Glossary

Web3: Understand what it is and the changes it can bring the financial industry

Published on Apr 21 2023. 12 minutes reading

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Web 3.0 has come from the cryptocurrency world, but it is a lot more extensive and complex than that. Do you know how the next stage of the Internet is going to work, and what to expect from it?

Despite the advances promoted by Web2, its high connectivity and interactivity started taking a toll on the users. By providing their information in exchange for convenience when using the network, users were vulnerable to individuals leaking or selling of their personal information.

Also, content creators now depend on major platforms to deliver their products/services, while also having limited agency over their generated traffic volume and, consequently, their revenues.

In general, society has been demanding more protection and autonomy in relation to data controlled by big techs. Thus, the search for a technology that enables the navigation without dependence on intermediaries has been growing. The initial desire to maintain the decentralized data, which was present in Web Version 1, has been reignited.

Added to this growing discontent, the emergence of the cryptocurrency market has fueled the creation of Web 3. But it's important to note that it's not just an evolution of Web 2. It's a disruptive technology with a different structure, operating parameters, and stakeholders. And it will completely change the way business is done around the world . Stay tuned to learn more!

History of the Web until Web3

In order to understand the proportions of the revolution enabled by Web3, we need to revisit Web1 and the current Web2:

Web1 (1991 to 2004): comprised of basically static pages, structured in hyperlinks. It was mainly meant to read content, with little interaction between users.
Web2 (2004 – today): centralized traffic based on mega platforms like Google, Facebook and more social media enabling high levels of interaction between users. Major corporations capture and hold information so that they can offer a customized browsing experience and monetize it by selling ads.

Web3 and cryptocurrencies

It is essential to understand how this new Web relates to cryptocurrencies . And it is worth mentioning that, although cryptocurrencies enabled the creation of Web 3, the two concepts are not synonymous.

Cryptocurrencies They are encrypted digital currencies, without physical representation or government regulation, which are based on blockchain – a technology launched in 2008 by Bitcoin.
Web3, in short, is a virtual environment — an ecosystem where working engines depend on blockchain technology and all operations are in cryptocurrencies. We’ll explore it in more details later on.

Although both of them are intimately related, the current ‘crypto winter’—where there was a significant drop in the value for cryptocurrencies—is not expected to delay the development of a new Internet. Companies across the world, including major corporations like Google, have massively invested in a growing Web3. The so-called ‘crypto economy’ is still responsible for moving 1,2% of the world GDP. In monetary values, that is equivalent to approximately 1,1 trillion dollars.

But what is Web3 after all?

The term Web3 was created in 2014 by Gavin Wood, one of the cofounders of the cryptocurrency Ethereum. It is the 3rd generation of the Internet, which doesn’t only represent an improved version, but also a business model that is totally innovative.

The concept of Web3 was created to refer to a digital environment based on the use of blockchain technology and artificial intelligence . In this environment, data ownership becomes decentralized again , ensuring transparency and security of information.

Within the Web2 reality, imagining a completely different technology is not that simple. To make it easier to understand it, we’ve listed below some of the basic characteristics for Web3:

Registry structure based on blockchain

The blockchain model is used for immutably registering transactions and tracking network assets.

Decentralized information

Data is stored in sort of a public logbook on the network, without any actor handling or controlling it.

Peer-to-peer (P2P) technology

The technology peer-to-peer enables the exchange of resources on an equal basis, directly between several users, eliminating the need for intermediaries and dependence on large platforms.

Improved security

The new technology prevents fraud, attacks and fabrication of ‘fake news’. The entire information flow has a unique, trackable register.

A more democratized Internet

Democratic access to information, more transparency and autonomy for creating content and making transactions.

How does Web3 work?

Web3 is enabled by existing modern technologies, apart from those that have already been mentioned: blockchain and artificial intelligence. See some of the main ones below:

Digital wallets: they are responsible for storing data and unique keys for users proving to own digital assets. Through their digital wallet, users can interact with . and tokens.
Tokens: they are the digital representation for assets in Web3, whether in monetary values or roles. Tokens can also represent existing physical assets in the real world or not.
Smart Contracts: they are computing programs running on blockchain networks for determining tokens’ behavior. They enable complex software to be built for token transactions, NFTs projects, etc.

What are the trends Web3 brings for the banking and payment industry?

Although Web3 is under accelerated development, the migration from Web2 is expected to take several more years to complete. Until then, we are witnessing increasingly frequent trends related to the 3rd generation of the internet. Here are the main ones, in terms of their impact on the payment methods market , that we can already see today:

Replacing trustees with DeFi

DeFi refers to computer programs that function as protocols to replace the role of current fiduciary agents. Through these protocols, there will be less need for intermediaries in asset transactions, which will then be carried out directly between participants.

Tokenizing the industry

Assets like debentures or real estate, for instance, are then represented by tokens that can be fractioned in several parts. The ability to make transactions involving fractions of assets without intermediate parties reduces the need to turn to the capital market or banking industry in order to acquire resources.

Negotiating NFTs or non-fungible tokens

NFT transactions already enable artists and content creators, for instance, to directly reach their audience without depending on platforms for delivery and intermediate parties for sales. Major brands like Nike are already experimenting with the model.

Exploring immersive experiences in the metaverse

Apart from representing the physical world in a digital environment, the metaverse also offers the ability to reduce limitations and add digital tools, enabling a true deep dive into the Internet.

That totally immersive experience is expected to revolutionize the way we interact, create, shop and make financial transactions.

Enabling a new organization format in DAOs

The acronym DAO stands for "Decentralized Autonomous Organization" in English. In practice, it is nothing more than organizations governed by smart contracts, with pre-established rules, registered on a blockchain, and therefore transparent and immutable.

Whether for setting a society for a new entrepreneurial endeavor or focusing on a specific project/purpose, that new organization format provides less hierarchy. There’s no need for a manager, for instance, if all business rules, including in terms of treasury decisions, are already set in a smart contract.

It is then an organization controlled by its members, without a central management influence. Any change in code needs to be go through a vote from all participants in DAO, democratically.

What will the future look like with Web3?

Just like it was hard to imagine the advent of the Internet and the impact it would bring to people’s lives across the world, today it’s a challenge to deeply understand what the future will look like from Web50.

Ultimately, not all the new business models that will be created using Web3 are known today . The possibilities to be explored are countless.

To give you a glimpse of some of these possibilities, the 11FS Web3 report provides interesting examples. Among them, we highlight some of the potential uses of the new internet:

Any user may grant or borrow directly from another user, without intermediation from financial institutions. To do this, they will use tokens and smart contracts to record all transaction rules.
Unique, innovative products, which only exist in the digital world, will be able to be negotiated and accessed exclusively by the owner of the relevant NFT. For instance, accessing a piece of art or ticket for a very select, limited audience in the metaverse.
New sources of income will be generated by building and marketing goods and services that only exist in the metaverse. A new production chain, demands for new kills and enablement activities will be developed.
Innovative entrepreneurial endeavors will emerge through free association in DAOs with members across the world, who don’t even know each other in the real world.
Immersive interaction will be enabled within the metaverse reality, whether it’s work-related or personal. Individuals will be able to consider, for instance, the possibility to purchase virtual real estate in a specific location of the metaverse, enabling them to live in a community sharing common interests.