Decentralization vs. centralization: Web3 may be right around the corner, but the race for central crypto regulation is also speeding up.
2021 has been a significant year for crypto with no fungible token (NFT) being awarded word of the year, decentralized finance (DeFi) trending in the mainstream media and crypto companies making headlines for a variety of announcements. This is, no doubt, in part due to the effects that COVID-19 has had on the economy, with many looking for new ways to diversify their finances and a move to working from home giving people the free time to research new interests. And, many chose to get involved in crypto.
As conversations began to move on from Bitcoin (BTC) to other larger crypto projects like Ethereum network upgrades and central bank digital currencies, or CBDCs, news coverage would suggest that the mainstream adoption of crypto is already well underway. However, there is one project which could have the ability to catapult crypto well and truly into everyone’s day-to-day lives: Web3.
What is Web3?
With an emphasis on community, Web3 represents the future of the internet where users operate in a decentralized way rather than relying on large private businesses or centralized government bodies.
To many, this seems like the next logical step for the internet, where the concept is partially built on the shortcomings of Web 1.0 and 2.0 such as the concentration of power within centralized entities and issues relating to privacy.
We’ve already seen examples of this within the crypto and DeFi spaces such as the MakerDAO project, which seeks to build an unbiased global financial system run by the community. As DeFi popularity grew in 2021, more projects and protocols made their way onto the market, all vying to bring the benefits of DeFi to as many people as possible. Similarly, protocols such as Nereus have been designed to address issues of fair governance and user experience, both of which mirror the existing issues of Web 2.0.
While it may seem like Web3 and DeFi protocols are separate projects (which they are), these protocols are laying the groundwork for Web3 and its adoption. We’re still some way away from seeing Web3 become a reality, but the DeFi protocols coming onto the market not only offer a taste of what the next iteration of the web might be like but also provide opportunities for feedback and tweaking to help make sure Web3 truly serves everyone to the best of its abilities. So, would this mean that crypto would be truly mainstream?
Arguably, yes. As of Jan. 2021, there were around 4.66 billion active internet users around the world, and if Web3 became the default, every one of those users would end up using blockchain and crypto technology on a daily basis, even if they weren’t aware of it. However, the main issue lies in what Web3 would even look like. And, as a community project, it means there isn’t always one single direction for the next phase of our internet. As such, some have argued that widespread adoption would be difficult due to technical gatekeeping and a lack of clear direction.
Can mainstream adoption happen without Web3?
While crypto use has been on the rise since the pandemic, the increase in new wallet holders has started to slow down. This would suggest there’s something blocking the next step of mainstream adoption. While it’s possible that waiting for the implementation of Web3 could be the reason, government regulation could be another factor to help drive crypto into the mainstream.
Previously, crypto hasn’t been seen as easily accessible to the mass market due to its complexity and perception of volatility. Opinions have started to change as more accessible crypto products come onto the market such as stablecoins, crypto-enabled debit cards or DeFi products.
Despite the multitude of benefits crypto and DeFi can offer, some people remain skeptical due to lack of government oversight, which is a very understandable stance. Would crypto move into the mainstream then if governments began to set out guidelines?
Based on the evidence we’ve seen, the answer is surely a resounding yes. Arguably, crypto is already “mainstream” in countries with comprehensive regulation such as Singapore or countries with governments strongly in favor of cryptocurrencies, such as El Salvador and, most recently, Tonga. It only remains on the sidelines in countries still drawing up frameworks and deciding on their stances on crypto.
The next steps
While it’s possible that government regulation and the dawn of Web3 could bring crypto into the mainstream, they both potentially have the power to shape the future of crypto and DeFi and decide where the movement goes next.
With Web3 the emphasis is on decentralization, moving data away from central powers and using AI power to make the internet completely accessible to all without having to rely on big businesses. The current structure of our internet has received criticism due to surveillance and exploitative advertising. For those who extol privacy and anonymity as the main benefits of crypto, the integration of Web3 would make these values more synonymous with day-to-day life. Many have claimed that this was the original goal when Bitcoin was first created — to allow users to operate free from central control.
In contrast, if more governments decide to establish frameworks and regulations for crypto, it is likely there would be more of an emphasis on centralization. Several countries have recently made announcements regarding CBDCs, which would establish a cryptocurrency that would be under the control of a central government.
The United Kingdom, for example, seems to have taken its plans a step further with the creation of the new Crypto and Digital Assets Group to ensure that the U.K. cultivates innovation within the crypto sector while establishing regulation. While this would allow even more people to have easy access to the benefits of crypto such as faster transaction speeds and lower costs (while also mitigating volatility), it would move the emphasis of crypto away from sovereignty and decentralization.
The crypto space is currently at a crossroads and the race between Web3 and central regulation will shape what the future of the industry looks like.