We are living in a global society where “point oh” defines and describes the evolution of things. Industry, internet, social phenomenons. We got Industry 4.0 and Web 3.0. Both complement and complete each other. To some extent, both are a natural consequence of one another. What is Web 3.0 and what is its impact on DeFi and the future of finance?

How web3 will impact fintech

Table of contents

What is Web 3.0?

To understand Web 3.0, we first must take a little step back. A brief history lesson will help us understand what is going on. It will also clear the image and show how Web3 will impact FinTech.

Web 1.0 – a pillar for the future

Between 1989 and 1999 the internet was a dream or a proliferated experiment. Sure, it already impacted ordinary people, and e-commerce was born, but we didn’t have a clear idea of what it exactly is and what could it do. Not everyone at least.

Early versions of the world wide web were funded by the government and useful to the military and academics. When the commercial ban was lifted in 1991, everything has changed. The domain registration process had started, search engines were born, the idea of the internet spread around the world. Many countries across the globe were setting up the infrastructure.

Back then, pages were static, the server’s file-system was the only source of content, elements on the page were positioned and governed by Frames and Tables.

We didn’t even have memes about sweet, little kittens. Dark times.

Web 2.0 – the pillar is you

Between 2000 and 2009 things got serious. Many people already had internet; e-commerce was booming. The web became a synonym of daily life. Not only an important and integral part of it but a huge part of users’ identity. If you are not there, you are missing out. If you have a company but you don’t have a page, you don’t exist.

This stage was extremely important because powers that be and businesses alike adapted to users’ needs and behaviors. Users suddenly and massively became consumers, but also creators. Companies like Google, Amazon, or Facebook created the opportunity to search, surf, and buy. At the same time, people were overwhelmed by how easy it is to create and share content. Internet provided chances to reach many people in a matter of hours, even minutes. Turning them, respectively, into creators and consumers in the process.

In 2008 Apple invented the app economy. The spawn of the famous “there’s an app for that” changed the world yet again. Since then, billions around the world made it through the day with the internet in their pocket.

In this iteration, companies developed web-based applications that could be accessible from anywhere. Problems were solved by simple, often single-focus digital products. The value was defined by content, not the device used to consume it. The distribution was bottom-up, not top-down. The system encouraged social tools for the creation, collaboration, editing, and promoting of various formats of content. The more people felt the value, the more they were willing to distribute the content, participating in the overall growth of the world’s economy. 

Web 3.0 – multiple pillars

Web3, Defi, crypto. It all started around 2010 when the era of FinTech had truly begun. The infamous mortgage and financial crisis of 2007-2008 brought serious consequences. Along with a global hiccup that resulted in financial solutions, policies, and regulations. It also spawned blockchain, which blew up the traditional understanding of finance by shattering the sector into many pieces.

What was a diversity for consumers, was, at least at first, a chock to high-street banks. Suddenly, people had options. They were no longer dependent on a centralized banking system. With options came agility, a larger pool of services options, and one key factor that is the reason for this article – democratization.

On multiple fronts, not only financial. The rise of independent journalists, government and corporate whistleblowers, anti-war activists. This is a direct result of possibilities built by the previous generation of the internet. With Web 3.0 everything became even simpler. 

Simpler for the user, that is. Behind the curtain it just got real. Web 3.0 is powered by decentralized data architecture, A.I-driven services (mainly machine learning algorithms), and edge computing infrastructure. 

How Web 3.0 is transforming finance?

In a nutshell, by providing infrastructure to people who don’t want the rule of high-street banks. According to EY, in 2021 51% of Generation Z and 49% of Millenials identified a FinTech, not a classic bank, as a trustworthy financial brand. According to Accenture, and just a year earlier, 57% of consumers said they don’t trust commercial banks with their long-term financial well-being.

Web3’s impact on the financial industry is enormous. As DeFi Llama reported, DeFi’s total value in 2021 reached $18,7 billion. At the same time, the number of unique DeFi profiles grew up to 4 million. 

All of that wouldn’t be possible without artificial intelligence, machine learning, the rise of cryptocurrencies, and decentralized finance platforms. Decentralized finance (DeFi) is a term for digital financial products and services that are available for anyone with access to the internet. These applications don’t have centralized authorities over their heads. Access to money, the account, or loans, for example, can’t be blocked or denied by anyone. Since Web 3.0 is decentralized as well, both go hand in hand. Web 3, DeFi projects, blockchain technology, Web 3.0 crypto tokens. All these stand together to utilize the power of blockchain.

Developments like cryptocurrencies and smart contracts provide services without the need for financial authorities to act as guarantors. Web 3.0 will be used for tokenizations of assets, online gaming, distributed ledgers, non-fungible tokens (NFTs), peer-to-peer (P2P) transfers, and possibly Central Bank Digital Currencies (CBDCs). Challenges with all of that? The rise of cybercrime, through-the-roof protection of personal data, and medical-related bias from artificial intelligence. 

The serious challenge with Web 3.0 is that content belongs to the user who created it, not the platform the content is created on. Through the possibly widespread adoption of NFTs, users can create, own and sell digital products of their own creation, without losing money, rights, or another equivalent of currency to platform holders. That poses copyright and security-related problems.

Partial cure? The adoption rate could produce solutions through a scale effect. According to the 2021 World Economic Forum report, technologies that DeFi is standing on (mainly distributed ledgers and smart contracts) will disrupt a traditional market worth $867 trillion. 

Practical uses

Which platform could gain its best use case from the financial service industry? The one focused on a user. Big data usage and improved knowledge of customers should lead to a higher rate of consumer trust. Innovation related to metaverse should be implemented with respect to the human condition. Milking users for money just because there’s a new technological breakthrough on the horizon, won’t work. 

Companies that can develop public blockchains with privacy-enhancing features, for example, are in it to win it. There’s a “trustless blockchain” term that has been thrown around quite a bit. It means that in the blockchain industry users don’t have to trust any kind of institution or a third-party provider for a network or payment system to function. It just does.

Having said that, though, trust is important. Not only because of the privacy issue but also because there’s friction when it comes to simple things like… working solutions. It’s known as the API connectivity problem. It prevents the blockchain ecosystem from directly accessing “off-chain” data (any data stored off the blockchain). It includes both Open Banking and Open Finance data. This causes friction between legacy Web 2.0 applications and new Web 3.0 products. API development is not easy in this stage of evolution.

How will DeFi shape the future of finance?

Sure, we can use slogans like “more connectivity, creativity, ownership of digital assets and guarantee privacy”. The truth is a little more complicated than that. It all boils down to Web 3’s impact on FinTech, but even more so, on how Web 3 DeFi projects will be useful to consumers. High-street banks are slowly but surely overtaken by FinTechs not because they didn’t have an offer but because this offer wasn’t relevant anymore.

Open Banking development should always focus on the user, not the other way around.