M2W3 - Web3 is like the banking system without the bankers
M2W3 - Web3 is like the banking system without the bankers
A mental model to understand web3 is removing the bank i.e. removing the middleman
Web3 is a nebulous term. It has too much baggage—blockchain, cryptocurrency, decentralized finance (DeFi), non-fungible tokens (NFTs), decentralized autonomous organizations (DAOs). So, let’s keep it simple and define it with examples.
Money transfers
A usual example is for overseas money transfers. If you send money from the US to Singapore, it will likely have to be processed by a financial institution. There are many things that go around this transaction like laws, regulations, foreign exchange, processes, etc.
We trust a bank for this and:
We pay a fee
It can take days to process
Documentation is often necessary
A web3 world is much more convenient. Less fees. Instant transactions. No need to re-submit documentation for every transfer.
How? Without going into the technicalities, web3 replaces the bankers (or most middlemen for that matter) with standardized computer code. Institutions are replaced with code so, it’s cheaper. Everything is online so, it’s faster. Data is saved and accessible online so, documentation is convenient.
Deposits and loans
Another example is for deposits and loans of the banking system. Traditionally, you would deposit (trust) a banker with your money. In return, you get interest. On the other hand, bankers loan out your money for a higher rate. They keep the difference.
We trust a bank to:
Keep our money safe
Give us a fair amount of interest
Prudently loan out our money at a fair rate
A web3 world is much more convenient. Trust computer code, not people, with your money. Institutions are replaced with code. So instead of paying for banker salaries, you can get better rates for deposits and loans.
Be your own bank
Let’s think bigger. If the bankers are gone, why don’t we run the banks ourselves? You get a bank, they get a bank, we all get a bank!
Not as crazy as it sounds. Stay with me here - if all the basic functions of a bank could be replaced by code, then you could just fit a bank in an app on your phone.
A web3 world is decentralized. People can choose who to lend to, specify the rate they are willing to give a loan for, and trust computer code to complete the contract.