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Hong Kong Will Be China’s Web3 Wallet

Hong Kong Will Be China’s Web3 Wallet

The components of tomorrow’s economy will be bigger than any state or company. Chinese wisdom speaks about the nature of fire and how quickly it can spread. “A spark can start a fire that burns the entire prairie.” Digital technology has many parallels to the fire element in Chinese and Taoist philosophy; including transformation, energy, and dynamism. Open source software (such as the internet & virtual assets), mobile applications, and Web3 wallets share these fire element qualities which have the power to effect change.

Wise leaders in China see that there is no stopping the fire of virtual assets. They will embrace them, and manage their warm strength rather than ignore and be consumed by them. 

Much like the past, Hong Kong will continue to be the western face of China. This is a beautiful system for China as the cultures and languages are truly so different between herself and the rest of the world. Hong Kong acts as a middle ground because of its British connection, greatly influencing Hong Kong’s economy, society and culture.

For outsiders, getting around a mainland Chinese city is difficult, and doing business in one is even more challenging. Hong Kong is well suited thanks to the widespread use of English, the common law system, and the presence of international people and companies. 

China’s economy has gracefully coevolved with the internet in ways others haven't. WeChat and AliPay are some of the strongest financial networks in the world. Business leaders and government officials integrated the entire economy with the internet. The results are astonishing, with paper currency nearly eliminated over the past decade. From an apple at the fruit market, to a taxi ride, every service and product can easily be paid for through an app. Every single business buys into the same system, without exception. China has successfully created a digital currency system while most countries in the world still rely on credit cards, bank transfers, cash, and even paper checks. China has defined what digital money means in today's age. And they will define what it means tomorrow too.

Those who understand the nature of virtual assets and open source technology see there is no going back once the code is released into the world. The genie is out of the bottle. 

virtual assets in China

What is a Web3 Wallet?

Chinese versions of WeChat and Alipay are financial tools only available to Chinese citizens, but they are not Web3 wallets. To transact in the Chinese economy through these apps, it is necessary to provide proof of Chinese citizenship. Because the current infrastructure is built for a national use case, not an international one, there is demand and room for virtual asset technology to be adopted by these platforms. 

A Web3 wallet is an app allowing people to sign on to websites securely and hold virtual assets. It is the future of online identity and asset management. Consider it your ID and bank account combined into one. A Web3 wallet works similarly to accessing a website using the “Sign in with Google” button. Your identity in Web3 is linked to the financial and data assets in your wallet. 

You can have Ethereum, tokens, NFTs, and social data tied to this wallet. Websites can pull the data from this wallet to provide customized services. Today, Web3 wallets are used primarily for financial applications. The most common current use case for a Web3 wallet is to interact with and fund a trading account. Compare this to the Web2 system of slowly applying for a trading account, using your email and a password, and making a bank transfer to fund the account.

Mainstream financial networks will never be replaced by virtual assets, instead they will be integrated. Society benefits from centralized platforms. Generally, centralized power and control mean changes can happen more efficiently and predictably. In the United States, the largest payment network, Paypal, already integrated virtual assets into their platform. 

In the future, WeChat and Alipay will likely create a Web3 wallet so their billion-plus user base can interact with the web in new ways, increasing the utility and value of the platforms. The data and insights these platforms can collect from transactions will give an even deeper understanding of the habits and patterns of their existing customers.

Predictions for China's Use of Hong Kong as a Web3 Wallet

Virtual asset business is severely restricted in mainland China. If there were no restrictions in place in this early stage of development, there could be potential for societal harm due to misuse of this new technology. At the same time, Chinese officials want to embrace this technology and observe how it can benefit citizens. 

In the near future, it’s expected that all traffic will be directed to Hong Kong. All demand and innovation within this sector will take place in the financial capital of China. Companies will form in Hong Kong providing virtual asset services to residents. Local Hong Kong companies will incorporate virtual assets into their treasuries and business processes. Talent from the mainland will apply for work permits in Hong Kong and begin working in the field.

Mainland individuals or corporations wanting to leverage digital asset technology will need to do so through Hong Kong in a compliant way. This means establishing a business and place of operation here, or partnering with Hong Kong local representatives.

While this significantly increases the barrier to entry for mainland China parties, it creates a safe and controlled environment for the virtual asset economy to flourish, in a petri dish of sorts. 

This will ensure that all activity takes place under the guidance of the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA). These two agencies are well suited to monitor and enforce safe practices because they have experience regulating foreign financial firms for decades. With this system in place, the Chinese government allows the fire of digital asset technology to burn bright in the lantern that is Hong Kong, while managing its strength and observing how it evolves. 

Once a better understanding is established, there will be a safer environment for embracing this technology. Digital assets can be incorporated into WeChat and Alipay, opening up the platforms to international business opportunities. 

web3 wallet Hong Kong

Virtual Asset Patterns in Hong Kong and Beyond

A top priority of regulators is the adoption of virtual asset transaction monitoring tools. Transaction monitoring tools analyze the public transaction data from virtual asset networks such as Bitcoin and Ethereum and map out the flow of funds. These tools compare this data to known addresses and gain insights from big data and common habits and patterns. 

These tools are used by all major exchanges, platforms and governments. Hong Kong’s SFC & HKMA are surely employing several tools to gain an understanding of virtual asset activity in the region. Virtual assets are easily traceable, employing the proper technology to monitor the transactions and analyze the activity will be a common theme. Chinese economic officials will study the patterns of transactions across various networks and develop an understanding of the habits of individuals and corporations.

A concern and hesitation for China to embrace digital assets stems from the country’s capital control policy, which is of great importance and should be respected. For an economy the size and strength of China, there needs to be barriers preventing too much money from flooding the foreign market. Some believe that increased adoption of digital assets will lead to increased capital flight. With or without digital currency, people and companies will always try to do as they please. This can be seen with art, real estate, and complex financial products used in moving value between borders.

While capital may flow out of China, it will flow into the nation as well. Individuals and corporations around the world want to invest and spend money in China. The demand to participate in the Chinese economy is strong, but the current reality is that there are many barriers. People outside of China are restricted heavily from transacting through WeChat or Alipay and are therefore kept out of the system where most Chinese citizens are comfortable.

As the benefits and challenges are weighed by Chinese economic officials, it’s obvious that there are huge opportunities along with the dangers. The route to adopt this technology is underway. While there have been many directives from various agencies on the prohibition of virtual asset activities in China, most notably the SFC and HKMA issued comprehensive regulations and frameworks on the industry. 

It can be viewed as a strong positive sign that PRC authorities have recognized the digital asset economy and have taken steps to tightly restrain its spread throughout the country. This shows a level of respect for the power of virtual assets. There is also an unspoken understanding that no matter what, people will still find ways to use the technology. Due to the nature of the Web3 wallets and open-source technology, placing highly restrictive bans will never have 100% effectiveness.

Web3 and Digital Gold 

Gold is a staple of Chinese culture and the Chinese economy. This is because gold represents many of the values in China. Gold requires hard work to obtain, it is scarce, resilient, and unforgeable. All of these qualities make it a robust asset and store of value used as a highly coveted means of exchange. 

The Chinese Central Bank consistently invests in gold as do other world banks. One reason virtual assets such as Bitcoin are in such high demand is because they share all of the same properties as gold. Bitcoin is often referred to as digital gold due to its scarcity, difficulty to mine, and independence from any central authority.

Bitcoin demand is driven by the same forces that drive gold’s demand. As more people come to this realization, Bitcoin will be a natural alternative to gold, and central banks will also hold it in their virtual vaults. Bitcoin is young, and gold’s status is a result of trading for thousands of years, but they are both self-reinforcing systems. This is called a network effect. People understand gold, so they trust gold. The same is beginning to happen with Bitcoin. Each day that Bitcoin is around, the stronger it gets.

Bitcoin needs to continue to prove itself. Since it is only 15 years old, there is plenty of room for maturation. This also means there is opportunity to be an early adopter. More Chinese officials and citizens will see the obvious resemblance between Gold and Bitcoin’s value propositions, leading to increased demand. For now, virtual assets are only tradeable in Hong Kong. So, all of China will have to look to Hong Kong as their interface into the virtual asset economy, and use the special administrative region as China’s Web3 wallet.


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