India's Web3 "Great Leap Forward"

Source: Huxiu Technology Group

Author: Zhou Zhou

Compared to Japan, India seems more likely to become the "dominant player" in Web3 (referred to as the next generation of the internet).

This month, two "heavyweight players" in the capital markets expressed their preference for India. On June 14, Sequoia launched a venture fund of about $2 billion in India, which immediately set a new record for Sequoia's annual investment scale in India, with some of the funds reportedly earmarked for expanding investments in the Web3 sector; subsequently (on June 19), Binance executive Tigran revealed its development plans in the Indian market, believing that India could become a global hub for Web3 talent.

One is the "uncrowned king" of internet venture capital, and the other is the "absolute leader" in the crypto world. The simultaneous optimism of these two giants towards India is thought-provoking.

Sequoia Capital has invested unprecedented amounts in India and Southeast Asia

This year, Sequoia has shown unprecedented confidence in India, with bets exceeding $2 billion, surpassing the total amount raised in the past five years.

This brings to mind the mobile internet era, where Sequoia Capital, represented by Shen Nanpeng, invested in every segment of the Chinese internet. Now, Sequoia Capital seems to hope to replicate that success, but this time their bet is on India, with the targeted sectors likely being blockchain, crypto, and Web3.

India's Internet "Overtaking on Curves"

India missed the first two phases of the internet but seems destined to catch up in Web3 (the third phase of the internet).

Web3 is an internet ecosystem based on blockchain technology, characterized by decentralization, aiming to give data ownership back to users, thereby uncovering more ways to utilize data and forming a healthier digital economy ecosystem.

The internet is divided into three phases: Web1, Web2, and Web3, representing the continuous enhancement of human capabilities and rights in using data. In the first phase of the internet, ordinary users could only passively receive information; in the second phase (the current mobile internet), users can not only read information but also participate in creating data and information; in the third phase, ordinary users can read, participate, and directly own the data they produce. Web3 not only represents a technological advancement but also signifies an increase in the rights and freedoms of the public in the digital world.

Currently, India, the "underperformer" of the internet, is rapidly catching up on the courses missed in Web1 and Web2, and the results are significant.

Before 2020, mobile internet companies from China and the U.S. had already captured the overseas market, especially in mobile payments and social networking, where companies from both countries reaped the benefits of expanding overseas users, leaving Indian local enterprises struggling against the onslaught of Chinese mobile and internet companies.

However, through local protection policies, India is catching up on this lesson.

According to the latest data from GitHub, India is rapidly overtaking China in terms of newly added tech unicorns. Although India currently has only 94 existing unicorns (the third highest globally), 36 of them were born in the third quarter of 2021 and thereafter. In the same period, China only added 17 new unicorns. According to a report released by EY, in 2021, the number of unicorns in India increased by 44, surpassing the UK to become the third country in terms of unicorn count, with its younger population structure and better IT innovation environment becoming its most competitive advantages in developing new technological ecosystems like Web3.

To some extent, the growth in the number of tech unicorns represents a trend. India has now nurtured a relatively competitive group of internet companies, particularly in mobile payments, where many enterprises have emerged. Paytm, known as India's Alipay, went public last year, and there are numerous local competitors in the mobile payment space.

Just as China needed to catch up on 2G and 3G lessons to overtake in 4G and 5G, India is rapidly catching up on Web1.0 and Web2.0 lessons, attempting to achieve success in Web3. Its performance in mobile internet (especially mobile payments and mobile social networking) has been particularly effective.

India is now ready for the Web3 or new generation of internet technology wave, and its rapidly growing potential is beginning to show. Unlike the mobile internet, India still has significant opportunities in the Web3 value internet sector.

India also possesses some "core capabilities" for developing the next generation of the internet, such as a vast market and favorable environment, a large number of high-quality programmers, and an influx of capital.

India's performance in the crypto market is quite impressive, which may also explain why major international capital is betting on India.

Take the exchange CoinSwitch Kuber as an example; in just nine months, its user base skyrocketed from 1 million to 10 million. This may seem trivial for mobile internet giants, but for still nascent crypto institutions and Web3 companies, it is a "staggering number." For an inappropriate comparison, the most popular Web3 application, StepN, has only 3 million users in the past two years, already becoming a hit product.

Interestingly, the surge in users of crypto exchanges corresponds with a high level of acceptance of Web3 within India. According to the latest report "NFT Gaming Adoption Report" by Finder, which surveyed 43,312 people across 26 countries, NFT games are most popular in India, with 34% of respondents having played them, compared to 28% in Hong Kong and 9% in the U.S. In many other countries, the vast majority of people have not been exposed to NFT games.

Both India and Japan are politically promoting the development of Web3, which increases the public's acceptance of this new generation of technological waves. Indian civil service exams include topics on Web3 and NFTs, and major financial institutions are actively promoting this technological development, such as the Indian Bank launching a $20 million Web3 fund.

In terms of the number of programmers, India is nearly on par with China, attracting many large crypto institutions to "recruit" in India.

India has the second-largest user base globally and the third-largest (close to second) number of programmers, which forms the foundation for its development of the next generation of the internet.

According to the "GitHub 2021 Annual Report," the U.S. has 11.08 million programmers, China has 6.52 million, and India closely follows with 5.19 million. India is almost on par with China in terms of the number of programmers. Coupled with a large user base and a favorable IT environment, India is emerging as the third-largest single internet market after China and the U.S.

Will India become the Web3 center of Asia?

Compared to other Asian countries, India occupies a good position in Web3.

Countries with stronger economies than India (Japan, China) either have fewer programmers than India or have chosen to ban the crypto market; countries with better Web3 environments than India (South Korea, Singapore) have populations and markets that are too small to compete.

Currently, among the major economies in Asia, South Korea has the most relaxed crypto regulations, even not taxing related transactions. On June 20, South Korea announced a two-year delay in the implementation of crypto taxes on digital assets until 2025. The four Asian Tigers seem to be quite proactive in developing Web3, especially Singapore, which is considered the preferred location for Asian Web3 entrepreneurs, addressing various issues from children's education to employment for immigrant entrepreneurs. Hong Kong is also actively laying out the Web3 ecosystem, but with stricter policies.

Overall, there is still a significant gap between the economic scale and market of the four Asian Tigers and that of larger countries. India's hypothetical rival in Web3 is Japan.

Like India, Japan has also shown a strong determination to embrace Web3. They were both "losers" in the mobile internet era, serving as "supporting roles" to the Chinese and American internet. Huxiu previously mentioned in "Japan's Determination to 'Storm' the Next Generation of the Internet" that Japanese Prime Minister Fumio Kishida places great importance on Web3, believing it to be the next generation of internet technology that can lead Japan's economic growth, and stated that efforts would be made to promote the development of Web3 from a political perspective.

In early June this year, Japan enacted the "Revised Fund Settlement Act" to support the development of Web3, and the Prime Minister's endorsement signifies a new height for Japan's Web3 development.

However, Japan's disadvantages are quite apparent, as it lacks a large number of high-quality programmers, its companies often tend to outsource technology, and it has not attracted globally influential capital to help drive technological development.

Of course, India's development in Web3 is not without challenges.

A more intuitive issue is that India imposes relatively high crypto taxes on investors or users, as high as 30%. The Indian government's stance on Web3 development is far from as firm as Japan's; officials from the central bank have stated that cryptocurrencies could lead to some degree of dollarization of the economy. The Deputy Governor of the Reserve Bank of India believes that the intrinsic value of most cryptocurrencies is zero.

Currently, the vast majority of Web3 products are still based on cryptocurrencies rather than actual value, which is a common challenge faced by countries like Russia and Japan.

On one hand, supporters argue that blockchain-based Web3 is the future trend that will further deepen the digital economy; on the other hand, opponents believe that the current technological development has encountered application bottlenecks, with most application-based product entrepreneurs turning Web3 into funding schemes rather than creating applications that genuinely add value to industries and society.

Today, the number of programmers in India has reached parity with China, even showing signs of surpassing it. Its programmer dividend and large population dividend have yet to be fully realized, which is its advantage and foundation for developing and competing in the next generation of the internet. On this basis, capital and strong enterprises are laying out and promoting India's Web3 development.

India is showing positive ambitions in terms of policy, capital, and grassroots environment. However, Web3 is still in its early stages, and India itself has many cultural and institutional drawbacks. Whether it can truly seize this revolution will require more time to provide an answer.