Hangzhou bets for blockchain and looks for the next Alibaba

HZ

Li Xiaolai, the Chinese cryptocurrency celebrity has just gained a new title for himself a month ago – founding partner of Grand Shores Capital.

Why is it special? Because it is jointly funded by Hangzhou Yuhang District Government, Future Sci-Tech City Management Commission and Tunlan Investment. Fund scale of Grand Shores Capital reached 10 billion RMB (1.57 billion USD).

Yao Yongjie, chairman of Tunlan Investment, is man behind the curtain for this fund. The way he describes the fund would be “Legendary”.

“I have spent a whole morning on White Valentine’s Day talking about blockchain with Xu Liyi – Mayor of Hangzhou City, and we have come to a consensus that we should set up a 10 billion fund, a blockchain industrial park and a blockchain development institution for Hangzhou.” Yao said.

Hangzhou Government is planning on making a move on blockchain for a long time. 10 days before the meeting between Yao and Xu, Xu Liyi has listed blockchain development into the Official Government Report and Hangzhou became the first provincial capital to include blockchain into government strategies.

After the major regulatory crackdowns on blockchain in 2017, major cities in China such as Beijing and Shanghai have been cautious on blockchain. Therefore, the proactive move made by Hangzhou is quite precious for the industry.

It took only 55 days for an idea to become a reality. As part of the triple plan (Fund, Industrial Park and Institution), Hangzhou Blockchain Industrial Park is officially established on May 8th.

Grand Shores, name of the fund is selected from a Chinese poem and its abbreviation “GS” is same as Goldman Sachs’, so the founders also offered an implied meaning for Grand Shores – to be the Goldman Sachs for blockchain.

With the supports from government, blockchain powers such as Grand Shores Capital is gathering talents to Hangzhou, wishing to take the high ground in advance and looking for next Alibaba. (Alibaba is started from and headquartered in Hangzhou)

 

Stories between Hangzhou and blockchain

As the city government of Hangzhou is making continuous moves towards blockchain now, we might as well take a look back at the histories between Hangzhou and blockchain.

Turn the clock back to 2011, a college student asked a question in Zhihu (Chinese Quora): “How to make an investment with my 6000 RMB on hand?” Among all the answers he received, there was one saying “Buy bitcoin, keep them in a bitcoin wallet, take care of your wallet password, forget about it, and check the wallet five years later.”

This is one of the most famous stories in China’s bitcoin community. The one who made the prophetic answer is called Liu Zhipeng with a pseudonym of Chang Jia. He was a science fiction writer. Chang Jia learned about bitcoin when he was searching for writing materials. He was deeply attracted and started translating bitcoin articles from English to Chinese.

In the same year, an investment bank analyst called Wu Jihan was also attracted to bitcoin and started buying bitcoins. He tipped some bitcoins when he read Chang Jia’s articles. Bitcoin made them know each other and they decided to start making bitcoin better known in China.

They reached out to economist Duan Hongbin, and built the prototype of today’s bitcoin news site 8bit. Then, they translated Satoshi’s bitcoin whitepaper and wrote the first bitcoin-related book in China.

8bit was formally established in 2013 in Hangzhou. As 8bit expanding its influence in the community, Hangzhou became one of the most important city for blockchain enthusiastic fans. They would gather and hold seminars, and encourage each other to hold their faith in bitcoin in the early and turbulent times.

Wu Jihan did not participate the foundation of 8bit in the end, but he was invested by investors from Hangzhou and other cities in Zhejiang Province and built Bitmain – today’s biggest miner manufacturer.

Hangzhou-based VC Tunlan Investment has made an early investment to Canaan Creative and it became one of the biggest miner manufacturer today in China. This deal has built up the position for Hangzhou in the blockchain VC community.

After getting the investment, Canaan also moved to Hangzhou and started their businesses.

 

Next Alibaba?

Canaan Creative has file application to IPO in Hong Kong on May 16th, 2018. They were visited by Chinese regulators and asked to list in China mainland. However, they made the final decision to go public in Hong Kong.

In its IPO prospectus, we can take a peek into the financial statements of Canaan Creative. Thanks to the surge of cryptocurrency in 2017, Canaan’s annual revenue reached 1.3 billion RMB, fourfold of 2016. Annual profits reached 360 million RMB, 6.9 times of 2016.

On the same day, another miner designer and manufacturer in Hangzhou – Ebang Tech was also mentioned by media that they will go public in Hong Kong as well.

Two blockchain companies in Hangzhou were covered with IPO news in the same day. It makes me wonder, will one of them, or one of all the blockchain startups in Hangzhou grow into a next tech giant just like Alibaba. With government’s support and the fast growth of blockchain community in Hangzhou, I would say chances are good.

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Zarc Gin is an analyst for Warp Speed Fintech, a Fintech, especially InsurTech-focused Venture Capital based in China.

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