The Fintech Times recently attended Token2049, the premier crypto event held annually in Dubai and Singapore where founders and executives of leading Web3 companies and projects meet, network and share their views on the industry.

There were several opportunities for us to catch up with industry leaders throughout the event, to understand the overlap between the traditional financial services sector and this fast-expanding world of crypto.

Let’s first take a look at the technology and terminology surrounding this industry to understand where we are and where we are going.

Technology

The decentralised network connected through a network of computers or nodes underlies blockchain technology, synonymous with cryptocurrencies. Blockchain protocols are the guidelines or rulebooks that determine how a blockchain works.

The term Web3 was coined in 2014 by Ethereum co-founder Gavin Wood, and the idea gained interest in 2021 from cryptocurrency enthusiasts, large technology companies, and venture capital firms.

The key to Web3 development focuses on providing a user-friendly interface and experience for decentralised applications. It’s common for end-users to interact with Web3 applications instead of the blockchain directly.

Azeem Khan, COO and co-founder of Morph, a blockchain company, explained: “I can’t wait for blockchains to be abstracted away to the point that no one knows they’re using a blockchain; in the future, it would just be understood that if you say I’m building a financial tool you would build on blockchain.

“I find it pretty insane that people try to compete on which database the information is stored on. It’s like a Web2 company saying, ‘Well, I use MySQL rather than Microsoft SQL, and that’s our competitive advantage’.”

Why is there so much hype about Web3?

Well, web browsers are now able to use a programming language called WebAssembly, which is a type of code, it is a low-level assembly-like language that runs with near-native performance and provides languages such as C/C++, C# and Rust with a compilation target so that they can run on the web, this allows the web browser to access lower-level functions like a traditional operating system, facilitating greater integration and more complex applications running natively in the browsers.

A prediction from Kadan Stadelmann, CTO of composable blockchain platform Komodo Platform, is that it is going to enable the web browser to be the future operating system, taking over from the likes of Windows, Apple and Linux.

At its core, Web3 employs blockchains, cryptocurrencies, and NFTs to return ownership to users. Web1 was read-only, Web2 is read-write, and Web3 will be read-write-own.

These native and powerful browser applications are numerous and well-suited to financial use cases. When we specifically examine cryptocurrencies, we observe a distinct use case in emerging and developed countries. In emerging markets, people use cryptocurrencies to preserve value, while in developed markets, they perceive them as an investment asset.

Revenue vs innovation

Crypto impacts people’s lives in developing countries where traditional payment infrastructure is lacking, while in developed countries, it may not be as relevant due to existing payment infrastructure.

Cecilia Hsueh, CEO and co-founder of Morph, on the differences between emerging and developed countries, said: “Given my experience, people in emerging countries care about revenue generation. Can this application help me to get money or make profit? Then they are happy to use it. But in developed countries, they care about innovation. They want to be the first to use the product. It’s a very different mindset.”

Pixels, a farming game on the Ronin blockchain, has recently become the first Web3 game, to surpass 100,000 daily active users (DAU). At the YGG Web3 Game Summit held last month in Manila, Philippines, Jeffrey ‘Jihoz’ Zirlin, co-founder of Sky Mavis, pointed out that Google Analytics data showed that over 82,000 visitors, representing over 25 per cent of all traffic to the Pixels website, came from the Philippines.

Constance W., Partner at venture firm Ryze Labs, says: “The people in the emerging market of the Philippines are utilizing Pixels as a means to earn money; it’s not solely about trading crypto assets. They are leveraging the play-to-earn features of web3 games to make additional income.”

Risk

When looking at the developed market’s preference for investing, Anastasia Ulianova, co-founder and co-CEO of A.R.I.A. (Algorithmic Ratings & Investment Analysis), a crypto rating agency, said: “When I asked people how they choose their crypto investments, there are three answers that I usually get: Oh, this one is safe. It’s like Bitcoin and has a high market cap, this one I heard about in the news. It’s booming, so I’m going to get in on it. Oh, this one my brother told me about. Over 90 per cent of people, I ask, follow this process; this is not investing, it’s gambling and it is high risk.”

Much of the talk around blockchain and cryptocurrency use in the financial world revolves around the concept of decentralised finance, or DeFi, as commonly referred to. However, the mass adoption of many of these DeFi applications is generally considered limited due to the perception of high risk and the lack of financial regulation.

Talking about risk, Nitin Agarwal, chief revenue officer at digital bank FV Bank, likened the current state of the industry to the unregulated era of media streaming services: “Everyone used to use BitTorrent to download movies, TV shows and songs, we never had our parents use it as the first thing they would get would be a virus because it was not structured, it was not regulated, it was high risk. When media distribution started with the likes of Netflix, Spotify and Amazon, people stopped using BitTorrent because the regulated versions were faster, better, trustworthy, and with no risk.”

When addressing the subject of risk, many naturally focus on the concept of regulation and consumer protection. Mainstream adoption unanimously identified this as the key challenge facing the industry.

What’s next?

My main takeaway from the Token2049 conference at the iconic Madinat Jumeirah in Dubai was that regulation is imminent and welcomed by all the individuals I spoke to during the event. They view this as the next catalyst for bridging the gap between the traditional banking services sector and the new world of Web3-powered financial services.

Christian Borel, head of MENA at Swiss crypto bank AMINA Bank, commented:, “I think right now, if we compare crypto to the internet era, we are at the 56k modem, so we didn’t even reach ISDN yet. We are only scratching the surface of the potential of the blockchain. And I’m certain that in the near future – I don’t know, maybe 2049 – that AI and blockchain technologies will have taken over certain parts of the banking world.”

Institutional investors are entering the industry, driving regulation at speed. How quickly can authorities implement these new regulations, and will they impact the sovereignty of this emerging industry? Will it become the very thing that they are trying to overcome?