When the Octopus card was launched in September 1997, this home-grown electronic payment system arguably became the most notable hi-tech application to come out of Hong Kong. It became a symbol of what could be accomplished in a city with world-class infrastructure, the rule of law, business-friendly policies and an expanding pool of skilled talent.
Broad public acceptance enabled the contactless smart card to extend its use from the city’s public transport network to the retail sector, tolled tunnels, parking facilities, schools, and even for access control in residential and commercial buildings, according to operator Octopus Cards. Its technology has since been adopted in various projects on the mainland, the Netherlands, the United Arab Emirates and New Zealand.
At a time when there are other major electronic wallet options in the market, most Hongkongers – 70 per cent of 6.3 million qualified residents – last year chose the Octopus digital payment platform to store their HK$5,000 consumption vouchers from the government. About 30.4 million Octopus cards were in circulation across the city as of December 31, 2020.
But nearly 25 years later, the hope that another “Octopus moment” would occur in Hong Kong has failed to materialise.
Fulfilling that aspiration has recently been complicated by a series of disruptive events: the anti-government protests in Hong Kong, the US-China trade war, the coronavirus pandemic, restrictions imposed under the city’s “dynamic zero-Covid-19” policy, an economic slowdown and a brain drain amid a recent wave of emigration.
A segment of Hong Kong’s technology industry, however, suggests potential breakthroughs from a new wave of digital-first enterprises, several years after the likes of artificial intelligence software company SenseTime and on-demand logistics services provider GoGoX Holdings, formerly known as GoGoVan, made their mark on the city.
“We have recently seen some exciting innovations in Hong Kong’s tech sector,” said Yat Siu, co-founder and executive chairman of Animoca Brands, a major video gaming and venture capital firm based in Cyberport.
“Industries related to the metaverse and Web3, including NFTs [non-fungible tokens], have been taking off during the last couple of pandemic years,” Siu told the . “Many new start-ups have emerged in this space, in areas such as play-to-earn, virtual real estate and esports.”
The metaverse refers to an immersive virtual world, where digital representations of people can interact with each other like they do in real life. Web3 refers to the new version of the World Wide Web that is based on decentralisation and blockchain, the digital ledger technology behind cryptocurrencies like bitcoin.
NFTs generally refer to unique strings of blockchain-registered data that represent a digital file’s ownership. As such, NFTs are considered valuable because people can buy and trade these digital assets like physical items.
“NFTs represent the future of digital property and the metaverse,” Siu said. “This space is still young, so there’s plenty of opportunity for anyone with an enterprising attitude. It’s one of the best areas that people should consider to develop their careers and explore new ideas.”
Animoca – which was listed on the Australian Securities Exchange from January 23, 2015 to March 9, 2020 – has already made more than 200 investments in various NFT-related blockchain companies, including popular NFT marketplace OpenSea, NBA Top Shot digital collectibles maker Dapper Labs and metaverse platform Alien Worlds.
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“Overall, I think Web3 is exciting and will eventually touch every industry,” said Casey Lau, co-founder of trade and development group StartupsHK, which has about 5,000 members.
“The market has changed so much from Web1, although we didn’t really conquer all the issues in Web2,” said Lau, who also co-hosts the RISE tech conference in Hong Kong. “So we need to keep moving forward.”
Web1 refers to the earliest version of the internet, following its development under an initiative of the US government’s Defence Advanced Research Projects Agency. Web2, meanwhile, describes the current state of the internet, which has more user-generated content and ease of use compared to its earlier incarnation.
A vibrant community of metaverse and NFT enthusiasts has already formed in Hong Kong. Artists have adopted cryptocurrencies to sell their artwork as NFTs, while various cartoon avatar projects are vying for people’s money and attention.
The Hong Kong-based Metaworld Development project, for example, was launched in March to entice people to invest in NFTs that serve as shares of expensive virtual land created in metaverse platforms Decentraland and The Sandbox, a subsidiary of Animoca. The Metaworld team’s strategy includes trading its virtual land portfolio, renting them to major brands and then distributing the capital gains back to the holders of the NFTs.
In the same month, the spun off an independent blockchain venture, Artifact Labs, to turn historical art, photographs and content from Hong Kong’s 118-year-old English-language newspaper into tradeable NFTs. As an independent entity, Artifact Labs can help turn the property of other organisations, including schools and museums, into digital collectibles.
The ’s initial collectibles project – the “1997 Premium Series”, which generated sales of about US$126,000 in March – was developed using a blockchain metadata standard called ARTIFACT that was designed for historical and archival NFTs. This collection was built on Flow, a blockchain developed by Animoca-backed Dapper Labs. A second collection from the same NFT series sold out in just over two hours in April.
That project’s success showed continued growth momentum for NFTs. The past year saw a boom in the NFT market, the value of which has exceeded US$40 billion, according to blockchain data platform Chainalysis. American artist Mike Winkelmann, known as Beeple, got the ball rolling for NFTs among art collectors in March last year, when his digital artwork undefined sold for US$69.3 million at a Christie’s auction.
Earlier this month, internet firm Yahoo and Facebook owner Meta Platforms provided a boost of confidence to Hong Kong’s nascent metaverse sector. Meta, which also owns Instagram and WhatsApp, said the city will serve as a testing ground, where it will roll out initiatives to explore the potential use of the metaverse in daily life. That was followed by Yahoo’s announcement to launch a series of metaverse activities to explore immersive advertising technologies and release a limited amount of NFTs.
While Web3 and the metaverse are expected to have an impact on potential local innovations and more broadly, the evolution of the internet, there are other enterprises in great need of funding and government support, according to Paul Haswell, a partner who advises technology companies at international law firm Seyfarth Shaw in Hong Kong.
“Hong Kong’s tech sector operates on two levels,” Haswell said. “There’s the flashy new tech, such as NFTs and the metaverse, which are seeing plenty of new investments, and there are the innovators working to change the way we do business, protect our health and live our lives.”
“So before investing in an NFT of a cat, consider investing in a new health tech start-up or a company seeking to fight climate change,” he said. “Instead of using NFTs to sell pictures of chimps, think of how they could be used to revolutionise Hong Kong’s various records systems or even property transactions.”
The heightened interest in NFTs and the metaverse has already made the space fertile ground for fraud and scams, with victims having little recourse because regulators have been slow to catch up with rapid market developments.
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In February, risks involving NFTs and the metaverse were identified as part of key security threats to look out for this year, according to the government-run cybersecurity watchdog Hong Kong Computer Emergency Response Team Coordination Centre. It warned that criminals could steal sensitive user information or access their accounts to hijack money, either at the point of transaction or where it is stored.
The investment frenzy has already supercharged criminal activity in that space. The total value of cryptocurrencies scammed by illicit online addresses via phishing reached US$14 billion last year, according to Chainalysis.
On June 6, Hong Kong’s Securities and Futures Commission said that some NFTs constitute investment products that must be regulated, and warned investors of the risks involved with investing in such tokens.
Hong Kong securities watchdog says some NFTs will require licences
Still, debate about the advantages of the nascent NFT and metaverse space over initiatives in traditional industries takes a back seat to what could be Hong Kong’s biggest impediment to seeing another Octopus moment – a looming shortage of skilled labour, especially in the tech sector, brought about by the city’s brain drain.
Companies have been wrestling with a brain drain amid a recent wave of emigration, with nearly two-fifths of firms polled by the Hong Kong General Chamber of Commerce saying they have experienced an adverse effect on their operations.
Last year, 38,167 Hongkongers applied to police for certificates of no criminal conviction, a requirement for emigration to Canada, the US and Australia. The last time applications were so high was 1989. Data from the Immigration Refugees and Citizenship Canada, for example, showed that 3,444 Hongkongers were granted permanent residency in that country in 2021, more than double the number in pre-pandemic 2019, and 15 times that of 2010.
“Talent recruitment is the biggest long-term challenge for Hong Kong right now,” Animoca’s Siu said. “The city is still constrained by travel restrictions, while the rest of the world is opening up and enabling people to do business. The loss of diversity and creativity is a tragic development for business, culture, education and virtually all aspects of society.”
Stringent anti-pandemic restrictions have contributed to the exit of business talent, the outgoing Hong Kong Chief Executive Carrie Lam Cheng Yuet-ngor said in March. This exodus of expats has forced a growing number of local firms to seek fresh talent overseas.
“We will have to see what happens now that pandemic restrictions are further easing,” Seyfarth’s Haswell said. “Investments into the Greater Bay Area and the city’s Northern Metropolis scheme may help encourage talent to return to Hong Kong.”
As more economies around the world open up, Hong Kong is expected to follow suit, providing a platform to create and push new innovations. “There’ll always be 21-year old fresh grads from good schools who want to begin their career in Asia,” Lau of StartupsHK said. “Hong Kong will remain a viable launch pad for them.”