The fundamentals of Web 3.0 are deeply rooted in technology that is ever-changing and continuously evolving. Web 3.0, powered by blockchains and crypto, is the Internet’s biggest technological upgrade since it became mainstream in the 1980s.
What is Web 3.0 and Why Does it Matter?
Web 1.0 (1990-early 2000s) – READ. The early Internet was characterised by an open-source protocol like HTTP, where the value accrued to the users and builders. In this era, technology companies such as Google, Yahoo and Amazon made their mark by layering on services such as search, directory listings and media publishing over an open-source infrastructure, essentially creating an online version of the offline world. The core contributors to digital media were mainly journalists, writers and reporters who reproduced pieces of their print content in a digital format. There was very little censorship during this period and the information was available mainly as databases.
Web 2.0 (early 2000-today) – READ & WRITE. This phase witnessed a wave of tech advancement, upgrades to servers, faster Internet speeds, development of complex APIs, algorithms and code to create peer-to-peer opportunities, user-generated content and social networking. Services such as Facebook and Twitter began monetisation of the increased user base through digital advertising. The years 2007-2012 saw a mobile revolution with Apple providing users with their first iPhone in 2007 and opened doors to third-party apps and builders. Facebook’s mobile pivot in 2012 amplified user social connectivity tremendously.
The tech architecture for Web 2.0 is built on a client-server protocol, where users are the clients, contributing content and the companies control the servers. The core functionality of the early Internet which was open for anyone to use and build on, has now transformed where the authority rests in the hands of the few. The rise of the creator economy is dependent on the frameworks developed by centralised companies. Software and hardware upgrades and renunciation of data and privacy rights by users to platforms have further accelerated centralisation of power. The Web 2.0 ecosystem now has a monopolistic culture where the companies decide who can participate, in what capacity, and how much value to share with stakeholders. Consumers do not have any ownership of their data or control over how it gets used; while creators give up rights to their content and do not have the ability to export their fanbase out from the platforms they have used, to interact with their communities. There is no incentive alignment between corporations and networks, and the users have no say in the platforms’ economics and governance. Web 2.0 is an Internet era built on ‘rented land’ where users don’t own anything.
Web 3.0 (2020 onwards) – READ, WRITE and OWN. Web 3.0 is a new computing platform, a paradigm shift towards a more democratised Internet, which is owned by the users and builders who create and transfer value in a trustless and decentralised way, facilitated through tokens. It is re-engineering the Internet’s open protocol and leveraging its architecture to benefit people rather than corporations.
The Core Components of Web 3.0
In order to understand the importance of Web 3.0 as technological innovation, it is essential to learn about its core components – tokens and blockchains.
Tokens are pieces of code that are used to transact over a blockchain and provide a record of digital ownership. They can be fungible and non-fungible. Fungible tokens are interchangeable (fiat currency, cryptocurrencies like Bitcoin). Non-Fungible tokens are unique, i.e no two tokens are alike (such as pieces of art).
The genesis of the blockchain architecture was developed by a pseudonymous individual named Satoshi Nakamoto in 2009, who developed a peer-to-peer electronic cash system called Bitcoin (the blockchain), that uses its native token (BTC) to transact over its network. Blockchain is a decentralised distributed ledger system, where transactions are executed and recorded in a series of immutable blocks on an interconnected network of nodes (computers).
Blockchains can be imagined as supercomputers that process thousands of transactions in exchange for incentives or tokens that accrue to miners and validators as rewards. Tokens are a new digital asset class that is increasingly seen as a store of value (Bitcoin), means of exchange (Ethereum, Solana and alternative cryptocurrencies), social currency (Rally.io) and several other use cases that offer utility and monetisation abilities to creators, entertainers and artists.
Future Value Drivers
Since 2020, we have seen the growth of cryptocurrencies and blockchain adoption by institutions and retail investors due to the decoupling of crypto into various value drivers like Decentralised Finance (DeFi), Non Fungible Tokens (NFTs) and Decentralised Autonomous Organisations (DAOs).
DeFi. DeFi refers to a financial system that runs on blockchain technology, and uses smart contracts that replace the need for traditional financial (TradFi) businesses to act as intermediaries. Core functions such as lending, borrowing. and transacting takes place seamlessly without the need for banks to execute the transactions. DeFi runs on code, a set of rules that are predefined on smart contracts. Users of the decentralised protocol own the network and participate in the rewards through token distribution. Tokens are distributed as incentives to users who are contributors to the network. There are strong differences between DeFi and TradiFi on trust, transparency, identity and access.
NFTs. NFTs are a record of ownership of digital assets on a blockchain. Technological advancements to the Bitcoin Blockchain genesis architecture and the introduction of smart contracts to blockchains such as Ethereum enabled a new use case of tradeable programmable tokens to emerge in the crypto landscape.
NFTs have been transformational to digital asset ownership and saw exponential growth in user adoption in 2020. A key milestone event in the history of NFTs is the USD 69 million sale of ‘Everydays: the first 5000 days’, by digital artist Beeple at an art auction organised by Christie’s in March 2020. Transaction volumes have now surpassed nearly USD 13 billion.
NFT represents anything digital that’s unique (non-fungible), has value, can be traded and its ownership secured on a blockchain. NFTs most commonly represent digital art, but they can be digital wearables, in-game virtual objects, a contract deed attached to a property, a domain name, or even a piece of writing such as this insight! For the first time, it is possible to exchange value between two trustless individuals anywhere in the world without them needing to disclose their identities or establish any contact and have asset ownership transferred and recorded on a blockchain.
DAO. A DAO is a community that is created and managed by its members who band together to achieve a common objective. Web 3.0 has enabled a dynamic shift in behavioural economics which is drawing people to it. The shift can be described as triabism at times but has been fascinating. The ongoing pandemic made more people spend time online and in the Metaverse, connect with others and also create. That happy place is called a DAO, where humans meet to share, connect, and drive value in a digital world known as the Metaverse.
Here are some ways that a DAO differs from a corporate. Companies are governed by a hierarchical system whereas DAOs are run like cooperatives in a flat structure. Company management takes decisions whereas DAO members vote on proposals to take collective decisions. Companies hire talent that meets certain criteria whereas anyone can join a DAO if they hold the DAO tokens/NFT or get invited to join the community. Companies compensate their employees with salaries whereas DAOs reward contributors with tokens.
The Future of a Decentralised Economy
Web 3.0 is transforming the economics of the creative, media and entertainment industry by changing the dynamics of how value gets created and distributed. It is an Internet that works for stakeholders who own it and create value for themselves. The shift from Web 2.0 to Web 3.0 is taking place more rapidly than the previous evolution of the Internet. The power dynamics and value generation are fundamentally changing how we view the Internet.
Web 3.0 is inevitable!
Blockchain and Distributed Ledger Technology (DLT) is set to transform various aspects of the Financial Services industry. The technologies have a role to play in automating processes such as payments and securitisation, claims, and compliance monitoring.
Where the industry will see real value is in governance and standards around data sharing and collaboration – which lies at the core of the Open Banking revolution.
This Ecosystm Snapshot looks at how Blockchain in Financial Services is fast becoming a reality – and how different stakeholders (such as ABF, IMDA, Singapore Customs, Visa, Mastercard, TCS, Bitpanda and others) are looking to leverage it.
In this blog, our guest author HE Jo Tyndall, delivers a message of hope for the future and talks about initiatives across all levels to combat climate change and biodiversity loss. “The pieces of the puzzle that will create a sustainable future are all there – it is time to start fitting them together.”
If, like me, you have watched Sir David Attenborough’s “witness statement” (A Life On Our Planet), it is easy to despair of the wanton, wilful destruction humanity has wreaked on the Earth, and to be horrified that so much of this has happened in one man’s (admittedly long) lifetime. The images he conjures – of distressed orangutans, starving polar bears, floods, fires and droughts, and of rampant deforestation – underscore how ubiquitous, urgent and overwhelming the climate change and biodiversity crises are.
But Sir David ends with a message of hope, and it is this I want to emphasise. Everywhere we look, there are green shoots of hope, many growing into sturdy saplings. They are coming thick and fast, and they are becoming mainstream – no longer relegated to the tick-box margins of policy or practice. The pieces of the puzzle that will create a sustainable future are all there – it is time to start fitting them together.
Political Signals Create a Ripple Effect
First, and foremost, in 2015 we got the Paris Agreement (and subsequently its rulebook). This was no mean feat. It set climate goals, gave us global rules for being transparent and accountable, and put governments on a path of continuous improvement to reach those collective goals. It is easy to dismiss global treaties as just words on paper, but this is to ignore the profound ripple effect those words have already had. (The Agreement held firm despite the US withdrawal – but the fillip when it re-joins will be welcome.)
The political signals set the first ripples off as governments needed climate policies to meet their Paris undertakings. The European Green Deal aims for a sustainable EU economy, with no net greenhouse gas emissions by 2050, decoupling economic growth from resource use. The UK will host next year’s UN Climate Change Conference of the Parties (COP26) – and has doubled its climate finance for the period 2021-2025.
In September this year, China – the world’s largest emitter of greenhouse gases – announced it would achieve carbon neutrality by 2060. Japan and Korea, too, have upped their mid-century targets to bring net emissions to zero.
The New Zealand Government has set a legislated goal for the country to be carbon neutral by 2050; has amended our Emissions Trading System (ETS) to ensure price signals encourage a move to low carbon; set up a green investment fund; invested heavily in research into reducing emissions from livestock production; and, most recently, made carbon-related financial disclosures mandatory for specified companies, banks, insurers and investment managers. We have also made it our mission to encourage governments to phase out fossil fuel subsidies (some US$400bn each year) that promote excessive consumption.
The Ripples Reach Cities and Businesses…
The political signals have flowed through to regional and local government. The C40 group (cities around the world working towards sustainability goals) now has 96 participating members – with many cities finding opportunities to collaborate with others in the network on joint projects.
It is becoming obvious that fossil fuel industries are at a disadvantage against increasingly cost-competitive renewable energy. Governments are working out how to manage a ‘just transition’ for the energy sector, while forward-leaning energy companies are re-shaping their business models in anticipation of a low carbon future.
Political signals encourage businesses to factor climate change into their planning and investment decisions. Businesses everywhere have read the political tea leaves and we see weekly announcements of pledges for carbon neutrality, ethical investing, green financing and so on. Whether it is Blackrock or NZ Super Fund making environmental, social, and governance (ESG) considerations integral to their investments, or Ikea’s IWAY (its ESG code of conduct for itself and its suppliers), business is showing a deeper commitment to sustainability than ever before.
Some industries will have to be more invested than others in emissions reduction, but this opens a world of opportunity and innovation. Energy & Utilities companies are implementing waste-to-energy solutions – Singapore’s Integrated Waste Management Facility (IWMF) is set to be the world’s largest energy recovery facility – and adoption of carbon capture, utilisation and storage (CCUS) facilities is at last gathering momentum across energy systems. Industries like aviation and maritime, too, have to play a key role in a circular economy.
… And Individuals (the Last – and First – Pieces of the Puzzle)
The ripples have spread to individuals – people like you and me. I know there are still plenty of climate deniers around. But mindsets are changing – and when that happens, the ripples become a tidal wave of real change. If we each start thinking we can do it and we will do it, the change will happen. If we make it clear, in our preferences as consumers, and in our expectations of the businesses we buy from or invest in, the change will happen.
The numbers who recognise we must live within our planetary boundaries are growing, values are changing (especially in light of the pandemic), and our low-carbon future is a high-tech one – not hemp shirts and home-made candles (unless of course these are your thing). Digital is a critical part of the story. Blockchain and distributed ledger technology (DLT) is being used to cater to a new generation of consumers, conscious of buying what is good for the world in the face of climate change and biodiversity loss. Food products are being branded using track-and-trace capabilities of Blockchain for ‘farm to fork’ visibility.
Who doesn’t want to breathe clean air, have lower energy bills, and eat safe and healthy food? Maybe we will see more initiatives like America’s Pledge, bringing together an entire ecosystem committed to fighting climate change, growing the economy, and protecting public health – an ecosystem of states, cities, businesses, universities, and citizens.
We now have the rules, the policy tools, the technologies, and – increasingly – we have the will to act. As we re-build our economies, our businesses, and our lives, let us re-build better. So, I would echo Sir David Attenborough’s optimism – it is just that we do not have his (95 years) lifetime left to put things right.
Singapore FinTech Festival 2020: Impact Summit
For more insights, attend the Singapore FinTech Festival 2020: Impact Summit which will cover topics tied to climate change and sustainability to build a better future
The ongoing global crisis is expected to drive more investments in FinTech. Blockchain adoption, in particular is expected to lead to a more open and interconnected economy that is borderless, transparent and does not need counter-party trust to operate. One particular area where Blockchain has been piloted is in smart contracts. Financial contracts involve legal work, document handling, sighting, signing, and sending them to the right people. All of this involves both time and people – and proves to be an expensive option eventually. Blockchain can speed this process up in a secure (with no failure points), interoperable and risk-free environment.
While smart contracts are expected to increase efficiency, there are questions being raised with respect to interpretation and technical capacity. The Law Commission in the UK is conducting a detailed study to analyse how current law applies to smart contracts and to highlight any uncertainties or gaps in relation to enforceability, interpretation and so on. The World Bank is looking at the role smart contracts could play in improving financial services in poorer nations – especially in insurance and short-term unsecured loans. Initiatives such as these are a positive step towards adoption.
However, smart contracts are not the only area that financial institutions and governments have in mind when they pilot and adopt Blockchain – and there are several recent instances.
Digital Currency
Many central banks have started identifying potential use cases for digital representation of fiat money that offers them unique advantages at various levels. According to Bank of International Settlements (BIS), 80% of the world’s central banks had already started to conceptualise and research the potential for central bank digital currencies (CBDCs), 40% are working on proofs-of-concept (POCs) and 10% are deploying pilot projects. The People’s Bank of China (PBOC) announced last month that it has processed more than three million digital yuan transactions since it began piloting its CBDC late last year. Transactions include bill payments, bar code scans, tap and go payments, and payments for transport and government services.
Singapore’s Project Ubin has successfully completed its fifth and final stage and is a step closer to greater adoption and live deployments of blockchain technology. The commercial applications of the payments network prototype include cross-border payments in multiple currencies, foreign currency exchange, settlement of foreign currency-denominated securities, as well as integration with other blockchain-based platforms to enable end-to-end digitalisation across many industries and use cases.
Crypto Exchange Ecosystems
A crypto exchange or digital currency exchange (DCE) makes it easier for buyers and sellers to securely store, buy, sell, or exchange crypto currencies. Various players across the financial industry have developed tools connecting the transactions, flow of funds, and financial instruments through crypto exchanges – including banks, digital payments and other FinTech providers.
In an effort to expand its retail presence, FTX acquired crypto app Blockfolio for USD 150 million in August 2020. Recently, FTX announced the launch of trade in the stocks of some of the largest global companies – Tesla, Apple, Amazon – by tokens against bitcoins, stablecoin and more.
In order to empower the emerging initiatives in the decentralised finance (DeFi) space, the world’s largest crypto exchange platform Binance announced the creation of a seed fund in September. Their USD 100 million accelerator fund added five new Blockchain projects – Bounce, DeFiStation, Gitcoin, JustLiquity and PARSIQ that will receive financial support from the fund.
PayPal has announced crypto buying and selling services through Paypal accounts. Paypal’s crypto service in partnership with Paxos is being rolled out in phases across the US. Outlining their plans for 2021, Paypal announced new crypto payments features including enhanced direct deposit, check cash, budgeting tools, bill pay, crypto support, subscription management, buy now/pay later functionalities and more with the integration of the capabilities offered by Honey – an internet browser extension and mobile app which PayPal bought for USD 4 billion in 2019.
It is expected that banks will join in as well – it has been reported that DBS Bank in Singapore is planning to launch a digital asset exchange platform to enable institutional and retail customers to trade cryptocurrencies.
Blockchain Enhancing Banking Features and Services
We are also witnessing several pilots and initiatives in banking industry functionalities such as settlements, identity management, security, transparency, and data management.
In theory, the bank reconciliation is simple, however, in practical aspects things may not work out so easily. The funding, lending, transfer, and transactions reconciliations is a complicated and time-consuming effort. in March 2020 the Spunta Banca DLT system promoted by the Italian Banking Association (ABI) and coordinated by ABI Lab was implemented across the Italian banking sector. Powered by R3’s Corda Enterprise blockchain, the solution streamlines and automates the reconciliation of transactions, provides real-time reconciliation process, handles technical elements with automated feedback and results in more transparent processes. Spunta has attracted broad interest from the Italian banking sector and since October, around 100 banks have been operating on Spunta to manage the interbank process and automate reconciliation of transactions.
Recently, in Spain, ten leading banks including Banco Santander, Bankia, BME, CaixaBank, Inetum, Liberbank, Línea Directa Aseguradora, Mapfre, Naturgy and Repsol, and the Alastria consortium have come together to build a self-managed digital identity (ID) solution dubbed as Dalion built on Blockchain technology. The project based on Alastria digital identity model (Alastria ID) aims to provide users with secure control on their digital information and personal data, making it easier for them to manage their digital identity. The project that was initiated in October 2019, has successfully completed the concept testing phase and is in its second phase, with the final solution expected to roll-out in mid-2021.
Grayscale, is the first digital currency investment vehicle to attain the status of a Securities and Exchange Commission reporting company. The digital assets management company is aggressively buying bitcoins and manages a total of USD 8.2 billion of cryptocurrency. Earlier this year, Singapore’s Matrixport, a financial services firm partnered with Simplex, an EU-licensed payments processing firm to enable buying of cryptocurrencies via VISA or Mastercard credit and debit cards with more than 20 supported fiat currencies.
As Blockchain matures we will see more large-scale adoption bringing collaborators together to form ecosystems that will give them a competitive edge. Solve some of their core challenges and empower their customers.
Singapore FinTech Festival 2020: Infrastructure Summit
Get more insights into the evolution of blockchain and its applications at the Singapore FinTech Festival 2020: Infrastructure Summit. The world’s largest fintech event will explore different uses of blockchain technology, trials being conducted, and the vast opportunities in the financial services industries