Web3: Love it or hate it, here’s why you can’t escape it

Kamran Hedjri is the chief executive officer and co-founder at PXP Financial

A decade on from its inception, Web3 is gradually moving to the mainstream. While it’s been criticised for being ”not as decentralised” as it seems, and by Elon Musk as “more marketing buzzword than reality”, there’s no doubt Web3 has got everyone talking. Kamran Hedjri, chief executive officer and co-founder at PXP Financial looks at how Web3 has evolved from a buzzword to reality, how decentralised it really is, and how it will impact the payments landscape.  

We’ve come a long way since Berners-Lee unveiled the three fundamental technologies that became the foundation of the internet, or what we now refer to as Web 1.0. So far, in fact, some people can’t remember life before its successor, Web 2.0, which saw a paradigm shift in how the internet was used.   

During the first two decades of the 21st century, we saw the static webpages of Web 1.0 replaced by Web 2.0’s interactivity, social connectivity, and user-generated content.   

But Berners-Lee’s creation has yet to realise its full potential; a recent report projects that the Web3 market will expand by 44.9% between 2022 and 2030.  

The internet, but not as we know it  

Web3 is also known as the decentralised web, or the third generation of the internet. It’s a vision for a new type of internet built on open-source technologies such as the blockchain.  

The idea is to create a more open, transparent and secure internet where users can exercise more control over their data and privacy.  

Elements of Web3 are already in place, paving the way for the current, centralised model in which a handful of corporations preside over Web2, to be replaced.   

Web3 decentralisation; fact or fiction?  

There’s no doubt Web3 and decentralisation are closely related – the very concept of Web3 is that it’s not centralised. But the reality is that this comes with some big challenges which could hinder the path to a truly decentralised iteration of the internet.  

Firstly, there’s the issue of interoperability – the capacity of a blockchain to transfer data and communicate with other chains. There are hundreds of blockchains, but the assets of one blockchain cannot be completely utilised on another due to a lack of interoperability.  

Another significant barrier to Web3 adoption is the lack of awareness and education among enterprises. This technology is still in its infancy, and many enterprises are not familiar with its benefits or even how it works. And because Web3 is an emerging technology, the regulatory and legal frameworks surrounding it are still evolving.

This presents a significant challenge for enterprises that want to adopt Web3, as they need to navigate complex regulatory and legal environments.   

Scalability is also a potential issue, as Web3’s decentralised nature will make it difficult to scale to the same extent as centralised web systems. It led Vitalik Buterin, the co-founder of Ethereum, to coin the term “scalability trilemma,” which states that no blockchain can simultaneously accomplish security, decentralisation, and scalability.  

Finally, we can’t forget that Web3 is a complex technology that requires specialised technical expertise to implement and maintain.  

Ultimately, the centralisation of Web3 could have the same problems as Web1: people want to avoid the hassle and expense of running their own web server and prefer the fast innovation of private companies over the slow evolution of open-source protocols.  

Overcoming these hurdles is not impossible; I think we are heading towards a future where Web3 is the norm, but the transition is likely to require a degree of centralisation.  

What Web3 means for payments  

The web has already irrevocably changed the way we pay for goods and services, and its next incarnation will have yet more profound effects on payments.  

Banking security will benefit from enhanced data protection and privacy with Web3 which, in contrast to traditional centralised systems that are prone to data leaks and cyber-attacks, uses encrypted data. The result will be anonymity and full security for clients’ and institutions’ financial information.  

However, the impact will go beyond enabling transparent and secure financial transactions. For financial institutions, Web3 has the potential to improve KYC (Know Your Customer) operations, lowering the chances of fraud via spoofing IDs. This will also improve the efficiency of the customer onboarding process, as the authenticity of all parties involved in a transaction is assured.   

It could also unlock the fintech holy grail of simplifying cross-border transactions by enabling smart contracts and not being bound by border restrictions, international payments become faster and more cost-effective. Due to intermediaries, traditional cross-border payments face challenges like opacity, fraud, high fees, and slow settlement. Web3 payments offer transparent, secure, fast, and global transactions, making them ideal for cross-border transactions.   

Prepare for another giant leap  

The leap from Web2 to Web3 will be as big as the one from Web1 to Web2, and ultimately I believe it will further simplify banking, empowering individuals and institutions while enhancing security and streamlining verification processes for financial organisations.  

Realising the Web3 vision won’t mean taking one giant leap, but lots of small steps. Enterprises should look to invest in education to familiarise themselves with the technology, as well as new technical expertise, either by hiring new talent or partnering with Web3 experts.  

Web3’s significance for financial institutions cannot be underestimated. Now is the time to prepare for this next technological paradigm shift.  

Image: PXP Financial