Estimated reading time: 6 minutes
During the 6th Singapore FinTech Festival 2021 (SFF 2021), the whole virtual conference’s theme was centred around this notion that the architecture of the web is evolving and this is influencing the future shape of financial systems.
But what is Web3.0? It only seemed fair that right after the Singapore Deputy Prime Minister’s welcome address, a prominent futurist should explain what exactly Web 3.0 is.
Sopnendu Mohanty from the Monetary Authority of Singapore (MAS) interviewed Balaji Srinivasan, former CTO of Coinbase, about decentralised financial products, and how all these could pan out and shape financial services.
Backend change
When explaining Web 3.0, Balaji talked through the evolution of the Web from its first iteration which was peer-to-peer, or client-server in terms of its back-end, or its architecture. The second iteration was a ‘hub-and-spoke’ – there was a centre and then ‘lots and lots of clients talking to that single server’ according to Balaji.
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They say we now have a native way to store scarcity as debits and credits, starting with digital gold.
“With Web3.0, that server at the back-end is not one company anymore, but it’s decentralised and you actually have a blockchain–based back end.”
He added, “It is something where we have digitised not just information, but scarcity as well. They say we now have a native way to store scarcity as debits and credits, starting with digital gold.”
Interestingly, the web is not the same as the Internet. Balaji explained that if we think of the Internet as represented by web pages, over time getting to a webpage required more and more back end work. Back end also became very complicated and stored lots of data. This back end became Web1.0.
With Web2.0 later, there were big centralised hubs that Web2.0 was based around which were very monetisable.
One way to see front end representations of changes in the back end, is to look towards the social media space.
For example, both MySpace and Facebook are web pages. But, MySpace was simple, mostly static, and uneventful. When we look at Facebook, the difference in terms of visuals and engagement is vast. And we know MySpace eventually went the way of the dinosaur.
Essentially, Web3.0 has taken all of that back end powering Web2.0 and decentralised it. “Now anybody can set up a server and be a server as well as a client,” Balaji said.
Front end change
Sopnendu put a financial services context to Web 3.0.
He said that it’s like someone came along and said, ‘Let’s get rid of all these institutions which are holding this data. And let’s try to program the obligations or rules in a smart contract.’
And so all of that is actually enabling decentralised finance, because all of these things that were previously held on the central bank, or bank-like entities that did debits and credits, are now on decentralised blockchains.
This explains a decentralised nature, and currently we have digital banks and digital payments like PayPal which seem sophisticated already, but a majority of these services are fundamentally still based on a central server.
We currently have online banks, digital payments like PayPal and so on. Fundamentally, these are based on a central server.
Balaji explained, “If I give you $1 dollar note, I would no longer have that cash, you would have it instead. If I emailed you the serial number of that dollar note, I would have that serial number and so would you.”
“We did not have a fundamental mechanism for scarcity built into the internet.
“The way we hacked it is we had a central bank, or a company that was running on top, that would debit me and credit you. There was a trusted third-party intermediary that would minus me and plus you.
“Of course, that meant the ‘intermediary’ could pay themselves a fee also,” Balaji pointed out.
Satoshi Nakamoto aimed to remove that intermediary with blockchain technology. “Rather than having one privileged root user, it allows anybody with sufficient compute, to stand up a mining rig and execute the debits and credits.
If I give you $1 dollar note, I would no longer have that cash, you would have it instead. If I emailed you the serial number of that dollar note, I would have that serial number and so would you.
Decentralised Finance today
That was ten years ago, and today this idea has expanded and scaled to even include groups of people to manage debits and credits between two persons, for example. Now, digital gold can be represented as debits and credits on blockchains, and the same goes for digital stocks, digital bonds, digital loans, or digital representations of any kind of financial asset.
Balaji said, “And so all of that stuff is actually enabling decentralised finance, because all of these things that were previously held on the central bank, or bank-like entities that did debits and credits, are now on decentralised blockchains.”
We may never ever fully grasp Web3.0 and decentralised finance during this life time. For those who would like to try, they can get their feet wet and become really hands on in the decentralised finance space by buying cryptocurrencies.
Balaji recommended interested persons to go to any cryptocurrency exchange in their country, and to buy cryptocurrency like Ethereum. He explained that visiting defipulse.com thereafter and trying out the applications there, was a good way to learn how to buy, sell, manage local wallets, and more.
“As you can see, it is a very complex topic, we hardly understood despite having this intense discussion.”
This is to learn how to use and eventually experience and grasp Web3.0, as well.
“It’s like saying, to get the Internet, I would need a smartphone or laptop,” he explained.
SFF Day 2 – The Future of Money, Finance, and the Internet
During the interview session, there was a portion where he outlined how decentralised finance may pan out in the next few decades. Needless to say, it is enough to drop jaws, or boggle minds, or both.
Sopnendu himself had concluded, “As you can see, it is a very complex topic, we hardly understood despite having this intense discussion.”
That said, the 3-day SFF conference still aspires to ‘break down every small element of the Web3.0’ and offer some understanding of its impact on the global finance infrastructure and services landscape.
MAS MD Ravi Menon, detailed a lot more about Decentralised Finance, and talked about working with the financial industry and broader ecosystem to find the right balance of its usage via regulatory sandboxes to broaden participation of early adopters.
The week-long SFF will feature more than 350 sessions, over 700 speakers, over 260 exhibitors, and 14 international pavilions. The event will be streamed ‘live’ to over 60,000 participants,
