It’s neither bird, nor plane, nor superhero. It’s not an app or a singular new piece of technology. To define Web3.0, this year’s latest buzzword notch in the Gartner hype cycle, it might be easier to say what it’s not, rather than what it is.

From large US institutions—such as Goldman Sachs and Meta (formerly known as Facebook)—to the smallest start-ups, there’s a general consensus that Web3.0—or Web3, the latest iteration of the internet following Web1 and Web2—is something we need to brace for. But whether it brings forth a fully digital, immersive world—daily life experienced not through rose-tinted spectacles but through virtual reality (VR) headsets—or ushers in a decentralized, privacy focused, blockchain-led utopia, or looks like something else entirely, is anyone’s guess.

Analysts at Goldman Sachs say Web3 will usher in “dramatic shifts in industry structure … that could impact current investor perceptions of platform moat/strength, industry input costs, possible headwinds to monetization driven by personalization, and potential for shifting media and commerce trends.” Microsoft, for one, is feeling the winds shift, having bought video game company Activision Blizzard for $68.7 billion in cash just last week. And to further illustrate the flow of money into this new arena, Animoca Brands, a Hong Kong-based gaming software and venture capital company, completed a capital raise of nearly $359 million, at a pre-money valuation of $5 billion.

Those are hefty sums, being spent by large corporations, who clearly intend to become dominant digital players. But on a smaller level, a new world is already in motion.

I know people use ‘Web3.0’ freely, and everybody has a different interpretation and understanding. Our view is that it’s supported by decentralized technology

Fangfang Chen, BNY Mellon

Brion Bonkowski, founder and chief executive officer of Tern, a start-up that specializes in white-labeling other fintech products, mainly in payments, has hired roughly half of his employees since the start of the Covid-19 pandemic. To make up for the fact that most of Tern’s staff had yet to meet face-to-face, Bonkowski, like many others, began hosting company happy hours via Zoom on Friday afternoons.

During one of the meetings, a few employees mentioned that they’d been using VR headsets for entertainment during the long days of quarantine. This caught the attention of Tern’s chief product officer, Corey Glaze, who then bought a headset for himself and hosted a work meeting with employees that already owned one.

“He said it had fantastic dynamics—[that it was] really interesting how you actually almost feel like you’re in the same room as somebody. That intrigued me,” Bonkowski says. “So I bought a headset for myself, just to try it out.”

After one meeting using VR, Bonkowski bought each member of the company a headset made by Meta’s Oculus. On average, he says his team now spends five to 10 hours of their week in VR, hosting and attending formal and informal get-togethers alike. They’re learning each other’s voices, hand gestures, mannerisms, even the ways in which they walk across a room—all, still, without ever meeting one another in person.

Tern’s staff have created a virtual office, which features the company logo on the lobby wall and rooms containing virtual computers and keyboards, which are operated by physical keyboards connected to the headsets. Represented by avatars created in each person’s likeness by one of Tern’s designers, employees can pop in and out of the rooms, work on a collaborative virtual whiteboard, and take their places at a panoramic conference table. They can even carry on whispered side conversations with those seated near them, undetected by colleagues.

“The utility of it is really starting to ring true. We find it to be a very efficient way to do some relatively sophisticated problem solving beyond the flat, two-dimensional Zoom calls,” Bonkowski says. “And I think one of the key elements that I’ve found is it’s really hard to take the headset off and look at your phone or look at your keyboard. You’re really engaged—when you’re in there, you’re really in there.”

A case, perhaps, for both increased productivity—particularly during an era of unprecedented burnout—and mild dystopia, this experiment in VR, and others like it, are part of the public’s introduction to the metaverse, the forthcoming fully-digital, immersive, and interactive world upon which people like Mark Zuckerberg have bet all their chips. We can think of it as the new internet—albeit one with an even more prominent place in society than we can imagine today—whereas its sister component, Web3, will underlie and govern it.

The internet as we currently know it is based on what’s called Web2, which gave rise to the interactive web. More concretely, the advent of smart mobile devices, subscription services, and social media sites gave the world services considered nearly ubiquitous today, such as Netflix, Twitter, and Instagram. On these platforms, users can interact with the service itself and with each other, though only within the confines of the application. The foundation of Web2 was Web1, the first iteration of the internet—the world of desktops, dial-up modems, and static, read-only web pages.

Users vs corporations

On the face of it, the vision for Web3 from a consumer perspective is that of a great equalizer. Its most ardent believers think it can be wielded to take power away from large, centralized corporations—Google, Amazon, Meta, et al.—and return it to users, who will own and maintain the next generation of internet applications (as well as their personal data) through a decentralized ecosystem built on the blockchain. It also makes application interoperability a central tenet, through which users would be able to interact with each other without an application and provider acting as an intermediary that collects and monetizes their data along the way.

Naturally, the cryptocurrency community is excited. But with the aforementioned companies already leading—or even fighting back against—the new movement, it’s entirely possible that such an aspiration will never materialize. Twitter’s former CEO, Jack Dorsey, has said in a tweet: “You don’t own ‘web3.’ The VCs and their LPs do. It will never escape their incentives. It’s ultimately a centralized entity with a different label.”

The internet is upside down in terms of it being a risk mess. It went from being a distributed thing to a cloud-based thing that, when Amazon’s down, we’re all screwed

Brad Levy, Symphony

However, fintechs and institutions alike are expecting the unexpected, and expecting derivatives of the unexpected. In a December equity research report by Goldman Sachs, “Framing the Future of Web 3.0: Metaverse Edition,” the bank’s analysts said that one of the key elements that management teams and industry experts have stressed is that the metaverse must be an interoperable experience, in which consumers can take virtual assets and experiences throughout the metaverse—a stark contrast to Web2, which has witnessed large-scaled walled platforms that require users to operate within the confines of the respective app or device.

“While these walled gardens have allowed companies to collect vast amount of data and innovate and enhance products, the experience ultimately disadvantages consumers (by confining them to only operate within the respective ecosystem) and developers (by forcing their hand to develop for multiple devices and operating systems). Looking ahead, we anticipate that many large-scaled platforms will need to disrupt their business models in order to operate within the Metaverse. While we are still many years away from an interoperable world, we have started to see some progress being made on opening up walled gardens,” the report states.

Banks on board?

While Goldman’s findings may offer insights into how its traders are thinking about the changing the technology sector broadly, BNY Mellon’s Asia-Pacific chair and head of asset servicing and digital, Fangfang Chen, is thinking about Web3’s implications for traditional banking—which, to date, has not been overly receptive to blockchain projects.

“Web3.0 is a journey. If you look at it from the financial industry we’re going towards that by utilizing DLT technology, and over time you’ll start to see [progress]. There are some grassroot efforts, which probably financial institutions haven’t been actively participating in, but closely monitoring, which is the DeFi [decentralized finance] movement,” Chen says.

It seems counterintuitive that a classic intermediary, such as a bank, would be on board with a school of thought that revolves around disintermediation and decentralization. But Chen recognizes that this is the direction where consumers are headed, with or without the banks. The public’s desire for financial democratization can be seen in the rise of the day-trading app Robinhood, and was intensely felt when last year’s meme stock frenzy rattled the upper echelons of finance.  

As a result, BNY Mellon’s projects that fit into the frame of Web3 are for now confined to distributed-ledger technology (DLT), a permissioned version of blockchain that allows for access control, customer confidentiality, and data protection.

One such project is the bank’s participation in the Marco Polo Network, a consortium leveraging DLT technology to create a more open and connected global trade finance ecosystem. BNY Mellon is also one of 15 institutional members of Fnality, which aims to tokenize cash and use it to facilitate clearing and settlement at the wholesale level. Currently, Chen says, the initiative is looking at creating three tokenized currencies and working with central banks on approval processes. In addition to industry-level projects, Chen adds that the bank is the throes of several proofs-of-concept with clients related to asset tokenization.

“We believe Web3.0 really is a focus on trust, transparency, privacy, and user control, supported by this dispersed network and decentralized consensus, which is really blockchain technology. And that’s the open distributed internet or a digital world of sorts … I know people use ‘Web3.0’ freely, and everybody has a different interpretation and understanding. Our view is that it’s supported by decentralized technology,” she says.

While Chen and those who already work and play in digital assets are inherently more bullish on Web3’s coming, there’s a possibility that banks—which are already lagging behind in areas such as cloud adoption when compared to less-regulated tech sectors—may be inclined simply to do nothing, or rather, finish what they’ve started in other areas before future-proofing for a whole new, somewhat mystical era. But the fintechs and platforms they employ for their trading and operations services, which are nimbler and more adaptable by nature, may be well ahead of them, exposing them to Web3 and its philosophies before they even know what’s hit them.

As these shifts render the world ever more digital, the CEO of Symphony Communications, Brad Levy, for one, is concerned with identity and how the internet’s evolution has stolen the concept from its users.

“I don’t use rewards cards. I don’t like being tracked. I don’t like giving up my life. The internet is upside down in terms of it being a risk mess. It went from being a distributed thing to a cloud-based thing that, when Amazon’s down, we’re all screwed,” he says. “We’ve taken decentralized internet, made it without identity, and then we’ve put cloud on top of that, which has taken the good part of it, centralized it and made it riskier, and it’s even given others power over us.”

He recounts Apple’s decision last year to let users decide whether the apps on their iPhones are allowed to monitor and share their activities with other entities. The move prompted a response from Facebook (prior to its rebrand), which took out full-page newspaper ads denouncing Apple’s privacy feature as harmful to small businesses, the New York Times reported. The move also would have hurt Facebook’s own business by hindering its ad-targeting algorithms. (In the story, Zuckerberg denied that his company’s business would be hurt by Apple’s policy.)

If a person is a trader for 20 years, his or her job doesn’t change for 20 years. With new innovation, you have less regulation, and then you have the opportunity to make more money, and you can shape where the industry is going

Ying Cao, formerly Barclays, now Work in Fintech

In Levy’s ideal digital world, users could establish themselves, their likes, and their interests on a platform, and any content targeted at them would be a direct result of those user-set boundaries. Nothing more, and nothing less. That’s why Symphony bought StreetLinx, a counterparty mapping platform, last year. The acquisition added more than 200 institutional counterparties to Symphony’s roster of more than 1,000 service users.

“[With StreetLinx], you’re going to establish your identity; you’re going to create your profile; and the Street can send you research that you want. And the moment you don’t want that certain ticker anymore because it’s not on your list, you stop getting that research,” he says. “And you are willing to expose that profile to Goldman Sachs, or let’s say Alliance Bernstein, because it will allow them to target you better with what you ultimately want. What you don’t want is them watching your actions, because then they could figure out what you’re maybe trading.”

And if it isn’t through their own volition or exposure by their fintech partners that banks encounter Web3, perhaps they’ll begin losing staff—not only to the big tech firms, but also to agile technology-led start-ups that may end up as winning lottery tickets in the internet’s evolution.

Ying Cao was one such loss for Barclays. After a 10-year stint at the investment bank, in July last year she ended her tenure as head of digital products, a group she had helped form and which she helmed for nearly four years, and resigned.

“After being the digital head, I realized there’s so much you can do in a bank, but at a very, very slow pace compared to the modern-day of technology,” Cao says.

In the next breath, she cofounded her own firm, Work in Fintech, which she started with Matthew Cheung, CEO of Ipushpull, an enterprise software-as-a-service platform provider to the capital markets. The company studies and develops projects in blockchain, non-fungible tokens, and Web3 to attract students and young professionals to work in fintech and apply such technologies to their work.

Cao, however, doesn’t view the advent of Web3 as a threat to banks, but rather as a catalyst for bigger and better things.

“If you work in finance, you hate your job. And the reason you hate your job … is actually two reasons. I think number one is because there are a lot of restrictions: You are very constrained in the things you can use at work compared to your normal life. We have a smartphone, but at work you still use an old, crappy phone,” she says. “Number two is that there’s not a lot of innovation in the finance space. If a person is a trader for 20 years, his or her job doesn’t change for 20 years. With new innovation, you have less regulation, and then you have the opportunity to make more money, and you can shape where the industry is going.”

With additional reporting by Wei-Shen Wong.