Web3 promises a blockchain-based iteration of the internet that is decentralized and gives users control over personal data. Financial services incumbents risk getting left behind as fintechs flood the space—but they first must understand what Web3 really means and where it’s currently falling short.
Web3 is a new iteration of the internet built on decentralized blockchain networks—the shared ledgers used by cryptos like Ethereum. It allows access to numerous applications including immersive virtual worlds, gaming, social media, music streaming, and finance.
The biggest difference between Web3 and its predecessors lies in decentralization: It is jointly operated by multiple players instead of being controlled by central authorities, such as Google or Microsoft in the current version of the internet. That means users have greater control over their personal data.
Web3 is intrinsically linked to crypto, which is in crisis. Web3 users can’t touch applications without touching crypto. For example, to pay for a game, users need a Web3 wallet with crypto. But consumers may have little appetite for it after many got burned by crypto in 2022.
That connection tarnishes Web3’s biggest advertised benefit: trustlessness. Individuals don’t need to trust their counterparties or a bank that facilitates a transaction, as transactions execute immediately when conditions are met. But crypto’s disastrous year proved that blockchain far from solves trust problems.
Other barriers include: