Secured Finance
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Secured Finance

Future of Finance Ⅲ

〜The World of Web 3.0 as Seen by a Former Hedge Fund Portfolio Manager and Goldman Sachs Currency Trader

This story is a continuation of Future of Finance Ⅱ, Chapter 2: Information Asymmetry: The Merits and Drawbacks of Centralized Finance

Chapter 3 Decentralized Finance — The Future of Finance Shaped by Web 3.0 (1)

What was your impression when you first heard the term “cryptocurrency”? I thought, “Here comes another weird one. Crypto currency means it is not a real currency!?”. I had learned that blockchain was a revolutionary technology, but even with all the talk of “NFTs,” “ICOs,” and “billionaires,” I had not jumped into the fray. I was suspicious of them. It is natural to be skeptical of anything new and unfamiliar. The important thing, as I mentioned in the previous chapter, is to understand it well.

What about “Web3,” which has been making the rounds recently?

Photo by Shannon Potter on Unsplash

History of Web

Web3 is a trending keyword. But if you search through Wikipedia, you might find something really hard to understand… So, I would like to write my interpretation here.

Before that, do you know the difference between the Internet and the Web? Simply put, the Internet is a worldwide communication network, and the Web (World Wide Web) is a mechanism that connects and enables viewing of content and information on the Internet.

Only recently has the Internet come into general use. Originally, demand was for military use to be able to transmit the information as quickly as possible. A good example is the wolf smoke of the Middle Age period. Wolf smoke was more effective in conveying information about a crisis than humans running or riding horses. The “Web1” was a great invention that made it possible to read what was written on the Internet in a timely manner.

It has evolved to the point where people can not only read, but also write, argue, and communicate with each other, which is the “Web2” utilized in today’s society. Large-scale networks have been created, beginning with bulletin boards and continuing through blogs and other forms of communication. What has been spawned there is a huge technology company. Based on the business model of advertising, they have provided various services that can be used free of charge, creating great convenience. The most representative examples are social networking services such as Facebook and Twitter, Google, and platform companies such as Amazon and Apple.

Photo by James Yarema on Unsplash

The adverse effect of Web2.0

Have you watched the Netflix documentaries “Great Hack” and “Social Dilemma”? When Google and Facebook first started offering their services, I wondered how they could offer such useful things for free and why their corporate value was so high even though they did not receive any compensation from consumers. In Japan, there is a saying, “Nothing is more expensive than something being free.” I won’t go into the details, but both films above focus on the negative effects that seep into the real world due to the centralized collection of data by technology companies. The world is innovatively advancing without our knowledge, and I recommend watching these films to properly guide the children who will be responsible for the next generation.

Now and then, the media has been skillful in manipulating crowd psychology. Newspapers, radio, and TV news programs have been used to guide the masses. The problem is the accuracy and speed of progress. By siphoning, accumulating, and analyzing data from users on a daily basis, they capture thoughts and preferences and turn them into app addicts. Furthermore, the problem is progressing faster than even the companies providing the platforms can grasp and respond to it, such as the spread of fake news, political interference from abroad, and fueling social divisions through the growth of hate. It is said in the film that the processing speed of computers today is a trillion times faster than it was at the dawn of computers in the 1970s. What about our brains, on the other hand? It probably hasn’t changed. Without realizing it, we are being dominated by AI.

Photo by Shubham Dhage on Unsplash

What is Web3

It was 2017 when The Economist noted, “The world’s most valuable resource is not oil, but data.” Criticism continues to grow of these giant technology platforms that have monopolized and bloated this data. At the same time, there is a growing movement around the world to tighten regulations on these companies.

Web3 is the key to freeing these companies from the “lack of transparency” and “ambiguity of ownership” on how they use this big data.

Then how?

First, “decentralization”. Through the use of blockchain technology, personal information is maintained and managed by individuals. By moving data back from big tech companies to individuals, they are freed from the harms mentioned earlier. Also, if a company had centralized the collection and management of data, as has been the case up until now, the information could be easily extracted through hacking, or the service would be unavailable if the servers were down.

Next, “verifiability”. One of the innovations of blockchain technology is “trustless”. This means that past data written on the chain cannot be tampered with, so it can be easily verified and tracked, allowing for secure transactions.

And “self-ownership”. As mentioned earlier, Web3 allows individuals to control their own verifiable personal information and personal works stored on the chain. Conversely, the work that you currently create on platforms such as YouTube, FaceBook, TikTok, etc. is owned by the platform and there is no way to get it back if your account is blocked for any reason.

Finally, “economic rationality”. It allows individuals to utilize self-owned items for their own benefit and directly earn commissions that were previously exploited.

To summarize,

Web3 is a movement to revamp the existing Internet browsing mechanism. The reason why we need to change is that we want to bring back the information and privacy that was unknowingly extracted by Web2 from the platform into the hands of each individual, and make it safe, easy, and efficient to use for our own benefit. I believe that Web3 is the “technology”, “concept”, and “direction” to realize this.

I would like to explain what kind of products we would like to create by utilizing this Web3 technology in the next chapter, Chapter 4 Decentralized Finance — The Future of Finance Shaped by Web 3.0 (2).

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Secured Finance AG is a Swiss company that develops Fixed-rate loans to bring derivative structuring capatility for digital assets.

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Kenji Mitsusada

Head of Markets @ Secured Finance. 18 years of interest rate derivatives trading experience. Former Co-Head of G10 FX Forwards and STIR Trader at Goldman Sachs