How will web3 change the way money is transferred?
Web3, or the decentralized web, is the new generation of internet and revolutionizing the way the world operates. Web3 predecessor, Web2, is built in a centralized way. This means that the control is focused only on certain massive platforms and technology companies, like Facebook, Google, Twitter, Amazon, or Spotify that handle vast amount of user interactions and data. In Web2, huge companies and their platforms dominate and leave users with no other option than to use them as intermediaries for services. However, with the Web3 build on a blockchain technology that’s seeks to distribute power and control amongst users, no intermediaries are needed. Users have more ownership over their digital assets and data and the transparency of Web3 reduces reliance on authorities.
Unlike Web 1.0 or 2.0, Web 3.0 is built on a blockchain technology that allows trustless and decentralized transactions. When previously transactions required an intermediary, like a bank to process payments, individuals or entities can now transfer money peer-to-peer without any meddling hands. This means that the transaction is handled by the blockchain network, allowing transactions to be documented and visible to the public. The transparency of Web3 money transactions leave very little room for tampering or altering transactions, making them trustworthy – without requiring trust between peers.
What are nodes in the Web3?
Transactions in the Web3 are made through a blockchain network that consists of decentralized network of computers, called nodes. To explain nodes simply, one can use a company metaphor: A company consist of individuals who all have their own role within the company. Every role is important as they all contribute to the same cause, keeping the company running. Just like in the blockchain, nodes are computers that communicate, share information and work together. Without workers, a company cannot operate and will die. Without nodes, the blockchain network cannot exist.
No mediatory trust between peers needed
Smart contracts are a viable part for the blockchains functioning as they are the ones making sure decentralized transactions happen in the Web3 like planned. Smart contracts are contracts with the terms of agreement written straight into the lines of code. They automatically enforce the conditions of the contracts between sender and receiver, eliminating the possibility of tampering or altering. Smart contracts work by following simple “if/when…then…” statements, says IBM’s article What are smart contracts on blockchain? (N.D). IBM explains how smart contracts’ actions can be used to, for example, release funds to wanted parties, issue tickets, send notifications, and even register a vehicle. “A network of computers executes the actions when predetermined conditions have been met and verified.” Nodes make sure that smart contracts are issued and transactions, value exchange, go as planned.
Money moves – with what vehicle?
Common way of executing a decentralized transaction is with cryptocurrencies. Currencies like Ethereum or Bitcoin are digital money that let value exchange between sender and receiver. They can be bought, sold, and traded in various online platforms, like Binance, or even brokerage services, like Robinhood. The volatility rates of cryptocurrencies are extremely high, caused by the variations of supply and demand, investor, and user sentiments, government regulations and media hype, lists Nathan Reiff, in the article Why is Bitcoin volatile? (Investopedia.com 4.6.2022).”In late October 2021, Bitcoin’s price skyrocketed - - to more than $69,000, Reiff says: “After the hype died down and investors realized the ETF was linked to Bitcoin through futures contracts - - prices dropped back down around $50,000.” Even with the price fluctuations, most decentralized transactions are made using cryptocurrency.
Another way to exchange value in the Web3 is with Non-Fungible Tokens. NFT’s can be artwork, digital real estate, or even items introduced in a game. They are always unique and the transactions with NFT’s include ownership of the asset within the blockchain. This is the reason why one cannot, for example, take a screenshot of another’s NFT and call it theirs. The transition of ownership is documented in the blockchain and therefore tracible. NFT’s are famous for extreme volatility and prone to market and pop-culture trends. The value of the asset is usually formed by the demand, not by the NFT in itself. This is why creators with an audience, like public figures, might sell NFT’s with a higher price: They have demand.
Techtarget.com defines Tokenization as” the process of replacing sensitive data with unique identification symbols that retain all the essential information about the data without compromising its security.” In simple terms, real-life assets, like intellectual property, company shares or real estate, can be tokenized into digital assets. This allows an easier way to transfer assets that are traditionally illiquid.
The world’s transformation into Web3 is an ongoing process that will still take up plenty of time. Especially in the field of money, society walks on eggshells: Regulatory challenges and scalability are like brick walls for technological advancements like Web3, and more time is needed for users to adapt to major changes. However, what is undeniable is that the future of money transfers is moving into the web, where they are more accessible, transparent, and better protected from the landscape of financial crimes.