China’s shifting approach to Web3 – an interview with Toby Rush

China’s long-standing ban on cryptocurrencies might give the impression the country is not a hospitable environment for innovation in Web3. But the reality on the ground in Chinese tech companies points to the opposite. Recent government communiqués place as much importance on Web3 as they do AI, with one white paper released earlier this year calling it an “inevitable trend for future internet industry development”.

To demystify Web3 and find out more about how China’s approach towards the technological vision is shifting, we spoke to Toby Rush, a twenty-year tech industry veteran with extensive experience as both a founder and an investor.

Previously, Toby Rush served as senior director for the International Technology Investments Team at Ant Group, the payments subsidiary of Chinese tech giant Alibaba Group. Prior to that, he was CEO of ZOLOZ, an Alibaba digital identity platform. ZOLOZ evolved from EyeVerify, which Rush founded in 2012, and which became a wholly owned subsidiary of Ant Group in 2016 after creating a novel eye-based biometrics used by Wells Fargo, RSA and Citi. EyeVerify was acquired by an affiliate of Chinese tech conglomerate Alibaba for $100 million in 2016.

He also co-founded and led Rush Tracking Systems, a computer vision and RFID solutions venture, to a successful exit to a Private Equity firm. Toby has a BS in Engineering from Kansas State University and lives in Kansas City, Kansas.

What’s your definition of Web3?

In Internet 2.0, data always lived inside someone’s company. Internet 3 (or Web3) is: we’re going to let the data live with the consumer, outside the walled gardens of those tech companies. We’re going to allow everyone else to innovate without the restrictions of those bubbles of data.

Besides cryptocurrencies, there’s a whole other world of implementations of blockchain that we can collaborate around – that’s what we call Web3

The fundamental technology is all blockchain. In the blockchain, we can operate without having to say the words “Just trust me”. It’s an amazing set of tools that allows for trust to be codified. One thing you’ll hear a lot in the blockchain world is “Law is code and code is law”. It’s open source, everyone can see it, so there’s a level of trust in how these systems operate.

One implementation of the blockchain is cryptocurrencies, but that is not the only use of blockchain. There’s a whole other world of implementations that we can now collaborate around – that’s what we call Web3.

Traditionally, if someone has a piece of data it’s in Alibaba, Tencent, Weibo – it’s in one of these platforms. You have to go into the walled gardens of these platforms in order to operate, understand, and trust that data. The companies set all the rules and, by the nature of companies, they’re always going to set rules that benefit themselves.

But with blockchain, I can say “I own this data, it is mine”. The types of data that could live this in this open ecosystem could be a ticket to an event, an educational certificate, credentials, a title to a piece of real estate, a warranty to a product I purchased, or an insurance policy – you name it.

The recent Web3 white paper from Zhongguancun Science Industrial Park has been heralded by some as an about-face in China’s approach to Web3. Do you agree?

So I would disagree that it’s a big turn. I think it’s a great clarification. When I was working at Ant Group on their investments team back in 2017, my core focus was blockchain. In 2017, everybody was already agreeing that blockchain technology and the use cases it enables are going to be incredibly important. Alibaba was not alone in that, every company in China was thinking that way.

The challenge was cryptocurrencies got loose in China. The government basically said, we’re not cool with cryptocurrencies and we’re not cool with speculative NFT buying and selling. It got way out of control, and they said Stop, that’s not what we want the technology to do. So they did put a big pullback on certain use cases that run on blockchain, particularly cryptocurrencies and NFTs as a speculative purchase, just because a lot of people didn’t understand it and there was a lot of fraud happening.

China is trying to redirect Web3 development to use cases of blockchain that are more beneficial to society

I think what this white paper has done is kind of re-emphasize the message “We still believe in blockchain, we still believe that Web3 is the future”. But it did not say “We’re going to open the world to cryptocurrencies, come on in!” The paper communicates that this is a powerful technology but the core is Web3, it’s not cryptocurrencies. I think they’re trying to redirect people to use cases of blockchain that are more beneficial to society and the citizens.

What are the key differences you see in China’s approach to Web3 compared to other countries?

With Internet 2.0, if you want to enforce rules on how data is used, how applications are used, what services are enabled etc., there’s always a company behind the information you want to regulate, which the regulators can put a hand on and say “This is how this needs to work. We’re going to put regulations on information and here’s what you have to do to comply.”

If it’s in blockchain, there isn’t always a company. Data lives out in the open. So, how do you control that? What China is doing is rolling out what’s called a “permissioned blockchain”, which is not completely open. It has many of the same technical benefits, but the Chinese regulators maintain pretty tight control over what can and can’t happen on the blockchain. As for the rest of the world, it’s wide open, which is both good and bad. It’s the wild wild west. You get a lot more innovation, but you do get more fraud, you get criminal activity.

What was your experience working in Chinese tech companies – first as CEO of ZOLOZ and then leading the International Technology Investments Team at Ant Group?

I had a great experience. When you’re not in China, its really hard to know the reality. But I have lived experience of working directly with executives at Ant and Alibaba. I was very impressed, they’re super creative and are always thinking about how to help small business owners and individuals. They definitely think at scale and they’re moving fast.

I also saw how challenging it was. There are a lot of strict regulations they have to operate with. At Eye Verify (founded in 2012 and acquired by an Alibaba subsidiary in 2016), we thought we were pretty good at data privacy before we got acquired by Ant Group, but after the acquisition it was far more rigorous.

What do you see as China’s key challenges in actualising the potential of Web3 going forward?

At a macro level, the crackdowns that fintech experienced over the last two years scared a lot of venture capital. From an investor’s perspective, it’s hard to figure out what is going to be the mood of Beijing on any given topic in three or four years from now. Beijing has actually been quite consistent, but the challenge is going to be: “How quickly will capital from outside of China flow back into China?”.

But long-term, I think the potential for Web3 is really good in China. They have such an innovative culture in the tech scene and I think Web3 is going to create a new groundswell of innovation there. China’s tech scene gets an unfortunate characterisation of “Oh, they just copy and steal other people’s ideas”. Some of that happens as it does everywhere, but that was not my experience at all.

With their userbases and data, tech giants like Alibaba, Tencent, or ByteDance have the ability to lead Web3

How do you think current tech giants like Alibaba, Tencent, or ByteDance will have to adapt to Web3?

They will need to shift for sure, but not massively. Some old revenue streams might go away, but new ones will also come up. Because they’ve already got the userbase and the initial data, they’ve got the ability to lead and transform their business models. It will take some time for companies to work out how to bring some of these new blockchain use cases to market, it won’t happen overnight. So they will cannibalise a piece of their business, but I think the new opportunities for them are much, much bigger.

What do you think are the most exciting uses of Web3 either now or in the future?

In my opinion, there haven’t been massively successful use cases of Web3 yet. The whole world got punched in the nose by FTX (Futures Exchange, a cryptocurrency exchange and hedge fund that collapsed in 2022 after a liquidity crisis) and just the greed that happens when there’s no guardrails on the system. So we’re still recovering from that. I think the use cases we’ll see first will be around consumer/fan engagement. Brands and artists can go directly to consumers and not be blocked or mediated by the big platforms.

Can you explain how your product Redeem can help make Web3 a reality?

What we’ve done is transform your phone into a key that unlocks and secures your digital world. We’re trying to move away from passwords and accounts – someone can always phish those details from you and hack into your account. The issue as we move into holding data in open ecosystems is: how do you prove ownership of that data, of NFTs?

Well, NFTs live in digital wallets, and those wallets have to be owned by a person. Every person has a phone, and every phone has a phone number and a SIM card that strongly binds that phone number to that specific device. At Redeem, we want to make it really easy for users to prove ownership of assets simply with the possession of their phone. We want to allow consumers to engage in the digital world in a seamless yet very secure way.