Babbitt Column | Bai Span: Risks and Challenges of the Web3 Industry in Singapore

Author: Bai Shipan and Chen Haiyan

Note: This article first appeared on Lianhe Zaobao

Image source: Generated by Unbounded AI tool

Web3 is the new era of the Internet, also known as "Read + Write + Own the Web". Web3 is based on the underlying technology of the blockchain, which is essentially decentralized. Without middlemen or large technology companies, users independently and securely exchange value and information on the network to achieve user participation and control. Solve the problems of monopoly and lack of privacy protection caused by the platform center in the previous Web2.0 era.

As one of the important financial and technology centers in Asia, Singapore has been trying to attract the world's best start-up companies and technical talents, and actively promote the innovative development of the digital economy. In the distributed business economy led by Web3, Singapore has various advantages and huge development opportunities. However, as an emerging industry, while Singapore's Web3 industry is gaining momentum, it also needs to pay attention to the many risks and challenges that this industry, which is still in its early stages of development, faces.

Security urgently needs to be improved

Due to the nature of blockchain technology, Web3 networks and applications are more decentralized, which also brings more security risks. Decentralized applications often use smart contracts to perform their functions. However, since the smart contract code is publicly visible, attackers can interfere with the operation of the blockchain network by exploiting smart contract logic loopholes, using distributed denial-of-service attacks (DDoS) or other attacks that flood websites or network resources with malicious traffic, Then transfer or destroy digital assets.

Although blockchain transactions are encrypted, and the decentralization of data and services reduces the risk of single-point attacks, Web3's extensive network topology-referring to the interconnection of various computer devices including participants, data storage, and interfaces. The layout also exposes data to more risks in multiple places.

In addition, distributed networks require users to improve their self-protection awareness. At present, the main user identity authentication method in the world including Singapore in the Web3 field is "encrypted wallet". If the user's wallet is not properly managed, or the "mnemonic" is leaked, the virtual assets may be stolen or stolen.

Features such as decentralization and anonymity are the cornerstones that drive the development of Web3 technology, but they have also become a hotbed for many illegal activities. In recent years, illegal activities such as money laundering, tax evasion, fraud and drug dealing have become more and more rampant, and blockchain security issues have become extremely prominent.

Regulations and Regulatory Risk

Traditional financial regulators may face technical and expertise challenges when regulating the Web3 industry. The decentralized and distributed blockchain technology of the Web3 industry is far from the centralized and centralized regulatory model familiar to traditional financial regulators. The transaction and management of digital assets include digital wallet management, smart contracts, digital asset transactions, etc. , Traditional financial regulators may not be familiar with the writing and execution of smart contracts, or how decentralized exchanges operate. The complexity of these new technologies and business models can make them difficult for traditional financial regulators to understand and monitor.

At present, because Web3 technology, business models and real-world applications are still evolving, multinational regulators, including the Monetary Authority of Singapore, have not formulated a clear and specific regulatory framework for Web3.

Regulators urgently need to explore and build a new regulatory framework that takes users as the entry point and focuses on smart contracts, and strengthens anti-money laundering and anti-terrorist financing. Maintain national digital sovereignty and prevent distributed networks from becoming "safe havens" for dark nets, illegal trading networks, and money laundering

On the other hand, the government needs to establish common technical standards, including common open source cross-chain technology, to prevent distributed networks from becoming new islands. These standard formulations will provide support and play an active role in the formulation of industry, national, and international standards, and develop the blockchain from a "local area network" to an "Internet" in order to create an interconnected and open network ecosystem.

COMPETITIVE PRESSURE FROM THE GLOBAL

At present, many countries and regions around the world, including Hong Kong, the United States, the United Kingdom, Japan, the Caribbean, the United Arab Emirates, and Dubai, have expressed their views on the development trend of Web3 and intend to become one of the global encryption asset centers. Singapore is facing intense competitive pressure from many countries and regions around the world.

From a market perspective, the development of Web3 markets around the world varies and overlaps. At present, Hong Kong, China is generally considered to be one of Singapore's strongest rivals. Web3 industries such as NFT and Metaverse are developing rapidly in Hong Kong, and a new batch of start-ups led by digital technology has gradually emerged. How to maintain the status of WEB3 core node in Singapore is still facing great challenges.

From the perspective of scientific and technological innovation, in order to occupy a place in this global competition, all regions are actively encouraging enterprises and institutions to make breakthroughs and innovations in this field. If Singapore wants to maintain its competitiveness in the Web3 industry, it needs to strengthen scientific research cooperation, build an innovative and entrepreneurial environment, improve the level of talent training, and create a more complete industrial ecosystem to maintain its leading position in the field of Web3 technology.

The Web3 industry has high requirements for talents. The development of applications based on blockchain technology requires highly specialized knowledge and complex algorithm implementation, involving cryptography, distributed systems, network security, data structures and other fields. There are currently relatively few people with this skill set, making talent acquisition even more challenging. This involves not only technical challenges, but also competition in the talent market.

Singapore has been committed to attracting talents from all over the world. MIT, Google, Tencent, etc. have established research institutions in Singapore; established research and talent development funds; the Monetary Authority of Singapore "Blueprint for Industrial Transformation of Financial Services Industry 2025", etc. At the same time, Singapore builds an open source and open architecture and encourages an "open API economy". The Singapore government and enterprises need to formulate more attractive policy measures to attract and retain high-end talents to promote the further development of the Web3 industry.

User acceptance is slow Market education costs are high

Challenges based on Web3 application security and legal compliance have led many to be skeptical of this new technology. There is no centralized organization to supervise and protect the interests of users, but to rely on the code itself to ensure the correctness and security of transactions. There may be some security loopholes and technical defects, which may not be acceptable in the eyes of the public for a while. An emerging program that guarantees 100% security of personal information and money.

From an audience level in Singapore, the understanding and acceptance of Web3 applications by ordinary users is still limited, and it will take time for people to understand how they work and their benefits. What's more, Singapore is a country facing an aging population, and the use of new technologies is still an unfamiliar field.

But in any case, the technological innovation and market application of the new era represented by Web3 are unstoppable. The next ten years will be a golden age for the digital economy in Southeast Asia, including Singapore. We have reason to believe that the Singapore government, entrepreneurs, and investment institutions will seize the opportunity of the development of financial technology and build a core node in the development of the global Web3 industry. .

The author Dr. Bai Shipan is a visiting professor at the National University of Singapore, the dean of the Li Bai School of Finance, and the former dean of the Monetary Authority of Singapore

Chen Haiyan is the founding partner of Angel Space Capital, a senior investor/media person