Designing
New Context
Designing
New Context
The web3 market was worth approximately 7.71 billion dollars in 2022, and is predicted to reach roughly 64.39 billion dollars by 2029. web3 has the potential to change business models from the ground up and transform social structures through blockchain and other innovative technologies. Many people in Japan have been talking about crypto assets and non-fungible token (NFT) art.
However, companies encounter many challenges when entering the web3 field. Jun Tanaka is Chief Operating Officer of Crypto Garage, Inc., which has been involved in crypto assets since 2018, the early stage of this industry. We spoke with Tanaka about what companies should know before starting a web3 business, and possibilities for new businesses that will be created going forward.
Chief Operating Officer; Crypto Garage, Inc.
Jun Tanaka
After graduating from the University of Tokyo’s Faculty of Law, he has worked in investment banking and anti-money laundering compliance at Citigroup Global Markets Japan Inc. He joined Crypto Garage in 2020. Certified Anti-Money Laundering Specialist (CAMS).
A blockchain is a decentralized network, not controlled by a specific entity, that uses cryptography to process and record transaction ledgers. Crypto assets, such as Bitcoin and Ethereum, are based on blockchain technology. “web3” refers to new business models utilizing such digital assets. An example is NFT art, which has recently caused a stir.
The decentralized nature of the web3 Internet is its major characteristic. During the Web2 era, power was centralized among Big Tech companies that collect and control user data, like Google, Facebook and Amazon. With web3, users are now able to store, manage, and share their own data via decentralized applications.
These innovative technologies are highly compatible with crypto assets, the field in which they were first used, and today there are more than eight million crypto wallets in Japan. The number of accounts has grown by around one million over the past six months, and is expected to keep increasing. However, many companies are questioning whether this trend is a temporary phenomenon, or if it can be incorporated into sustainable business models.
When asked about the current state of web3 businesses, Tanaka replied, “In some ways, I feel like we haven’t even reached the starting line.” web3 is more than the early blockchain-based ideas that have drawn so much attention, such as crypto assets and NFT art. Because these autonomous, diversified systems make it extremely difficult to falsify information, they can be used in a wider range of fields. This includes use cases such as distributing and administering regional currencies from local governments; managing property records; recording, releasing, and managing information about births, marriages, and address changes; and tracking products from manufacturing to distribution and sales.
“Today, web3 resembles the dawn of the Internet,” says Tanaka. Companies are using web3 technologies in various ways. They are incorporating blockchain technology into their products, and are doing research and training development engineers to provide reliable services, based on the view that web3 will become a type of infrastructure in the not-too-distant future.
As mentioned before, web3’s unique feature is its use of autonomous distributed systems, indicating that it may be possible to break free from the traditional centralized power structure. In this way, web3 can be regarded as the antithesis of Web2. It might seem like Web2 makes it easier for companies to manage and utilize information. If so, why are they interested in blockchain and actively trying to implement this technology? Tanaka explains, “There are several driving factors behind this.”
One factor is increased trustworthiness and transparency. Along with the transparency of blockchain, its structure means that data is not easy to falsify. This allows companies to increase transparency in their business processes, and strengthen trust with their customers and clients. Blockchain technology seems to be particularly effective in sectors where accuracy and trustworthiness are of premium importance, such as finance and supply chain management.
Companies have benefitted from acquiring customer data, but this also puts them at risk. Blockchain can significantly improve the efficiency of processes for verifying and recording transactions, which should lead to significant cost cuts. This may lighten the burden of data management and enhance overall system security.
Another factor is that these new possibilities can encourage cooperation with other companies and developers, generating synergistic effects that benefit all parties. Blockchain-based platforms and applications facilitate open innovation and new partnerships between different industries. This value is maximized in collaborative projects with a diverse range of participants.
One example is distributing NFTs to people who buy products. Over the past few years, many companies have been testing this through proofs of concept. For example, a soft drink manufacturer could include NFTs with its products. Then, a different confectionary manufacturer could implement new promotional measures targeted at these NFT owners, leading to synergy between the two different industries. Blockchain-based NFTs can be used for joint marketing between different businesses, and can create opportunities for both to expand their customer bases.
Blockchain is useful not only for business companies, but also for local public bodies, labor unions, data banks, and many other groups and industries. Organizations can improve their existing services and reach out to new targets by leveraging the special characteristics of blockchain according to their goals and user needs. Blockchain is not just a type of technological innovation; it generates new relationships and cooperation throughout organizations and society as a whole, and can majorly impact future business models and organizational management.
Many companies can create new opportunities by entering the web3 field, but they may encounter hurdles when trying to do so. Tanaka says, “These obstacles can be divided into two main categories.”
The first obstacle is technology. The company must develop new blockchain-based systems, which have fundamentally different structures than traditional Web2 systems, including transaction processing and data synchronization. “Crypto Garage has provided technical support to many companies. We provide services that help reduce technology-related issues that can make entering the web3 businesses difficult.”
Regarding the second obstacle, Tanaka says, “The technological issues are somewhat easy to imagine, but it’s hard to picture the governance and regulatory considerations you have to deal with before starting a business.” Blockchain records ledgers of all transactions, which indicate who previously bought and sold crypto assets owned by the company, and where the transactions took place. There are good and bad parts to this; it is possible that a company might obtain crypto assets that used to belong to anti-social forces and other illicit individuals/organizations, which would be recorded in their ledgers. Accordingly, companies must deal with new types of circumstances they have never encountered before.
Crypto Garage is registered with the Japanese government as a licensed crypto asset exchange service provider, and is capable of storing digital assets in a safe manner. This company is unique because it is more than a developer; it has experts specialized in blockchain-related laws, taxation, and financial crime prevention. Its consulting, development, maintenance, and management services are used by clients in a wide range of industries, such as entertainment, finance, and manufacturing. In this way, it continues building up all sorts of knowledge.
It is expected that web3 and crypto assets will come into more widespread use as a natural part of our daily lives. For example, enhanced digital identities, stronger data ownership rights, and better transparency—along with the ability for users to control their own data and assets—could lead to the creation of a brand-new Internet. Progress in technologies such as NFTs and DeFi (an umbrella term for blockchain-based, decentralized financial services) may help democratize finance and build the creator economy.
Crypto Garage assists many companies in the web3 field. Going forward, Tanaka says they want to “use blockchain technology to build an environment for mutual participation by companies and individuals, and to invigorate the industry as a whole.” Crypto Garage hopes to utilize the unique characteristics of web3 to bring together companies and users who have never interacted before, leading to new economic activities and social synergy.
Tanaka says that web3 will become a tailwind in Japanese industries with valuable intellectual properties, such as anime, manga, and video games. It may be possible for video game companies to work together to acquire new users by offering blockchain items that can be obtained in one game and used in another. There is definitely room for Japan to start a movement in the web3 field, which matches well with the intellectual property business. However, there are still some issues to solve.
“When I travel to the United States, I get the sense that Japan is one or two years behind when it comes to web3. Progress has been slow, even though the Japanese government is proactively creating web3 policies and there are plenty of talented engineers. I think there are several reasons for this. For instance, services must comply with strict Japanese regulations.”
Companies have to register as crypto asset exchange service providers to do business in this field. They must keep customer and company assets separate, just like banks and securities companies; analyze the rights represented by NFTs; and understand what laws apply to business transactions, including consumer protection laws.
On the other hand, compliance with these regulations signifies the ability to provide safe, high-quality Japanese services. We will likely need more companies that can develop and provide web3 services when it becomes a type of infrastructure. This is merely the dawning of the web3 era—companies still have time to develop businesses that make use of blockchain’s unique features. A new game changer might even emerge from Japan.
As a company registered with the Financial Services Agency, Crypto Garage provides financial services and helps clients solve challenges and create businesses utilizing blockchain. Crypto Garage can discuss topics related to technologies, regulations, and governance, and also answer questions about how to get started in this field. It holds workshops for businesses to get hands-on experience with crypto assets and NFTs.
