Forward the original title: CGV Founder Steve: “The Lost Three Decades” as a Lesson: Japan’s Web3 Industry Must Guard Against Similar Pitfalls “Making a Buddha statue but not putting in the soul”

“In my opinion, Japan’s current development in the Web3 space is akin to the Japanese proverb ‘Making a Buddha statue but not putting in the soul’ , which means: ‘They made a Buddha statue, but didn’t breathe life into it.’ Although the Japanese government has done a lot of work in drafting Web3 policies and setting standards, there are clear shortcomings in actual implementation and critical steps.” — Steve, Founding Partner of Japanese crypto fund CGV

As CGV Founding Partner Steve has pointed out, while Japan has quickly embraced Web3 technologies and rolled out supportive policies, the deeply ingrained conservative culture and complex bureaucratic systems have made the pace of innovation unusually slow.

This cultural tendency is rooted in Japan’s societal preference for stability and risk avoidance. Both companies and government institutions often opt for the safer path rather than boldly exploring emerging technologies. As a result, despite Japan’s rapid adoption of new technologies on the global stage, the commercialization process often lags behind, making progress slow and halting.

I. Japan’s Historical Lessons: The Reality of “Tech Enthusiasm” vs “Slow Transformation”

The Meiji Restoration: Technology Introduction and Modernization Challenges

The Meiji Restoration (1868) was a pivotal moment in Japan’s modernization. By importing Western military, industrial, and educational systems, Japan initiated rapid modernization. However, this process came with significant challenges in absorbing and transforming these technologies. While Japan learned advanced technologies from the West, fully internalizing them into indigenous innovation capabilities was a lengthy process.

For instance, during Japan’s industrialization, large-scale adoption of British and German railway technologies led to frequent breakdowns and high maintenance costs due to a lack of local expertise. It wasn’t until the early 20th century that Japan gradually mastered railway technology, achieving localized innovation and improvements.

Post-WWII Technological Imports: From Imitation to Independent Innovation

After WWII, Japan experienced rapid development through its “economic miracle,” one of the key factors being the rapid importation and application of external technologies. In the 1950s, Japan imported automotive and electronics technologies from the U.S. and, within just a few decades, became a global leader in these fields. However, this journey was not without its hurdles. In the early post-war years, much of Japan’s automotive and electronics production was a direct imitation of Western designs, lacking independent R&D capabilities. For example, Toyota’s early post-war production lines closely mimicked those of American companies Ford and General Motors. Yet through continuous improvements, Japan developed “lean manufacturing” and eventually established global leadership.

In the electronics industry, Sony is a prime example. In the early 1950s, Sony introduced its first transistor radio, a technology initially developed by Bell Labs in the U.S. By improving its size and sound quality, Sony successfully penetrated international markets and became one of the iconic examples of Japanese innovation. Through ongoing imitation, improvement, and innovation, Japanese companies transformed from mere followers into global leaders — a process that took decades and significant resources.

The Lost Three Decades: Waning Innovation and Gradual Loss of Competitiveness

The burst of the economic bubble in the 1990s marked Japan’s entrance into what is often called the “Lost Three Decades,” during which its economy stagnated, and innovation and global competitiveness declined. From 1990 to 2020, Japan’s GDP growth remained sluggish, while emerging economies like South Korea and China surged ahead, surpassing Japan in many high-tech sectors. For example, in 1995, Japan’s semiconductor industry held over 50% of the global market share, but by 2020, this figure had plummeted to less than 10%.

Historical Data of the TOPIX/S&P 500 Index Ratio / Used as an Indicator to Measure Japan’s Stock Market Position Globally / Data Source: Daiwa Institute of Research

The reasons for this stagnation lie in Japan’s overly conservative approach to technological commercialization, with sluggish reactions to new markets and emerging technologies. For instance, electronic giants like Panasonic and Toshiba failed to adjust their strategies in the face of smartphones and new semiconductor technologies, eventually being outpaced by global competitors like Apple and Samsung. At the same time, Japan’s bureaucratic system exacerbated this innovation paralysis, as companies often spent years navigating government approvals, licenses, and compliance processes, rendering many projects sluggish and unresponsive to market changes.

In the automotive sector, although Japan maintained competitiveness through the late 20th century, the electric vehicle (EV) revolution allowed newcomers like Tesla to capture market share rapidly. Japanese companies such as Toyota and Nissan were slow to respond, only beginning to roll out EV models in recent years. In 2020, Japan’s market share of electric vehicles was only 1.1% globally, compared to China’s 44% and Europe’s 28%. This slow transition illustrates Japan’s conservative approach to technological shifts, further contributing to its loss of competitiveness during the “Lost Three Decades.”

In summary, while Japan historically experienced rapid starts by importing external technologies, transforming these technologies into independent innovation capabilities has faced challenges rooted in culture, systems, and markets. These lessons offer profound insights for the development of Web3 today — if Japan cannot swiftly break free from its conservative culture and bureaucratic constraints, it risks missing out on the next wave of technological revolution.

II. The Current State of Japan’s Web3 Development: Quick Response, Slow Implementation?

Policy-Driven Quick Response and Strategic Intent

In 2023, the Japanese government released the “Japan Web3 White Paper,” detailing its development plans for blockchain and digital assets, aiming to create an environment conducive to Web3 technology through policy support. In 2024, the government passed a bill allowing venture capital and investment funds to hold crypto assets. These policies reflect Japan’s strategic intent to leverage Web3 technologies for its digital economic transformation.

The rapid rollout of policies is also driven by the need to compete with other countries, such as Singapore and South Korea, which have made significant strides in blockchain and digital assets. Japan aims to attract global Web3 companies and talent to avoid being marginalized in the new technology race.

Mainstream Corporate Participation: Web3 Initiatives from SONY to SBI

Several major Japanese companies are actively involved in the Web3 space. For instance, Sony has established a dedicated department focused on blockchain technology and NFTs, leveraging its strong presence in the entertainment industry to explore new business models that combine digital assets with music, film, and more. In August 2024, Sony’s Singapore-based subsidiary, Sony Block Solution Labs Pte. Ltd, launched a second-layer scaling system for Ethereum called Soneium.

Soneium Ecosystem’s First Web3 Partners / Source: Soneium’s official website

SBI Holdings (formerly the financial investment division of SoftBank Group) is one of the first Japanese financial institutions to enter the cryptocurrency space, with investments in blockchain payments, digital asset management, and more. SBI Holdings also collaborates with Ripple to enhance cross-border payment systems using blockchain technology. Additionally, SBI has established a dedicated blockchain investment fund to drive innovation in Japan’s blockchain sector.

The NTT Group, meanwhile, is focusing on infrastructure, with plans to develop a high-performance communications network to support Web3 applications, ensuring sufficient bandwidth and stability for future blockchain applications. In 2024, NTT announced partnerships with several Web3 projects to explore the use of blockchain in smart cities and IoT solutions.

Delayed Regulatory Implementation: Complex Legal Framework and Compliance Challenges

Despite the Japanese government’s proactive policies supporting Web3, the complex regulatory and compliance framework presents significant obstacles for many businesses. The Financial Instruments and Exchange Act (FIEA) and the Payment Services Act impose stringent requirements on crypto assets, including strict anti-money laundering (AML) and Know Your Customer (KYC) obligations. This regulatory complexity means companies face high costs and long delays in obtaining licenses and approvals.

According to 2024 data, over 70% of Web3 companies cited compliance costs as a major barrier to market entry, with compliance spending averaging over 20% of total costs. These high costs, especially for resource-constrained startups, are a significant burden.

Moreover, listing new projects on Japanese exchanges faces rigorous regulatory scrutiny. The Financial Services Agency (FSA) requires exchanges to thoroughly vet each project before listing. According to industry surveys, the average time for listing a new project on a Japanese exchange is 9 to 12 months, whereas in other countries, the process typically takes only 3 to 4 months.

Lack of Innovation Capacity: Talent Shortages and Global Competition

Japan is facing a significant talent shortage in emerging fields like Web3, especially compared to other countries. According to LinkedIn’s 2023 Global Blockchain Talent Report, Japan has only one-tenth the blockchain talent of the U.S. and less than one-quarter of South Korea’s. This shortage of skilled developers and technical experts is a key bottleneck in Japan’s Web3 industry development.

The root of this talent gap lies in Japan’s education system, which has placed insufficient emphasis on emerging technologies. While Japanese universities excel in traditional engineering disciplines, they have been slow to invest in blockchain, smart contracts, and other cutting-edge fields. Additionally, Japan’s conservative corporate culture makes it difficult to foster and retain innovative talent, as many young people lack the courage to take risks and embrace failure.

III. How Can Japan Break Free from the “Making a Buddha statue but not putting in the soul” Dilemma?

Enhance Policy Execution: Streamline Processes and Improve Interdepartmental Coordination

To address the issue of delayed policy execution, the Japanese government needs to take specific measures to enhance its policy enforcement. First, the approval processes should be simplified to reduce unnecessary bureaucratic hurdles, especially in the regulatory treatment of innovative technologies. For example, a dedicated Web3 fast-track approval process could be established to provide accelerated approval services for blockchain and digital asset projects, thus shortening the time from project inception to implementation. Furthermore, improving interdepartmental cooperation is crucial. The government can establish cross-departmental working groups specifically tasked with driving Web3 policy implementation, ensuring smoother collaboration across agencies and reducing friction and delays.At the same time, Japan could draw on successful experiences from regions like Singapore and Hong Kong by introducing a “sandbox” regulatory model. This would allow companies to test new business models and technologies under temporary, relaxed regulatory conditions, enabling more flexible experimentation and fostering innovation.

Encouraging Enterprises to Innovate Boldly: Tax Incentives and Government Funding

To encourage enterprises to innovate boldly in the Web3 sector, the Japanese government needs to introduce a series of incentive measures. First, tax incentives can be used to encourage companies to increase their investment in research and development. For example, tax deductions for research expenses can be provided to companies investing in blockchain technology, thereby reducing their innovation costs. Additionally, a dedicated innovation fund could be established to provide financial support for small and medium-sized Web3 enterprises, helping to bridge the funding gap these companies face in their early development stages. Similar government funding programs have achieved significant success in the United States and South Korea, where government support and collaboration with businesses have successfully nurtured multiple unicorn companies.

Enhancing International Cooperation: Choosing the Right Partners and Models

International cooperation is crucial for Japan’s breakthroughs in the Web3 sector. To address its shortcomings in blockchain technology, Japan needs to actively seek collaboration with other countries and enterprises. First, Japanese companies can establish strategic partnerships with firms from countries and regions that are leaders in blockchain technology (such as the U.S. and China) to gain the latest industry knowledge and experience through technological exchanges and project collaborations. For example, they could work with regulatory authorities in Hong Kong to jointly promote the implementation of regulatory sandbox projects, or partner with U.S. blockchain companies to explore innovations in mechanisms such as virtual asset user protection and cryptocurrency transaction monitoring.

Additionally, strengthening collaborations with overseas universities and research institutions is also very important. Japanese universities can partner with top international institutions (such as Stanford University, the University of California, Berkeley, and the Hong Kong University of Science and Technology) to conduct research on blockchain technology and jointly cultivate high-end talent, thus filling the domestic talent gap in the Web3 field.

Conclusion

Web3 technology offers Japan the potential for a “digital revival” but whether it can break free from the historical dilemma of “Making a Buddha statue but not putting in the soul” depends on the efficiency of policy execution, the strength of corporate innovation, and the ability to attract global talent. If Japan remains trapped in a conservative culture and a complex bureaucratic system, the Web3 industry may become another lost opportunity in the “lost thirty years.”

In the global wave of Web3, Japan faces significant challenges and opportunities. Only by truly breaking free from the constraints of conservative cultural norms and bureaucratic limitations, and seizing the opportunities presented by technological transformation, can Japan keep pace with other countries on the road to digital revival and achieve long-term sustainable development.

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