Web3 and banking beyond finance
6 minute read
When, in January 2021, Twitter announced it was permanently banning Donald Trump, many commentators argued it should have happened sooner.
Just a few days prior, the world had watched in horror as an armed mob attacked the US capitol after he falsely claimed the 2020 election result was fraudulent. But while this was undoubtedly his lowest point, commentators from different media outlets noted that Trump had a long history of using social media to promote misinformation. Had he been deplatformed sooner, they concluded, the US capitol riots might have been prevented.
There is just one problem with this logic. Regardless of whether you agree or disagree with Trump's views and the way he conducts himself, the fact of the matter is that a small group of businesspeople in a boardroom acted as judge, jury, and executioner. And if they can decide how the sitting president of the United States should or should not behave, they can do so for everyone else — at least in the digital world.
The internet's power problem - The Web2
There is mounting evidence that international tech platforms are becoming all too powerful.
In August 2021 OnlyFans briefly considered banning adult content — a decision that would have put millions of its creators' livelihoods in jeopardy — because its payment processing partners disapproved.
Similarly, recent changes to YouTube's terms and conditions allow it to place ads on content creators' videos without sharing the revenue from those ads with them, and the App Store takes a hefty 30% cut of developers' revenue while arbitrarily rejecting apps it does not like.
The upshot is that the web is an increasingly monopolistic and exploitative environment.
On the one hand, it allows anyone to reach an audience of hundreds of millions. On the other, you must give up control of your content and data. Big tech platforms take most of the revenue, make the rules, and enforce them. And if those rules no longer suit them, they change them.
As crypto expert Chris Dixon puts it:
"[The good thing about how the web has evolved] is that billions of people got access to amazing technologies, many of which were free to use. The bad news is that it became much harder for startups, creators, and other groups to grow their internet presence without worrying about [...] platforms changing the rules on them, taking away their audiences and profits."
Right intentions, wrong approach
The current state of the web — which, to some extent, is the result of leading tech players' behavior — has prompted governments to intervene. However, most of the current and proposed regulations aren't user-friendly, and some of them are making matters worse instead of creating a fairer internet.
For example, the UK's draft Online Safety Bill proposes sending social media networks' managers to prison if they don't tackle unacceptable online behavior. That is a noble sentiment, until you realize it is a possible gateway to widespread censorship. Big tech is likely to err on the side of caution and start taking down anything remotely offensive.
Similarly, while the aim of the EU's proposed Digital Services Act is to curb big tech's power, it risks increasing it, because the controls it is proposing make it harder for smaller players to scale.
According to Dixon, the real reason for the web's current problems is centralization.
"When they start out, [platforms] do everything they can to recruit users and 3rd-party complements like developers, businesses, and media organizations," he explains. This is because, by definition, platforms are dependent on network effects: they're only valuable if people use them."
But as platforms grow, so does their power over users, until, eventually, "[...] the easiest way to continue growing lies in extracting data from users and competing with complements over audiences and profits."
Web3 tackles this problem of centralization at its source. Because the blockchain is immutable, decentralized, and trustless, it can eliminate gatekeepers, ensure users remain in control of their property, and distribute rewards more fairly.
But let's back up for a second. What is Web3? And how does blockchain fit into it?
What is Web3?
Web3 is the next evolution of the internet. During its first iteration (Web1) the internet was unidirectional. It consisted of individual website owners producing their own content, with few opportunities for real-time user interactions. Put another way, it was “read-only”.
By contrast, in Web2 — the current iteration of the internet — centrally-owned websites provide a vehicle for content, but not the content itself. The content is created by users interacting with each other. Therefore, it is fair to say that we have entered the “read and write” stage of the internet.
Web3 takes things a step further. The platforms on which users create and interact live on the blockchain. So, where Web2 is controlled by private corporations, Web3 will be a truly open network where every user has the same means of control. In other words, "read and write" will become "read-write-own."
Web 3 will bring about two key changes for users.
Firstly, because the blockchain is by design a decentralized system, no single company can impose, change, or arbitrate the rules of engagement. Instead, a series of mathematical equations verified by the network confirm whether pre-agreed conditions have been met.
Secondly, the content belongs to the user who created it, not to the platform it is created on. This changes the problem of monetization in favor of the user. Where, on YouTube, for example, you have to monetize on YouTube's terms, on Web3 the user who created the content is in control. And because data that is logged on the blockchain is permanent and immutable, you can move the content — an avatar, an in-game item, or your favorite NFT art — from one environment to another without losing its value or your claim to owning it.
Crypto: more than just a store of value
Over the past two years, crypto has made huge strides into the mainstream. With 36% of US merchants, including major brands like Burger King and Microsoft, accepting it as payment and growing interest from institutional investors, it's safe to say crypto as an asset is an accepted and established use case.
Still, the more exciting development is the explosion of non fungible tokens (NFTs). NFTs — tradable but unique, tokenized digital assets — prove that crypto's potential extends far beyond being a substitute for fiat currency and has important implications for digital intellectual property ownership and the future of finance.
While it's still early days, decentralized games like Axie Infinity and Decentraland, for instance, allow users to build, sell, and earn NFTs and other digital assets. These assets are not locked in, so they can then be used in unrelated games or sold at a profit.
These use cases have the potential to unlock flexible, exciting, and lucrative new online earning opportunities for creators and web users. More to the point, they could re-shape the financial system and how we interact with it by eliminating gatekeepers and enabling easier and fairer access to financial services for all.
Nobody can deplatform a DeFi protocol
Because big tech platforms are so ubiquitous, it's hard to imagine a different internet. However, Web3 and blockchain technology could re-shape it into a freer, fairer, more democratic environment.
As crypto adoption increases over the coming years, we'll see an even bigger move towards unlocking this potential.
That said, for Web3 to truly reach critical mass, users need access to real crypto: actual and — even more important — accessible coins, rather than having their assets locked in a closed garden wallet or wrapped in traditional exchange traded funds (ETF) or contracts for differences (CFD). Only open wallets allow users to not only store but also realize the full value of crypto’s potential.
Needless to say, while Web3 promises to enable content creators and web users to interact with the financial system in a more direct and transparent way, someone will still have to safeguard digital assets and facilitate secure transactions. This is an opportunity for digital banks and fintechs to participate in the booming crypto market and help Web3 reach its full potential.
But banks and fintechs must not limit their ambitions to simply safekeeping, transferring, and brokering fiat and crypto or handing out loans. Web 3 affords plenty of scope for them to expand their reach beyond financial services and explore new markets and use cases that will ensure their continued relevance in this digital age.
Case in point, they could allow customers to earn interest on Bitcoin, Ether, and other cryptocurrencies they store with them via staking or decentralized finance.
They could partner with fashion brands so customers can store their favorite digital collectibles in a secure app.
They could offer institutional-grade custody services for tokenized paintings, NFT art, football cards, and other digital collectibles, enable real-time purchases, and build a network of collectors.
And that's just scratching the surface. With open wallets and a strong Web 3, the possibilities are truly endless.
Whatever the crypto market has in store tomorrow, there will be a need for access and quality safekeeping services.