Richard Shearer, CEO of Tintra
The difficulty in discussing web3, sometimes known as Web 3.0, is that it doesn’t exist yet. However, while the concepts involved may not be fully formed, and the technology infrastructure of the web’s next iteration complex, the potential economic impacts of web3 are likely to be tangible – and worth taking seriously.
What is web3?
In brief, the term ‘web3’ refers to a predicted third iteration of the internet. The internet we currently use is considered the second version, characterised largely by e-commerce and interactions with online platforms through various forms of social media. Some describe our current phase as a ‘user-generated web.’
Though we may not pay for all the services we consume on the internet, there’s still a toll involved – often in the form of personal data and other information about our preferences, which fuels intensely targeted advertising. Most of this data lines the pockets of enormous companies like Meta, Google, and Amazon: tech giants that are sometimes described as feudal lords reigning over their digital domains.
In the eyes of web3’s supporters, a new iteration of the internet could put an end to the tech giants’ overwhelming influence over personal data through blockchain-based technology. In the era of web3, the internet’s data would be recorded on the blockchain -a public ledger which would keep track of any data movement – and allow for a decentralised approach that would forgo the middlemen and permissions that limit current internet use.
These terms aren’t necessarily familiar or easy to grasp at this stage. Thinking about the practical outcomes for this kind of technology, however, is a good way to establish some possible economic outcomes as we edge closer to something resembling web3.
Economic uncertainties
There’s no consensus as to whether web3’s economic impact will be positive, negative, or some mixture.
Economics Observatory, an initiative run by UK research economists, captured the uncertainties here in a recent discussion of the cryptocurrency adoption that comes hand-in-hand with web3. As University of Cambridge researcher Sam Gilbert points out, “A collapse in crypto asset prices could force investors to sell off other assets to cover losses, reducing liquidity in the financial system and affecting investor sentiment. This could then have potential knock-on consequences for the real economy.”
On the other hand, the researcher points out that a Bank of England endorsed central bank digital currency might bolster monetary policies used to stimulate economic activity in the event of a downturn.
Despite these uncertainties, however, it’s possible to draw some conclusions on web3’s economic impact by thinking about how a blockchain-based internet (and its associated digital currencies) may allow for changes in terms of global payments.
Reduced friction for global transactions
These changes were hinted at in questions asked as part of the recent World Economic Forum Annual Meeting: “In the future, will we still send cross-border payments? Or will we be able to freely engage (in a compliant, trusted, and privacy-preserving manner) in the frictionless exchange of economic value?”
The prospect of freely exchanging currency isn’t just a minor aspect of web3, but one that animates discussions of the topic.
As early as 2018, Gavin Wood – co-founder of Ethereum – pointed to payments as a crucial element of web3. He pointed out that, currently, we don’t directly make our own online payments: “In reality, you must contact your financial institution to do it on your behalf. You are not trusted to do something as innocuous as pay your water bill. You are treated like a child appealing to a parent.”
By contrast, payments in a web3 setting would cut out the middleman altogether, with decentralised payment apps finalising transactions by recording them in the blockchain.
This proposed future of payments via open-sourced protocols could have profound economic impacts – not only by widening financial inclusion for those who are currently unbanked or underbanked, who can use e-wallets instead of bank accounts, but also by introducing a means of conducting international transactions between entire countries which are currently penalised by financial middlemen for transacting with their Western counterparts.
New levels of inclusion for emerging markets
Emerging market countries suffer most from the friction of international transactions – so, assuming that web3 could usher in new and frictionless payment methods, we can assess its economic impact by thinking about the implications of developing countries being given the freedom to transact without barriers or prejudice.
In this light, the potential economic benefits are hard to ignore. There is, after all, widespread agreement that cross-border payments – according to a report from the Financial Stability Board (FSB) – “sit at the heart of international trade and economic activity.”
The FSB goes on to point out that “faster, cheaper, more transparent and inclusive cross-border payments” – which web3 potentially offers – “would have widespread benefits for supporting economic growth, international trade, global development, and financial inclusion.”
In fact, inclusive cross-border payment systems are widely acknowledged to be economically beneficial: the Bank of England has made near-identical claims about the “widespread benefits” of faster and cheaper international payments, with an emphasis on emerging markets. As the Bank points out, payments like remittances are essential for low and middle-income economies as a form of development finance, while the IMF points to cross-border payment reforms as a means of unlocking economic growth.
In short: there’s universal agreement that easy cross-border payments are economically powerful.
If web3 can drive a future which sees emerging market economies free from the stringent regulatory restrictions that currently hamper their abilities to transact and trade, they will be in a position to bolster what the Bank of England predicts to be the $250 trillion worth of value that cross-border payments will represent by 2027.
Principles over practicalities
Nobody can say whether web3 will come to fruition, or whether it will look like the vision described by futurists.
What we can say, however, is that there’s clearly an appetite for change in the way we act and transact in online settings. There’s no question that people want to cut out the middleman and enjoy seamless web-based and financial infrastructure, whether for the controlled exchange of data or for cross-border remittances.
There’s also a clear economic benefit to making these payments as affordable and transparent as possible, with consensus among a range of financial organisations and thought leaders on that score.
As such, despite web3’s unpredictability, this kind of thought exercise can certainly point us towards the kinds of seamless, friction-free payment technologies that – whatever web3 may ultimately look like – the global economy will clearly benefit from.
