collaborated with a niche fashion brand from France, and their clothing made its debut at Shanghai Fashion Week, attracting the attention of buyers who wanted to place orders for offline sales. Thus, users who hold this clothing's avatar will automatically receive dividends from IP sales. Additionally, once the clothing is produced, all avatar holders automatically become franchisees, with a profit-sharing ratio higher than others. They can participate in distribution through a mini-program. Since it is fully prepaid, they can directly earn commissions. Subsequently, manufacturers will produce clothing based on orders, which exemplifies the typical C2M model ( Customer-to-Manufactory ), with zero inventory and 100% prepayment. Furthermore, it utilizes a decentralized marketing concept and aligns with the domestic economic trend of "using the virtual to promote the real."

There are also gameplay elements that combine with social features. For example, some companies have the following mechanics: holding an NFT allows entry into user groups, and once it is sold, the holder is automatically removed from the group; holding an NFT enables the initiation of proposals and voting, turning digital collectibles into tickets or badges for joining organizations. It can also be combined with offline activities, serving as a pass for the community.

Many companies also want to place their data assets on Conflux. For example, "Black Myth: Wukong" has publicly sold 3D models of game items as digital assets.

There is also the creation of collaborative content. Currently, I haven't seen any good examples, but IP brands like Happy Mahua and Wanwan Meixinde have already collaborated with enterprises in the Conflux ecosystem, trying to attract more entrepreneurs to participate in their creator economy. The creator economy is a very large sector throughout the internet; for example, music copyrights are now basically monopolized by QQ and NetEase Cloud Music, making it difficult for long-tail music producers to earn revenue. Can this issue be addressed through the concepts of NFTs and blockchain? This is something I am very much looking forward to seeing.

Cryptocurrency and Token Economics is Not Equal to Web3

Firstly, although the concept of Web3 has been proposed, the true nature of Web3 has not yet been presented. Currently, there are only ideas and underlying philosophical concepts, and it has not been implemented at all.

Many people say that the older generation in the country are not Web3 users, so I am curious about who exactly the Web3 users are. Are the users trading cryptocurrencies in the crypto circle Web3 users? Some would definitely say no, they are just trading; many say they are users of blockchain. Currently, the largest application on the blockchain, OpenSea, has about 30,000 daily active users. Are these people the Web3 users we need to serve? Are we just creating applications for these 30,000 people? This is still quite far from my vision of Web3.

If we consider the hundreds of millions of users of apps like Facebook, Tencent, Alibaba, and Instagram as Web2 users, and blockchain users as Web3 users, then the potential target users would only be 30,000. Even if we add the users from the crypto space, it might only reach 1 million. I think the Web3 industry is too small and not worth such passionate investment from so many people. We also feel embarrassed to call this the third generation of the internet. I believe this is a significant misconception among many entrepreneurs at the moment, and it has already formed a serious hierarchy of disdain, thinking that the users who have "cashed out," those on-chain, and those who have accepted private keys and mnemonic phrases are the true Web3 users.

The breakout of Web3 has only just begun. Games like "Axie Infinity" and "StepN" have made some attempts, but possibly due to the economic model or the results of user participation and the economic model game, their breakout effect could not be sustained. During their peak periods, the number of users might have been around one million, which is far from the scale of Web3 users I envision. If there are no applications with daily active users in the tens of millions or even hundreds of millions, I believe the era of Web3 has not yet arrived, and the concept of Web3 has not been truly articulated.

When it comes to Web3, it's about token economics, but they are not the same thing.

Web3 advocates for the assetization of personal data, and the assetized data does not necessarily have to have tokens. For instance, the soulbound token ( mentioned by Vitalik Buterin, any online or offline institutions and individuals can issue this type of token to your wallet, which serves as your label and will remain in your wallet forever, non-transferable. Does a non-transferable label have no commercial value? Not at all; countless internet companies can provide services based on your data labels, and many precise marketing business scenarios will be tied to labels, thus creating commercial value. Moreover, the marketing expenses for these precise marketing efforts will not go to ByteDance, Tencent, etc., but will be directly given to the users themselves.

You do not need to compromise your privacy and data to obtain services; instead, your data tags can become your data assets, bringing you commercial value. This is the process by which Web3 embodies the commercial value of data.

Many people trading cryptocurrencies are driven by the idea of making quick money, and indeed, quite a few have accumulated considerable wealth. They hold a voice and dominance within the existing user base and believe that without tokens, there is no Web3 in China.

There are also some GameFi teams that immediately talk about token economics without ever mentioning their game mechanics. The game itself should have a fun mechanism, and then token economics plays a role within it, rather than placing token economics in a primary position.

Those who always mention tokens and token economics are actually just focusing on the money aspect, and they no longer care about the most essential daily needs of humanity. They do not start from the users' needs anymore, but instead, they put all their attention on how to quickly create and harvest wealth. It is precisely for this reason that they want to imitate what others do, only serving these people in the crypto circle, without ever considering that the number of these people is so small and their quality is so poor, because each of them only wants to take advantage of others, hoping someone else will take over.

"Crypto fundamentalism" is actually a term I coined, and there is also a term "crypto capitalism"; both are words I frequently use on social media.

When Satoshi Nakamoto proposed Bitcoin, no one had realized its value; Bitcoin ultimately developed thanks to the dark web's black market. Vitalik Buterin, the founder of Ethereum, found that the most important capital and supporters during his early promotion came from China. During periods of funding shortages in its development, it was the crowdfunding from Chinese retail investors that provided significant help. You will find that those involved come from all walks of life, representing a mix of backgrounds, including internet café owners, second-hand traders, internet programmers, etc., and the funding did not come from professional investment institutions. Even at Devcon5 in Osaka, Japan, the DeFi developers were not mainstream in the industry; they were all technology enthusiasts. Over 50% of Bitcoin's hashing power comes from China, and before Ethereum transitioned to POS, China's hashing power was absolutely dominant. These individuals had no geopolitical considerations and possessed a strong spirit of cryptographic enthusiasm, hence they are referred to as "crypto fundamentalists."

But by 2020, with DeFi being widely validated, stablecoins began to be issued on a large scale on the blockchain, and cryptocurrencies caught the attention of Wall Street and Silicon Valley capital, with firms like a16z entering in large numbers and starting to lobby for more capital and political power to join in. Many new projects no longer raised funds from the public; they were directly contracted by capital, and Chinese cryptocurrency investment institutions were unable to participate. The overall narrative of blockchain shifted from China to the West, of course, due to domestic policy guidance as well as the accelerated involvement of overseas capital. Alongside this, there were also the influences of geopolitical factors and capital, promoting theories about the threat of China's digital currency.

By this time, what was previously represented by digital