By Michael Hainsworth
2021 was a year of change while many things stayed the same. While we continued to battle COVID-19, a digital revolution was taking place. As Bitcoin rallied from US$40,000 to a YTD high of $84,000, the cryptocurrency proved that its underlying infrastructure, the Blockchain, and Web 3.0, worked.
Web 1.0 and 2.0 was “basically was bad for money and assets and that's because when you use is the internet today to send information, you can't create scarcity in digital goods,” states Ninepoint Partners Managing Director of Digital Assets Alex Tapscott. An image, an email, or a video can all be copied once or a million times. “But it's not good if it's meant to be something of value,” he adds, “like say money or stocks and bonds or other goods, including digital goods.”
Tapscott describes Web 3.0 as “the Internet of Value.”
Using Blockchain technology – not BitCoin – allows anyone to move and store assets peer to peer without the need for an intermediary like a large technology or payments company or even a bank. Scarcity is a requirement when it comes to sending money, trading stocks and bonds, real estate titles and deeds, and votes. By enabling this new medium of value, Tapscott sees Blockchain ushering-in a new era of the Internet, telling the Alt Thinking Podcast that “with it comes a whole myriad of new business models and new ways of thinking about how we interact online.”
One of those new business models is Decentralized Finance, DeFi (rhymes with “WiFi”). It’s early days, however. The industry is currently valued at about US$150B with user deposits north of $200B. “(That) sounds like a big number until you realize that it would make it a tiny bank in the conext of traditional financial services – or even in an asset management sense,” Tapscott admits. Blackrock, for example, has US$5T in assets under management. Tapscott points out that “it’s a sign that there’s a clear product market fit,” however. With about 4 million people using decentralized finance with crypto wallets and NFTs, we’re only barely scratching the surface. “Two years ago it was almost nobody,” chuckles Tapscott.
If Decentralize Finance under Web 3.0 is going to scale, it needs a reliable digital identity system. Presently all you need for DeFi is a crypto wallet. But for institutional-grade transactions, the co-founder of the Blockchain Research Institute believes Blockchain is the solution. He sees identity systems going sovereign, allowing individuals to control the data that makes their own identity.
One area Tapscott sees ripe for Decentralized Finance is the area of investment margin accounts when a margin call is placed. “There are protocols, technologies that do all of this automatically. So you can deposit digital assets inside of a lending pool… and you can receive more funds to go invest. However, if the value of the assets that you've deposited drop beneath a certain level, then the DeFi project automatically liquidates you in order to make sure that the lender is made whole.”
Tapscott also sees DeFi as able to eliminate the settlement delay between trades. What currently takes as many as 3 days to clear can be cleared instantly thanks to the Blockchain’s secure and decentralized nature.
He also sees DeFi transforming the legacy payments infrastructure that we use every day like the Internbank network SWIFT first developed in the 1970s. Tapscott calls it “basically a super-secure instant messaging platform. That’s about it.” He questions why anyone would pay up to 10% of a transfer to send money cross-border with as much as a 5 day clearing period. “Why would you send a letter or a telegram to your family overseas when you can have a Skype call with them, or when you can send them a text message or a WhatsApp?” Tapscott opines, adding that DeFi, “is like a quantum leap in technology where you don't need all of those legacy institutions and all that old infrastructure.”
For further insight into Web 3.0, Decentralized Finance, and the Blockchain, read the detailed report at www.blockchainresaerchinstitute.org or learn more about carbon-neutral bitcoin investing at Ninepoint Bitcoin ETF.