With the rapid development of decentralized finance and blockchain technology, financial inclusion is closer than ever.
In the late 2000s, the Global Financial Crisis (GFC) unleashed a tsunami of economic turmoil that reverberated around the world. Not only did it shake the deeply-rooted beliefs of centralized finance (CeFi) and institutions, but it also witnessed the demise of banks and businesses as stocks plummeted and international trade took a deadly plunge.
Needless to say, the GFC shed light on the fundamental shortcomings of the existing financial system and further emphasized the need for financial sovereignty. In the wake of this crisis that shook the world, the pseudonymous creator Satoshi Nakamoto launched Bitcoin BTC $29,276, the world’s first and original cryptocurrency, providing the opportunity for anyone to access a form of finance outside of CeFi.
Bitcoin, released as open-source software in 2009, was the first decentralized cryptocurrency. Source: Unsplash
Undeniably, the introduction of Bitcoin marked a pivotal turning point for financial inclusion, as it led to the development of decentralized finance (DeFi) and the utilization of blockchain technology. Financial inclusion, a measure of access to and use of financial services is a vital component in driving economic growth and sustainable development around the world. While the number of “unbanked” users has decreased over the past decade, according to the latest data from the World Bank’s Global Findex Database 2021 report, 1.4 billion adults across the world remain unbanked, with more than half living in seven economies.
Source: Global Findex Database
Historically, the ownership of a bank account has been a key measure of financial inclusion and it remains to be the first step in accessing financial services in traditional finance (TradFi).
Evidently, with the emergence of DeFi, the barriers to entry and access to finance have been significantly reduced. Users can create a digital wallet in seconds without the need for the complex documentation often required to open a bank account, thus further disrupting the TradFi system and improving financial literacy among underserved communities. However, as the industry moves toward the more complex and cutting-edge Web3, there is a growing concern that this shift may not be the most effective solution for promoting financial inclusion, especially for those who are just starting to access financial services as a whole. As the industry grapples with the complexities of Web3, the idea of Web2.5 has emerged as a potential solution.
Web2.5 is an iteration of the internet that represents an intermediate step between Web2 and Web3, which aims to address some of the limitations of Web 2 while avoiding the complexities and uncertainties of Web3. In essence, Web2.5 provides a solution that combines the benefits of TradFi and DeFi. This approach recognizes the value of the centralized infrastructure of Web2 while also leveraging the benefits of decentralization and blockchain technology that are central to Web3.
In the context of DeFi, Web2.5 places great emphasis on the need to harmonize centralized and decentralized finance. As mentioned above, while DeFi has significantly lowered the barriers to entry and access to finance, the transition to Web3 has been accompanied by a steep learning curve and a high level of complexity. Web2.5 is therefore a much-needed stepping stone toward a more accessible and user-friendly financial system.
As a whole, Web2.5 is focused on creating an inclusive and accessible financial system that leverages the best of both worlds, offering a user-friendly experience while also promoting financial sovereignty.
The bottom line
Without a doubt, we have come a long way since Bitcoin’s inception in 2009. However, we still have a long journey ahead of us if we want to bring the world’s unbanked into banking and build an inclusive financial system.
Therefore, it is imperative to continue to explore the Web2.5 innovations that can bridge the gap and provide equitable access to financial services that meet the needs of all individuals, regardless of their socioeconomic background or location. Undoubtedly, as we move toward a more digital and decentralized world, financial inclusion will become increasingly important… and it is imminent with the emergence of Web2.5.
Kirthana Devaser is an economist turned financial writer and speaker in the Web3 space. She’s a strong believer in using technology for good and believes that Web3 will drive meaningful change and build a better tomorrow for all. Currently, Kirthana serves as the content and copy manager at XGo, where she oversees and champions all things content and brand identity across the company.
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Source : Cointelegraph.com