This post is inspired by the following article on mckinsey.com

https://www.mckinsey.com/industries/financial-services/our-insights/web3-beyond-the-hype

The article discusses Web3.0, where it is right now, what are some of the possible use cases, and what challenges are foreseen. The web has seen an interesting journey in the last couple of decades from Web 1 to 2 to 3.

 While the first incarnation of the web in the 1980s consisted of open protocols on which anyone could build—and from which user data was barely captured—it soon morphed into the second iteration: a more centralized model in which user data, such as identity, transaction history, and credit scores, are captured, aggregated, and often resold. Applications are developed, delivered, and monetized in a proprietary way; all decisions related to their functionality and governance are concentrated in a few hands, and revenues are distributed to management and shareholders.

Web3, the next iteration, potentially upends that power structure with a shift back to users. Open standards and protocols could make their return. The intent is that control is no longer centralized in large platforms and aggregators, but rather is widely distributed through “permissionless” decentralized blockchains and smart contracts.

Web 3.0 is the future, no matter if you like it or not. At this point, it is difficult to predict how things will pan out, but the change will be significant.

The disruptive premise of Web3 is built on three fundamentals: the blockchain that stores all data on asset ownership and the history of conducted transactions; “smart” contracts that represent application logic and can execute specific tasks independently; and digital assets that can represent anything of value and engage with smart contracts to become “programmable.”

At this point, we are seeing the finance industry as one potential frontrunner in terms of use cases available for Web3.0 and Blockchain. The following image shows how lending is one area where Web3.0 can have an impact.

The opportunities presented are not without challenges. There needs to be clarity on the responsibility owned by various parties.

The chief challenge is regulatory scrutiny and outlooks. Regulators in many countries are looking to issue new guidance for Web3 that balances the risks and the innovative potential, but the picture remains unsettled. For now, there is a lack of clarity—and jurisdictional consistency—about classifying these assets, services, and governance models. For example, smart contracts are not yet legally enforceable.