Everyone talks about Web 3.0 and how the next evolution of the internet gives users control over their data and assets. It may seem that the third iteration of the world wide web is already in full swing. Is it, though? Let’s take a closer look at the payments industry to discover any traces of ongoing decentralisation and user empowerment.
What is Web 3?
Web 3.0 or Web 3 is a common term for the next (third) logical step in internet evolution.
The earliest version of the internet – Web 1.0 – existed between the 1990s and early 2000s. It included mostly static, read-only content. While users could browse information, they had little interaction with the web resources. Websites were simple, often text-based, and served as digital brochures or directories rather than interactive portals we see today.
In the mid-2000s, the second generation of the Web emerged. It brought users dynamic and interactive content often generated by users themselves, social media platforms and e-commerce. Web 2.0 enabled collaboration and user participation, with platforms like Facebook, YouTube, and Amazon dominating the space. However, in a few decades, it started facing criticism for heavy reliance on large tech companies, centralised control and excessive user data collection.
Therefore, the idea of Web 3.0 – a more open, secure, and user-driven internet – started forming. The concept is tightly linked to the development of blockchain technology which provides necessary decentralisation, privacy, transparency, and peer-to-peer interactions. Thus, when we speak about Web 3, we often mean cryptocurrencies, NFTs, blockchain-based apps (dApps), decentralised finance (DeFi), and smart contracts.
The Vision for Web 3.0 in Finance
Web 3.0 is supposed to transform not just the way users interact with the internet content but also the way they handle their finances. The key changes include:
- No intermediaries. Open protocols for lending, borrowing, and trading should be accessible globally without banks involvement. Facilitated by blockchain, such a peer-to-peer financial interaction can significantly reduce costs and increase payment efficiency.
- Asset Ownership. The crypto sphere already offers self-custodial wallets to store one’s digital assets. The same mechanism is envisioned for Web 3.0 finance. Users will control their funds via private wallets, removing dependency on centralised institutions. If a banking institution goes bankrupt, its clients typically lose their funds or need to go through a lot of bureaucracy to restore some of them. That’s an obvious disadvantage of centralised institutions controlling user assets.
- Programmable Transactions. Smart contracts – self-executing agreements encoded on a blockchain – automate financial processes like payments, investments and loans. Based on predefined conditions, smart contracts initiate agreed-upon transactions at a certain time. Such contracts can manage rent or subscription deductions, loan issuance, interest calculation, and repayments, eliminating the need for intermediaries. Moreover, funds are released only when all the set conditions are met, enhancing trust in automatic transactions.
- Banking for all. Web 3.0 is also supposed to boost financial inclusion, as it doesn’t require access to any specific local financial institution or service provider. All you need is an internet connection. As of October 2024, there were 5.52 billion internet users worldwide, equal to 67.5% of the global population. While the number of people with a formal banking or mobile money account is actually bigger – 76% of the global population as of 2021, many of them have not much choice in available financial services. Web 3.0 can change that.
Are We There Yet?
While it all seems great, the question is how close have we approached the vision of Web 3 for the financial industry? Are we at the stage of lofty talks and little action or is Web 3.0 already permeating global financial networks?
Where Top Banks Stand on Blockchain
The leading players of global banking have gone from cautious scepticism towards blockchain and digital currencies to increased adoption in the last few years.
There are dozens of major banks across the globe with a combined value of more than $43 Trillion that have adopted blockchain in some form or another. The list includes J.P.Morgan, Barclays, Bank of America, NatWest, Ing, ANZ, Goldman Sachs, and many more household names in finance. They are also investing heavily in blockchain and crypto initiatives. For instance, J.P.Morgan has its own Liink information sharing network built on a private, permissioned blockchain.
In 2023, Goldman Sachs, BNP Paribas, Deloitte, and over 30 other organisations introduced the Canton Network, a blockchain-based interoperable platform designed to connect financial institutions and manage institutional assets efficiently. The smart contract empowered network aims to enhance collaboration, data privacy, and interoperability in financial markets.
Even national financial organisations such as the Federal Reserve and Bank of England are experimenting with blockchain technologies to automate some of the legacy processes.
Blockchain Banking by Regions
The global blockchain market is expected to grow rapidly, expanding from $20 billion in 2024 to over $248 billion by 2029.
North America currently remains the largest region adopting blockchain-based banking with 37.5% of the global market. The growth of the technology is supported by a general focus on innovation, venture capital funding, and a favourable regulatory environment. Major financial institutions in the region actively explore blockchain for payments, smart contracts, and asset tokenisation.
However, Asia Pacific countries are also projected to rapidly increase their blockchain banking adoption until 2030. Countries like China and Singapore pioneered the use of digital currencies, decentralised finance (DeFi), and tokenisation of assets. Besides, government-backed initiatives, such as China’s blockchain-based Service Network (BSN), cross-cloud, cross-portal, cross-framework infrastructure network used to deploy and operate all types of blockchain DApps, further accelerate adoption.
In the MENA region, growth in blockchain banking is particularly notable for cross-border remittances and financial inclusion. Cryptocurrencies are gaining prominence in the region as a shield against inflation. The UAE and Saudi Arabia are regional leaders, leveraging blockchain for digital asset platforms and government services. Thus, UAE has a nationwide KYC (Know Your Customer) Blockchain Platform for the exchange of verified e-KYC data among financial institutions. Both countries are exploring CBDCs as well.
Banks and Crypto
As we can see, many traditional banking institutions are leveraging blockchain technology with its benefits of transparency and accountability. How do they feel about more risky crypto services and cooperation with crypto industry players?
Since the Spot Bitcoin ETFs debuted on global exchanges in early 2024, consumers received more options to invest in crypto through trusted financial institutions. Before that, the interactions between traditional financial players and the crypto industry were scarce. Not all of them ended well too, if you remember the epic collapse of three major US banks — Silvergate Capital, Silicon Valley Bank, and Signature Bank — all with close ties to the crypto industry and all holding significant assets of various blockchain projects and companies.
Although J.P. Morgan Chase as an institution has holdings in spot Bitcoin exchange-traded funds and offers Kinexys Digital Payments service which leverages blockchain-based deposit accounts to enable fast, automated transactions directly between accounts, its CEO, the billionaire Jamie Dimon is known for a strong scepticism and criticism of cryptocurrencies in general and Bitcoin in particular.
Goldman Sachs, on the other hand, has managed to achieve significant success in the sphere of cryptocurrencies. The institution recently relaunched its cryptocurrency trading desk, focusing on Bitcoin futures and non-deliverable forwards to meet growing institutional demand. It is also involved in projects related to central bank digital currencies (CBDCs) and supports initiatives such as tokenised assets to enhance financial infrastructure.
Different banks of the world provide crypto services either in partnership with established crypto institutions or alone. These include Germany’s largest federal-owned bank – Landesbank Baden-Württemberg (LBBW), Deutsche Bank, KEB Hana Bank in South Korea, Swiss government-owned bank PostFinance, one of the largest financial institutions in Southeast Asia, DBS Bank, and many others. However, these are still little drops in the ocean of thousands of FIs existing globally.
Does Blockchain Banking Activity Equal Web 3.0?
Furthermore, when we hear news of large financial institutions embracing crypto and blockchain, it sounds encouraging. But don’t get too excited. Crypto services provided by centralised corporate or government-backed bodies are not exactly the vision of decentralised finance Web 3.0 has in mind. Neither are CBDCs. Those are just digital versions of centralised bank-issued fiat money.
Thus, in reality, Web 3.0 asset exchange without intermediaries may be possible only through third-party crypto service providers at the time. There are numerous decentralised exchanges (DEXs) or crypto broker platforms which allow you to trade directly with other users without intermediaries in a P2P manner.
At the same time, not all the users utilise self-custodial wallets to store their digital assets. Crypto exchanges offer wallet services which are convenient and do not require specific tech knowledge, complex manipulations or dedicated hardware. Meanwhile, only cold storage crypto wallets can supply full user control over their own funds. In other cases, such as the infamous FTX collapse, billions of user funds may get embezzled and misused, just the same as in the case with unscrupulous management of traditional financial service firms.
As for the true Decentralised Finance (DeFi) platforms, they are used by a little more than 50 million people, which is not bad, but really far from mainstream. Outside the niche crypto trading services, cryptocurrencies still have little utility. Although they offer a lot of benefits in theory and can cover various use cases, their practical utilisation in segments like e-commerce is minimal – less than 0.2% of global transaction value.
Some glimpse of hope occurs in other financial sectors, though. For instance, crypto mortgages have gained momentum recently. About 11.6% of first-time home buyers sold cryptocurrency to make a down payment on their property in 2021, up from 8.8% in 2020. In 2022, fintech and direct lender Milo reached the $10 million mark in crypto-backed mortgage loans. However, there have been no significant growth milestones for crypto mortgages in the last two years. Some of the reasons are the absence of adequate infrastructure and complex procedures which still often require exchange to fiat.
Bottom Line
At this point in time, cryptocurrencies and the vision of Web 3.0 are impacting the payment sector more on a theoretical level than in practice. They are leveraged by big financial institutions as investment mechanisms but still have little utility for end users, so far remaining a niche financial instrument. At the same time, the impact of crypto’s underlying technology – blockchain – is growing in all segments of the financial industry. Some of the reasons preventing decentralised finance to grow more rapidly is low user trust, poor awareness or understanding of the concept, and certain technical complexities of crypto projects that function without institutional intermediaries.
