Technology innovation requires new infrastructure that will support advancements. When it comes to financing, the most stable and secure technology needs to be in control. This will never be a one-and-done approach as all systems go through revision after revision to keep up with the market and consumer demands.
We can see this transformation happening now in the rise of Web 3.0, the latest iteration of the world wide web. The past two versions (Web 1.0 and 2.0) are responsible for our understanding of the internet as well as the formation of application delivery, database-driven content, website design, social networks, etc. Most people are familiar with Web 2.0 as the internet since its introduction in 2004.
Today, we have networks and technology that are radically changing what we’ve come to know the internet and social networks as. With buzzwords like “metaverse” “AI” or “blockchain”, there has been plenty of speculation over what these technologies are and what their relevance will be in the future. The thing is, these technologies are all under the umbrella of Web3. The infrastructure will support this technology and allow it to be regulated in society.
Decentralized Finance (DeFi) is a byproduct of Web3 meant to create a transparent form of finances without a single authority. An example is Bitcoin, a currency that is not confined to a single country or institution and can be used just about anywhere in the world. DeFi is unique because it’s based on peer-to-peer transactions unlike bank transfers or paying by check. This is where the name becomes self-explanatory; users of DeFi don’t rely on an institution, they rely on the fast processing and security technology of the blockchain.
So what does all this talk of Web3 and DeFi mean for the Fintech industry and finance as a whole? Well, we first need to acknowledge why these solutions are rising. There is a growing lack of trust in commercial banks. In 2020, nearly 60% of consumers said they don’t trust commercial banks with their financial future. Today, with a growing interest and trust in technology, there is a new era of finance on the rise: Fintech. Beyond the lack of trust, there is a growing demand for user control over payments and investments.
User-Oriented Platforms
Fintech companies have to position themselves in a way that makes people feel they are missing out on the service. For example, the concept of decentralization is meant to eliminate having to depend on a network or a middle man to access services. The term “trustless blockchain” is a great example of these concepts coming out of DeFi that consumers love. The focus of this, along with Fintech services in general, is to create platforms for everyone. From the perspective of a Fintech company, this makes the market extremely competitive. The companies with the slightest hint of more convenience will always win over competitors. There is no “brand loyalty”.
Decentralized Web Hosting
A concept that would be extremely useful specifically when removing anxieties associated with network outages is not having to rely on a web provider. This is what makes Web 3.0 so attractive; it’s the idea that services and networks can perform on their own rather than governed by companies (Facebook, Google, Apple, etc). This concept would rely on blockchain technology to perform in this manner, further emphasizing the “trustless” aspect. As we know, network outages do exist and they have a major impact on the world when they occur. Services that operate dependent on the blockchain wouldn’t have to take hits from these situations.
Tokenization
Tokenization is a process in which users pay for services and assets as they are used. The reason being is that the software for these programs is one with the development and eliminates the need for a separate stack for payment. Users want ownership of their assets, they want to have a say in the decisions made which led to the idea of tokenization. With tokenization, those that are invested in the software to a certain degree are given power.
For example, gamers can invest in online games which would give them a say in the development of that game (bugs, features, updates, etc). This example gives you a sense of the involvement users of Web 3.0 will have in the future. Considering that a major source of problems in any industry comes from decisions that are made without consulting consumers. Web3 and DeFi are looking to replace that with this open concept of finance.
Out With The Old
Fintech is an industry actively searching for holes in the financial market and unique ways to solve the issues. Web3 and DeFi are changes that are necessary to accommodate the new consumer demographics. Web3 wants to give power to users of the internet rather than the major entities. Are these systems ready to take over at this moment? They’re not, but by testing the waters with new systems and concepts, developers will construct the ultimate network for the future.
What’s Next?
We can expect to see continuous changes to Fintech within the next year, especially with the billions of dollars continually being invested in blockchain technology. Web3 and DeFi don’t happen without the blockchain which has led to all hands being on deck for development. Those working, invested, or interested in this future of technology should identify how the new era of the internet and finance will benefit them.
Written By Ben Brown
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