The future of financial markets in W3DS

A quarter-century ago, Europe introduced a single currency, the Euro, enabling Europeans to use it seamlessly across any EU country without restrictions. While cash worked well, digital systems fragmented the Euro market into multiple payment systems. As digital payments grew, the European payment market became "Balkanized" once again, reminiscent of the pre-Euro era. This sparked the Central Bank Digital Currency (CBDC) debate. Yet, after more than a decade, little progress has been made: we still might struggle to buy an ice cream abroad without cash.

In this article, we argue that the issue lies not in the specific implementation of CBDC but in the outdated framework requirements for digital currency, which is lagging by 50 years. This article is intended for professionals working on CBDC development and our colleagues in the European Data Space and European Digital ID initiatives.

1. History of Digital Currency

To better understand the context of the issues being discussed, let’s first revisit how electronic money transfer technologies evolved.

1.1. Mainframe Computers Era

Banks began shifting money to an electronic format with the introduction of the first mainframes – large, powerful computers. These computers could manage customer accounts, making internal bank transfers simple, as they relied on a single ledger within the supercomputer. However, transferring money between banks was more complex, as it required synchronously recording the same transaction in the ledgers of two separate banks while ensuring the security and integrity of this "double entry". This challenge was addressed by the SWIFT protocol. While not entirely reliable and relatively expensive, it works.

This system, however, is ill-suited for micropayments: no one wants to wait three days for a bank to process a €3 invoice costing €50 just to buy an ice cream. Yet recently, even for larger payments, the process has become overly cumbersome. If you transfer more than €10,000, the bank will likely reject the transaction and bombard you with KYC (Know Your Customer) questions. Or, worse, the bank might process the transfer but demand an explanation two years later, giving you just three days to respond – or your account will be blocked.

Notably, CBDC does not aim to tackle these SWIFT/JYC issues, probably assuming that the current state of bank transfers is acceptable. We, however, argue that the existing KYC and AML (Anti-Money Laundering) practices inflict significant harm on the economy. This problem must be resolved as part of the digital Euro's implementation.

1.2. Credit and Debit Cards

Indeed, interbank transfers fail to address the challenge of micropayments: people want an electronic equivalent of cash in their pockets – something as simple as buying an ice cream.

Surprisingly, this equivalent emerged long before mainframes and even before computers, in the form of plastic credit cards. They did allow you to pay for ice cream, though the process was costly for all parties involved.

Debit cards lowered costs by eliminating intermediaries, but they didn’t prevent Europe’s payment systems from becoming fragmented. When traveling from one country to another, you might still face system incompatibilities, despite both countries using the Euro.

1.3. Other (National) Payment Systems

As part of the ongoing push to "enhance" micropayments, numerous – often national – payment systems have emerged, aiming to offer even greater convenience than cards. For instance, the Netherlands successfully introduced iDeal: users need only scan a QR code on the store's website to pay. However, if the online store operates in a country where iDeal is not supported, purchases become impossible.

Rather than resolving the "Balkanization" of payment systems, this approach has intensified the issue. Now, we are left with both traditional cards and these new systems.

1.4. So, what is the root cause of the "Balkanization"?

The fragmentation of Europe's payment systems is not due to the quality of technologies or protocols. It lies in the very essence of the Web 2.0 world, which is built on "platforms" – closed ecosystems that only serve customers operating entirely WITHIN their boundaries. Customers must choose a specific platform to use, and payments can only be made within that platform. For cross-platform transactions, "aggregator" platforms like Stripe have emerged, further driving up the cost of transfers.

In essence, the problem extends far beyond the banking sector. It is rooted in the structure of our internet, where data is dominated by giants like Google, Booking.com, SAP, and PayPal. Unless we address the issue of platform monopolies in Web 2.0, it is unlikely that a reliable, open, and competitive CBDC will ever materialize.

1.5. Is Blockchain a solution?

Blockchain has undoubtedly captured a significant share of the conversation around CBDC, so it’s impossible not to address it here.

As security professionals, we want to immediately disqualify blockchain as a potential solution because it fails in many ways: it is not (a) truly decentralized (despite common claims), (b) secure (particularly due to key management vulnerabilities), (c) respectful of privacy and individual sovereignty, or (d) compatible with any existing platform or service?–?none of which are willing or able to integrate with it. In this context, the hype around blockchain reflects a desire for convenient payments rather than a viable solution. People are drawn to the promises of "decentralization" and "security" (both of which are highly debatable) and have started adopting blockchain.

Even from a practical standpoint, despite a decade of Bitcoin’s development, we still can’t use it to pay for something as simple as a taxi ride? –? unless you’re in El Salvador. Yes, we all remember the iconic story of someone buying two pizzas for 10,000 Bitcoins in Bitcoin’s early days. But after 10 years, no one is buying pizzas with Bitcoin anymore. In fact, I’m certain the pizzeria that accepted those 10,000 Bitcoins has long since lost the private key and hence access to them (a glaring example of Bitcoin’s false sense of security), effectively losing that money forever. Imagine losing your bank card and the bank telling you, “Sorry, you should’ve been more careful! Lose your card, lose your bank account”. Unthinkable, right? We will elaborate on the serious flaws of blockchain in a separate article, but for now, we want to explicitly exclude it from this discussion.

2. CBDC (or Digital Currency - DC)

We all recognize the pressing need to address these issues, and market participants understand that technology has advanced to a level where solutions are feasible. Central banks have taken the lead in this process, giving rise to the term CBDC – Central Bank Digital Currency. The primary goal of CBDC was to tackle the fragmented market of micropayments, while the interbank payment market (via SWIFT) remained largely satisfactory. By focusing on universal micropayments, CBDC introduced a perfect metaphor: the digital wallet. This simple, century-old metaphor has since shaped the direction of the project.

So, what exactly is a digital wallet?

A digital wallet appears to be some kind of mobile phone application. It enables decentralized storage of money directly with the customer. Presumably, the money in this wallet is also stored on the mobile phone. On one hand, the solution must be secure and convenient. On the other hand, a phone (and the wallet) can be lost, so it’s obviously not suitable for holding large amounts of money – say, €200, for example. And, likely, this wallet should work offline.

And, of course, this wallet must solve the problem of Balkanization. At this point, the project has hit a dead end because the Web 2.0 world – the world of platforms – in which we currently live, inherently assumes Balkanization, or vendor lock-in. Central banks are now faced with a difficult choice:

• either have a single monopoly app for all of Europe, with all the unpleasant consequences of such a monopoly,
• or once again have multiple wallet apps and somehow connect them through protocols, with a high risk of re-Balkanization.

Neither of these solutions is ideal. Perhaps this is the reason why the project has yet to be implemented?

A good example of the thinking behind the essence of DC can be found in the FAQs from the Dutch Central Bank and the European Commission. So, what’s wrong with this setup? Let’s break it down.

2.1. Questioning CBDC Assumptions

Our team has certain doubts about CBDC, and these doubts begin with an analysis of the assumptions underlying the current concept of CBDC.

• CBDC Assumption: Interbank transfers are fine, and we only need to automate micropayments. No, interbank transfers are not fine. As a user, I want not only a convenient way to pay for ice cream but also the ability to use the same tool to buy a house. I don’t want to see any distinction between large payments and micropayments. Moreover, there have been increasing issues with KYC (Know Your Customer) and AML (Anti-Money Laundering) lately. We – the users – understand the importance of AML, but why does it have to make our lives so complicated? These issues must undoubtedly be addressed as part of the CBDC rollout.

• CBDC Assumption: We need a "wallet", but it should be small, say, capped at €200. This assumption is problematic for two key reasons: a) Why should anyone dictate how much I can store? b) If I do need a wallet, why should it only hold money? What about my driver’s license, work pass, family photos, or even all 100,000 of my personal photos (after all, it’s a digital wallet)? What about my medical records or, for that matter, all my digital documents and files? If we follow this line of thinking, the modest "Wallet" evolves into a comprehensive, universal "Vault" for all domains – not just finance. Naturally, such a Vault can no longer reside solely on your phone but must be cloud-based (since losing it would be catastrophic!). At this point, it’s evident that the concept of Wallets – or rather, Vaults – extends far beyond the realm of financial markets.

• CBDC Assumption: CBDC is to be created by Central Banks themselves. The question arises: should private companies be allowed into this space? Based on the materials we’ve reviewed, it seems the answer is no. Businesses would inevitably push for vendor lock-in, which would once again fragment payment systems. After all, we live in a Web 2.0 world dominated by platforms. Does this mean we’ll end up with a single, monopolistic solution from the European Central Bank? That approach is equally risky: a monopoly app would likely be cumbersome, user-unfriendly, and potentially insecure. While businesses cannot be excluded from the digital currency (DC) equation, the focus must be on preventing fragmentation and fostering healthy competition.

• CBDC Assumption: The creators of CBDC must develop offline functionality. This is a highly dubious proposition. If we encourage competition among commercial applications and systems, the market will naturally determine how – or even whether – to implement offline functionality for eVaults. Whenever possible, it’s far better to leave such challenges to the "invisible hand of the market" rather than entrusting them to a Single Central Bank solution.

• CBDC Assumption: Security is an inherent part of CBDC. Over the past 500 years, banks have grown so accustomed to treating the security of their money as their own responsibility that CBDC creators now take it for granted that security is a built-in feature of CBDC. However, this is one of the most perilous assumptions. True, robust security is rooted in Identity Management, which encompasses managing identifiers, keys, PKI systems, and more. It’s clear that Identity Management extends far beyond the scope of banks and financial markets. eID is essential in areas like culture, agriculture, law enforcement, transportation, and beyond. Perhaps it’s time to acknowledge that the security of CBDC could be far more effectively addressed not within the banking sector but outside of it, at the level of a “more advanced Internet”.

2.2. CBDC Discussion: Conclusion

So, what conclusions can we draw about CBDC at this stage?

• The Need for a Systematic Perspective In discussing (a) security and (b) Wallets in the previous section, we realized that both phenomena extend far beyond the banking sector:

As a result, the challenges facing financial markets must be addressed within the broader context of the issues inherent in the Web 2.0 world.

• Issue: Balkanization is Unsolvable in the Web 2.0 Model of the Internet The Balkanization of payment systems appears to be a clear failure of private businesses to establish a unified space for micropayments. However, the blame may not lie entirely with the businesses themselves. They evolved in an environment where data silos and vendor lock-in are inherent to the system – a system we call Web 2.0, the world of modern platforms. Perhaps if we create a different framework – let’s call it Web 3.0 Data Space – the same businesses could compete without fostering data silos and vendor lock-in, which are the root causes of Balkanization. In other words, the solution isn’t to strip businesses of their technologies and have central banks create CBDC independently, but rather to redefine the CONDITIONS under which private businesses operate.
• Data/Digital Currency Sovereignty for Users We recognize that the future CBDC must be decentralized to avoid reliance on individual platforms and systems. This means citizens should have ownership of their digital money in much the same way they own physical cash. This demand for monetary sovereignty aligns closely with the concept of data sovereignty in the Data Space paradigm. Bringing these ideas together, it becomes clear that all user data, including their digital money (and their ledgers), should be under the sovereign control of users. This brings us back to the concept of the eVault, which we explored earlier.
• Finally, the Core of the Problem: Insufficient Requirements Indeed, the requirements for CBDC were based on the idea of a "wallet," the disregard for monopoly issues, and an initial willingness to operate within the Web 2.0 world – a world of platforms. To create an ideal CBDC, we likely need to fundamentally rethink the requirements for it. The right requirements will define the right solution. As the saying goes, "A well-posed question contains 80% of the answer."

2.3. The Requirements for the Ideal DC

In this section, we will try to articulate the requirements for the ideal CBDC.

We need a CBDC that:

• Puts people and the sovereignty of their data at the forefront.
• Is secure, reliable, long-term, and decentralized.
• Enables direct transfers between people, companies, and IoT devices (why shouldn’t I give money to my car so it can refuel itself?), potentially without any involvement from banks.
• Does not separate micropayments from large payments.
• Fosters maximum innovation through open competition among thousands of platforms and services, while avoiding the Balkanization of the payment market.
• Addresses the challenges of financial markets within the broader context of all other domains (transportation, healthcare, etc.).
• Supports any number of currencies.
• Operates both online and offline.
• Automatically resolves AML/KYC issues without creating problems for individuals and companies: in such a system, financial fraud should be pointless, as violators would be immediately caught and punished.
• Ensures maximum (yet controlled) transparency in financial markets, enabling quick and efficient access to aggregated financial reports of thousands of businesses through any information platform, as well as providing real-time statistics.
• Maintains central banks’ responsibility for issuing national currencies.

Is this achievable? Let’s work together to design such a system in the next chapter.

3. Inventing the Ideal CBDC (or DC)

Let’s take the requirements we’ve just outlined and design an architecture that fulfills them all.

3.1. Digital Sovereignty for Citizens

This is perhaps the most fundamental requirement. If we want to give people control over their money, we must empower them as sovereign actors in the digital world.

Over a decade ago, Tim Berners-Lee – the inventor of the Web – proposed an elegant solution to the problems of the Web 2.0 world, the world of platforms.

He suggested taking data away from platforms and giving it back to individuals in the form of personal web servers, which he called PODs – Personal Online Datastores.

Imagine Facebook without data. You write a post using Facebook’s interface, but instead of storing it in Facebook’s database, it saves the post to your POD. Your friends can then read it through LinkedIn, Instagram, or even Slack. Let them choose.

This is a simple yet powerful idea, though not without implementation challenges.

But let’s assume it’s possible (and it truly is – see details here) and build on this concept.

So, you have your POD. It resides in the cloud and stores all your data – posts, photos, documents, social connections. Essentially, your entire digital life.

It must be highly secure, so let’s call it an eVault, as it should function like a real safe! After all, we’re planning to store money in it. For more details on eVault security, read here.

And, of course, when discussing security, we must reliably identify and authenticate all participants. This means citizens need a sovereign and persistent Identifier (see article here) as well as cryptographic keys tied to this Identifier. We call this eID, which must comply with the European eIDAS standard and is described in this article.

From this point forward, we can be confident that all participants are known and truly in control of their sovereign data on their secure eVaults.

Now, let’s explore how we can store all your money in this eVault.

3.2. Your money is data, just like your photos.

So why not store money securely on your eVault? The best way to do it is with a Ledger – just like a bank. Except this one is personal, entirely yours. If you made 211 transactions last month, your Ledger will record all 211. Essentially, it transforms you into your "own micro-bank." After all, banks also rely on ledgers – just on a much larger scale. We’ll explore how to transfer money in the next chapter. For now, it’s important to note that your Ledger is simply one of many datasets stored in your eVault, alongside your photos and documents. Interestingly, your eVault doesn’t just house your Ledger. It also stores your payment-related invoices, linked to contracts, which in turn are connected to your correspondence – all neatly organized. This interconnected system will make KYC/AML compliance much easier in the future, as audit tools can quickly verify the legitimacy of your transactions.

3.3. Transferring Money Directly Between Individuals

In Tim Berners-Lee's envisioned world, every user has an eVault – a secure, personal data storage system. Within this eVault, users can manage their own ledger to keep track of transactions. Now, let’s look at how money transfers work. In this example, Bob transfers €150 to Alice.

This process is similar to how two banks transfer money via SWIFT. The key difference? There’s no centralized SWIFT system here. Instead, multiple platforms independently record the transaction in ledgers, competing to do so more efficiently, cost-effectively, and reliably.

Step-by-Step Breakdown of the Use Case

1. Bob Selects a Financial Platform Bob chooses a financial platform or service to execute his transaction – for instance, Platform B.
2. Transaction Recording Platform B records the transaction in Bob’s ledger and simultaneously makes an identical entry in Alice’s ledger. It is responsible for ensuring both entries are accurate, much like how SWIFT guarantees error-free transfers.
3. Unified Identifiers for Simplicity In both ledgers, all participants (in this case, Bob and Alice) are listed under the same unique identifiers. For example, Alice might appear as @c15d814d-7dcf-42c4-b6e6-5b681c4705c2 in both ledgers, and the transaction itself would share this identifier. This approach simplifies interoperability and auditing. Read more about the identifier system here.
4. Authorization and Time Stamping Platform B requires Bob to sign the transaction instructions using his digital key. Additionally, it uses an external Time Stamp Service to certify the exact time of the transaction.
5. Ensuring Ledger Integrity To guarantee the integrity of its ledger, Platform B links all prior entries using a hash function and signs the resulting chain. While similar to blockchain, this process isn’t blockchain – it’s a standard cryptographic method to ensure data integrity.
6. Data Handling and Privacy Once the transaction is completed, Platform B “forgets” it. Platforms are service providers, not data custodians. Any platform that retains unnecessary data risks losing both its reputation and its clients.
7. Alice Verifies the Transaction Alice doesn’t need to trust Bob or Platform B. She can independently verify the incoming funds using her preferred platform, such as Platform A.
8. Cerberus Services for Oversight Neither Bob nor Alice fully relies on Platforms A or B to execute the transaction flawlessly. Instead, they utilize Cerberus services – specialized tools that monitor security broadly, including financial safety. These services audit logs and ledgers continuously, similar to antivirus software. Detecting errors enhances the Cerberus service’s reputation while diminishing that of the platform responsible for the issue.
9. Reputation-Based Accountability If Platform B mismanages the transaction, its reputation suffers, potentially leading to legal consequences and fines. This accountability extends to the personal reputation of its managers and developers, discouraging substandard practices. Learn more about reputation mechanics here.

While this process can always be optimized, its core mechanics are simple and largely resemble a SWIFT-like protocol. Beneath this simplicity lies a sophisticated architecture, referred to as Web 3.0 Data Space, which is built on:

• Secure Personal eVaults: Providing every individual with a private, secure data repository.
• Robust Security Systems: Based on sovereign identifiers, user-controlled key management, signed logs.
• Competing Platforms and Services: Platforms operate under the watchful eye of interchangeable Cerberus services and are neither data owners nor custodians.
• Reputation-Driven Accountability: Platforms and developers are rated based on real user experiences. If a platform mishandles funds, users can issue signed “dislikes”, reducing both the platform’s reputation and that of its developers. However, thanks to transparent transaction records, funds can still be recovered through thorough investigations.

This system ensures user control, accountability, and competition – forming the backbone of a trustworthy Web 3.0 ecosystem.

3.4. Who Can Transfer Money?

In the Web 3.0 Data Space architecture, money transfers are not limited to individuals like Bob and Alice. Virtually anyone – or anything – with an eVault can initiate transactions:

• Individuals
• Organizations (e.g., groups, commons)
• Devices (e.g., a self-driving car or a smart home system)

Imagine transferring money to your autonomous car so it can refuel on its way to pick up the kids from school. Or receiving payments from your solar panel after it sells electricity on the open market.

3.5. Micropayments and Bank Transfers: One and the Same

In this system, every person effectively operates as their own bank, eliminating the role of traditional banks in payment processes. The distinction between “micropayments” and large transactions becomes irrelevant. Whether you’re transferring €0.01 or €1,000,000, the process remains fundamentally the same. For larger sums, enhanced security measures might be required – such as stronger cryptographic certificates (e.g., Level 4 in the eIDAS framework) or additional signatures and witnesses. However, these adjustments affect only security protocols, not the core mechanics of the transfer. With payments removed from their purview, banks can refocus on their primary functions: lending, mortgages, derivatives, and similar financial services. This shift also relieves them of the burden of KYC (Know Your Customer) compliance, as we’ll explore further.

3.6. Competition without Balkanization

For decades, balkanization has been one of the biggest challenges facing Central Bank Digital Currencies (CBDCs). However, in the Web 3.0 Data Space (W3DS) architecture, this problem is addressed with remarkable ease:

• The architecture allows for a multitude of services (payment platforms) to process transactions.
• At the same time, because transaction records are stored on independent eVaults, detached from any specific platform, the system eliminates the risk of balkanization.

In the example discussed earlier, Bob used Platform B, while Alice used Platform A. Despite operating on different systems, they could seamlessly choose alternative platforms and services if needed. Additionally, both relied on distinct Cerberus services to ensure security and reliability. By enabling this interoperability and flexibility, the W3DS architecture not only fosters healthy competition among payment systems but also effectively resolves the core issue of CBDCs – balkanization.

3.7. Certification of Competing Platforms

At first, it may seem unusual: any platform could facilitate money transfers. For instance, Facebook. But is this safe?

In fact, the system's complete transparency makes it safer than you might think, for several key reasons:

• All transactions involving any eVault are recorded directly onto that eVault. Since these transactions are signed, interlinked with hash functions, and time-stamped by third-party providers, they are immutable (this is what blockchain typically claims, but it's achievable even without blockchain). This ensures the possibility of thorough investigations if needed.
• Specialized systems – Cerberus – carry out these investigations, guaranteeing that no fraud goes unchecked.
• The eVault itself functions as a highly secure system, as discussed earlier.
• The eReputation system adds an additional layer of security. It not only affects the platform’s reputation but also the reputation of its management and developers.
• In the event of a problem, transactions can always be rolled back.

With these security measures in place, it becomes easier to introduce various certification systems – not mandated by the government, but commercial, competing voluntary certification systems. These systems will have their own eReputation, with experts (also carrying reputations of their own) verifying platform code and addressing user complaints. This creates a marketplace where users can choose from a variety of mechanisms to assess platform reliability, ranging from certification to eReputation.

3.8. Multicurrency

Our world is full of currencies, and the Web 3.0 Data Space will support all of them.

Each currency will have its own issuer – be it a central bank, a company (like store loyalty points), or even an individual. The key is that the issuer and the currency's reputation will always be clear. So, if your neighborhood commons decides to create a local currency or points system, it can do so, and it will function just like real euros or dollars. You’ll also be able to transfer it using the same applications.

The system must be resistant to currency impersonation. What if John Smith issues his own “euros”? While possible, Smith’s “euros” will have a distinct currency identifier, @d16b7745-b802-4eb9-9332-4af5f92e7348, while the real euro will have @9c81a1bc-2f7a-4c13-9961-2c2b68a0e8de. No money transfer platform will mix these two, as only the European Central Bank will hold the IPR (Intellectual Property Rights) to real euros (see the article on IPR management here). Verifying this will always be simple. Furthermore, real euros will carry a different level of eReputation compared to Smith’s “euros,” providing an extra layer of quality assurance.

3.9. Offline/Online

The question of online/offline wallets in such an ecosystem is naturally addressed: it becomes an issue for the competing platforms themselves.

For example, Alice is planning a trip to the Sahara in a jeep, and she knows that communication may be poor for two weeks. Siri (her personal assistant, if she uses one) is aware of this too, as it has access to her calendar and itinerary. Since Siri doesn’t want to lose Alice as a client, a week before the trip, Siri informs her: "Alice, I (Siri) will be working offline for the entire trip. In case we don't have access to your eVault in the cloud, I’ve set up a temporary eWallet on your phone. I’ll transfer 750 euros from your eVault into it, which should be enough. If you lose your phone, Siri’s insurance program will cover this amount. Stay with Siri, because I solve all your problems!"

Siri will then ensure that the eWallet is available on Alice's phone for offline transactions.

• Creation of eWallet (Small eVault on the Smartphone): Siri will create a temporary eWallet for offline use directly on the phone. Technically, this will be the same eVault, but in a lighter form, with Siri using a solution from one of the top eVault providers.
• Keeping Hot-Sync Copy of eWallet in the Cloud: The eWallet will always have a hot-sync copy in the cloud, ensuring that it synchronizes as soon as possible for security.
• Initiation of eWallet with €750: Siri will transfer 750 euros from the main eVault to Alice’s phone eWallet.
• Ice Cream Offline Purchase in the Sahara: After that, in offline mode, Alice’s eWallet can transfer money in the Sahara to Bob for ice cream on his phone using a different eWallet (since Bob is also offline).
• eWallet Restoration in Case of Loss: Siri (or any other platform) will likely provide an “eWallet recovery” service in case of phone loss or damage. This can be done by checking all eVaults worldwide that have had financial transactions with Alice over the past two weeks. This will allow partial restoration of her eWallet. In addition, a backup in the cloud may be available. Any unrecoverable funds could be covered by Siri’s insurance.

It’s important to note that this is just one possible scenario. How Siri handles offline issues is best left to its discretion. It's crucial not to limit the creativity of private businesses – platforms and services. If Siri doesn’t solve Alice’s offline problem, many other platforms and services will be ready to replace Siri, both in the Sahara and in Alice's future life, offering her the perfect offline wallet. Thus, central banks, governments, and standardization committees don’t need to tackle the offline money issue. The invisible hand of the market will handle this better through competition among services.

3.10. Building Trust

A functioning economy relies heavily on Trust. This Trust is based on numerous elements, which we will explore in this section.

3.10.1. Trust via Advanced Security

At the core of Trust lies the security mechanism W3DS. This is covered in more detail in another article, but here we’ll mention a few aspects:

• Security is based on reliable identification of participants and secure logging of all transactions, with logs signed by participants and third-party timestamp services.
• Where necessary, zero-knowledge technologies and privacy-enhancing technologies (PETs) can be used, especially in statistics gathering.
• Complete decentralization of all systems, with platforms and services competing.
• 2+ hot-sync copies of eVaults with competing cloud service providers ensure long-term preservation and independence from any single cloud service.
• Cerberus apps – specialized services that monitor all platforms and services used by a specific user – ensure no platform escapes their scrutiny. Cerberus apps are also in deep competition.
• eReputation (which we will discuss in the next section) acts as a mechanism for detecting security issues. For example, when a million users report issues with Platform A, Cerberus apps will conduct a detailed analysis of that platform.

3.10.2. Trust via User eID

Every user in the system is identified, and their identifier (e.g., @5c50eb08-b689-42e6-a1a3-7873c7016e01) stays with them throughout their life. The W3DS ecosystem ensures:

• Issuance of identifiers when a user enters the system
• Linking the identifier to the person, their body, friends, and relatives
• Management of the user's keys (generation, rotation, revocation)
• Sovereignty and security of user data throughout their life (and even after their death)
• eIDAS authentication for the user on any platform or service within W3DS, from transferring money to opening hotel room doors or renting cars
• User authorization management when logging into any system.

Further details can be found in another article.

3.10.3. Trust via Transparency and Advanced Statistics

W3DS ensures full ecosystem transparency with controlled visibility:

• Each user will see only the information they are permitted to view by the data owners.
• They can collect statistics on information they cannot individually access. For instance, a user can see Profit & Loss Accounts from all enterprises worldwide but won’t learn the names of private companies or access their annual reports individually.

3.10.4. Trust via Reduction in Fake Data and Fraud

In this ecosystem, data is always at the source, and in a single instance. Users never work with copies of data, and platforms never create isolated data silos. This alone creates an environment where creating and maintaining fake data is extremely difficult.

Additionally, every piece of data is always signed, and we know who created it. We also always know the eReputation of the entity that created any given data. Together, this significantly reduces opportunities for fraud and builds trust and confidence in financial systems.

3.10.5. Trust: eReputation

eReputation within W3DS mirrors the real reputation of participants, institutions, and even currencies. It is built on millions of individual reviews. Since the W3DS ecosystem guarantees that all actions of participants are logged in their eVaults, users have the flexibility to leverage any “eReputation calculators,” choosing the best (based on their reputation) to suit their needs.

eReputation will fully replace KYC because:

• Banks will no longer need to investigate the personal details of a customer before granting a loan.
• However, the bank will be able to access statistically accurate data on the client, such as their commitment to repaying debts.

For more information on how eReputation works, you can read further here.

3.10.6. Trust: Making KYC & AML Obsolete

When it comes to KYC, we’ve already established that eReputation will make it obsolete. Here, we’ll focus on the mechanics of AML instead.

Imagine a world where all payments are made directly between individuals and businesses, bypassing banks entirely. Now, suppose Bob transfers €15,000 to Alice. What can we infer about this transaction?

• First, we know with certainty that Bob is indeed the Bob Kunst and Alice is the Alice Bria, as both possess verified European eIDs (eIDAS) built on lifelong, immutable unique identifiers.
• We – along with the tax office, auditors, and anyone authorized by Bob and Alice – can clearly see the transaction because it is recorded in their respective eVaults.
• We can also see the exact invoice tied to the payment, as the two are linked via Linked Data and Persistent Identifiers. This connection will remain accessible for analysis even 70 years later (though the data owners may choose to restrict access after, say, 7 years, if permitted by law).
• We can confirm that the invoice is tied to a contract, which is also stored in their eVaults.
• We can trace the contract’s origins to the correspondence between Bob and Alice, observing how it evolved over time through their discussions. Every email and every version of the contract is cryptographically signed by both parties, ensuring authenticity.
• Beyond this, Bob’s and Alice’s eVaults contain a comprehensive record of their lives. By examining the context of their lifestyles and eReputations, we can assess how well this specific contract aligns with their typical behavior and history.
• In this system, trust is built on transparency, verifiable data, and the seamless integration of identity, reputation, and transactional history – rendering traditional KYC and AML processes unnecessary.

In this way, the issue of AML will be resolved organically: Bob’s and Alice’s eVaults contain such a wealth of information that any AI-powered monitoring system can easily identify signs of money laundering. Manipulating or deceiving the system will become technically impossible.

It’s important to emphasize that Bob’s and Alice’s personal lives, along with all their contracts, invoices, and payments, are not an “open book” for tax authorities. Tax authorities or law enforcement don’t need to sift through every detail to perform their duties effectively. Instead, a trusted Audit Platform could act as an intermediary between Bob and the tax authorities. This platform would analyze the intricacies of Bob’s transactions and, at the end of the year, issue a clear verdict: “Bob is compliant; he owes €3,245 in taxes”. And then the Platform will forget it.

Furthermore, tax authorities could utilize statistical data collection platforms to gather information directly from individuals like Bob and Alice, but in an anonymized format. This approach would safeguard personal privacy while providing authorities with statistically accurate data. It would also allow for indirect cross-verification of the numerous audit platforms in operation. In this system, transparency and privacy coexist, enabling efficient oversight without compromising individual rights.

It’s crucial to emphasize the significant reduction in both stress for participants and the costs associated with detecting violations. For instance, ING Bank alone currently employs around 3,000 staff dedicated to KYC/AML. Despite the enormous expenses tied to KYC/AML processes, they often fail to deliver the promised results (as highlighted, for example, here). Beyond the financial burden, the current system causes substantial harm to individuals and businesses. Payments are frequently delayed for weeks, forcing people to provide detailed explanations to their banks – explanations that often breach privacy laws and are inherently demeaning. W3DS introduces a system where any audit of an individual or company can be completed in seconds and at a minimal cost by any competitive audit platform. This approach will simplify our world, making it more efficient, user-friendly, and secure.

To reiterate: The combination of multiple Cerberus systems and the vast amount of big data stored in participants' eVaults creates an ideal AML framework. In the W3DS ecosystem, we are making illegal activities virtually impossible.

3.11. Zooming Out: The Financial Sector as Part of the Broader Web 3.0 Data Space

As we highlighted at the outset, the challenges of CBDCs do not stem from flaws in specific payment systems – they are already highly advanced. Instead, these challenges arise from the very nature of Web 2.0, the platform-driven world. The creation of an "ideal CBDC" is only feasible with a shift from Web 2.0 to the Web 3.0 Data Space. Fundamental issues such as user data sovereignty, sovereign identifiers, cryptographic key management, reputation systems, intellectual property rights (IPR) governance, and long-term data storage are not exclusive to finance. They are shared challenges across sectors like healthcare, transportation, and cultural heritage. This underscores the need for CBDC developers to collaborate with other domains shaping the Web 3.0 Data Space, building a robust foundation for a truly effective CBDC system.

4. W3DS Impact/Stakeholder Analysis

In this chapter, we will explore how W3DS will influence key stakeholders in the financial market.

4.1. Banks Exit the Money Transfer Role

Banks will be entirely removed from the money transfer process, freeing them to focus on their core functions – issuing loans, providing mortgages, and managing financial derivatives. Historically, money transfers, along with KYC and AML compliance, have posed significant challenges for banks, acting more as liabilities than assets.

4.2. Professional Platforms Will Find Market Entry Simplified

The financial market will become significantly more accessible to professional platforms:

• No need to create user accounts: Users will already have their own eVaults.
• No data or funds storage required: This minimizes risks for platforms.
• Outsourced security: Security responsibilities can be entirely delegated to the Web 3.0 Data Space.
• Freedom from vendor lock-in: Platforms can seamlessly operate across any market sector.
• Simplified certificaion: Traditional certification and government regulations will be largely replaced by eReputation systems, reducing costs even further.

Detailed insights into why platforms benefit from transitioning to Web 3.0 Data Space can be found here

4.3. Tax Authorities

The transparency of companies’ financial data will eventually eliminate the need to submit reports to tax authorities. Tax offices will have direct access to all primary financial information from businesses, and any auditing platform will be able to compile and interpret the necessary reports. The cost of such services is likely to drop to just a few euros, enabling businesses to significantly reduce their accounting expenses.

4.4. Inheritance Management

Inheritance management is a highly opaque business. When a wealthy person dies, it is very common for their heirs to never receive anything because... they simply do not know what assets exist or where they are located. Often, the property owner – especially in third-world countries – does a poor job of keeping track of their assets. Additionally, they are afraid to inform their relatives in advance for obvious reasons. Family offices or private banking institutions have a direct interest in not assisting relatives in locating the assets. An example of this issue is the unprecedented enrichment of Swiss banks during World War II, when Jewish account holders ended up in the crematoria of the Third Reich. W3DS completely solves the problems of inheritance, looted art, and other similar issues.

5. Macroeconomic Impact

We anticipate a wide range of effects on the economy:

5.1. Lower costs associated with money management

As outlined earlier, substantial savings will be realized within the financial sector:

• eID management will remain with users, freeing banks from the need to allocate resources for identity verification.
• Money transfers will become nearly free and highly secure.
• Costs related to KYC/AML procedures will be entirely eliminated.
• Accounting, tax authority operations, and auditing costs will be significantly reduced.

5.2. Eliminating Market Fluctuations

The well-known 10-year market cycles are rooted in information asymmetry and the "positive feedback" effect. Traders (especially in the U.S.) often lack a deep understanding of the companies behind the stocks they buy. Instead, they follow a form of "chartism" thinking,: "I don’t know why, but this company’s stock is rising. I should buy it". Others do the same, pushing the stock price even higher. The reverse happens when the market turns downward.

While professionals in financial markets understand that chartism is a flawed approach, markets are not driven by experts – they’re driven by the crowd.

W3DS will bring several groundbreaking innovations to these markets:

• Increased Transparency for Traded Companies In the W3DS ecosystem, any stock buyer will have access to comprehensive data about a company: financial statements, detailed information about all transactions, customer reviews of these purchases, employee feedback on various company aspects, and more.
• Automation of In-Depth Audits Hundreds or even thousands of services will offer users the ability to conduct thorough analyses of companies.
• Auditor Applications Will Have their own eReputation For example, a user might say, “I used this app and sold shares in Company A, as it recommended, and the stock price later increased.” Consequently, the app’s reputation will be shaped by its performance.
• Moving Away from "Chartism" Over time, the market will adjust to the fact that all companies are under the scrutiny of thousands of apps, which are themselves monitored by millions of users and Cerberus apps. With such transparency, the practice of "chartism" will gradually disappear.
• Eliminating 10-Year Market Cycles By eliminating asymmetry through greater transparency, the root cause of 10-year market cycles will vanish. Markets will become more stable, operating with a "stronger structure." Similar to how the issue of airplane "flutter" (structural failure at high speeds due to weak construction) was resolved a century ago by reinforcing aircraft designs, enhanced transparency in financial markets will put an end to financial flutter.
• Automation of Professional Fund Management Professional funds will likely focus on developing specialized apps to optimize investments. Programmers, rather than traditional fund managers, will become the primary workforce in these funds.

5.3. Improved Control of "DC Emission via the Money Multiplier"

The Money Multiplier phenomenon enables commercial banks to participate in money issuance alongside central banks, influencing inflation in a way that is poorly controlled.

We propose that increased transparency in the monetary system will allow regulators to gain a clearer understanding of this emission process, leading to better regulation. It’s possible that, as organizations like Positivemoney.org advocate, we could reach a point where the Money Multiplier equals 1, and commercial banks no longer play a role in money creation.

5.4. Streamlining the Path from Money Suppliers to Consumers

There are always those who hold money and those who need it.

Traditionally, banks, investment funds, and other institutions have acted as intermediaries. However, competing platforms could enable direct connections between money suppliers and consumers.

In the long term, banks, investment funds, and other intermediaries may become redundant in this chain.

5.5. Multi-Currency System?

A user's eVault can store multiple ledgers for different currencies. If a user receives money in an unfamiliar currency, the platform initiating the transfer will automatically create a new ledger for that currency in the user’s eVault. As a result, the system will be inherently multi-currency from the outset.

5.6. Quasi-Money?

Imagine your local store starts a loyalty program, giving customers "points" for every purchase. The process can be automated, and customers might not even notice when new quasi-money appears in their ledger. Later, if you decide to move to another city, you could offer to sell your points to a neighbor at half price. This turns the store’s points into quasi-money. Over time, users’ eVaults could accumulate a considerable amount of quasi-money, and its overall volume may start to influence the broader economy.

5.7. Community Economy?

We foresee the rise of the Community Economy, or the "Economy of Good Deeds." The key feature of this economy is that it isn’t tightly linked to money. Think about your friends, for example. When you help a friend paint their boat, you don’t charge them or send an invoice. Yet, when you later ask that same friend to help you with home repairs, they’ll gladly show up. The result: No invoices or money exchanges. But the economy has gained a boat and a house!

Economists worldwide would likely want to factor that boat and house into GDP calculations. But how do you do that? When you help your friend with their boat, there may be social media posts about it, or your friend might give you likes or "appreciation points" in return. Economic platforms will compete to find the best way to incorporate this "invoice-free economy" into the overall GDP calculation. Right now, the Community Economy operates like a barter system: I help you with your boat, you help me with my house. But what if Bob helps Alice with the boat, and Alice helps Carl clean his house? Then, Carl could help Bob with his home repairs, even though Carl isn’t directly indebted to Bob. Various appreciation points or "likes" could emerge as a real currency in this Community Economy.

W3DS opens a new chapter in accounting for the complex relationships between people and organizations. After all, money only represents a small part of these interactions, which is why it’s such a limited mechanism for measuring true societal GDP. This approach could significantly boost the GDP of poorer countries, where mutual support plays a key role.

Conclusion & Next Steps

This article outlines how W3DS technology can address the challenges surrounding CBDCs by naturally establishing a global ecosystem for all currencies, both major and local. While it doesn't eliminate the role of central banks in regulating their currencies, W3DS allows for the removal of banks from the money transfer chain. The system enhances the efficiency of tax authorities, reducing their costs to near zero, while completely eliminating the need for financial reporting from individuals and businesses, all while protecting their privacy.

W3DS resolves KYC issues by replacing them with the eReputation mechanism and fully addresses AML challenges. In the W3DS world, financial crimes become impossible – immediately detected by Cerberus services, ensuring swift and inevitable consequences.

The W3DS system will have a profound impact on the economy, and its effects are still to be explored. This article serves as an initial exploration of the topic, and we will continue refining it as we work with experts from the financial sector.

By autumn 2025, we plan to launch a fully functional Web 3.0 Data Space Prototype, featuring quasi-money functionality. We invite all CBDC experts to participate in testing this system and engage in discussions regarding its potential implications.

Author: Alex Tourski, Founder and CEO of Post-Platforms Foundation

Explore the world of Web 3.0 Data Space in our library or here:

1. What is Web 3.0 Data Space? Data Sovereignty. No Data Silos. No Platform Monopolie
2. Why Europe Can’t See Its Own Data Elephant
3. How to Make the Solid Project a Success?
4. Fixing Digital Economy with Web 3.0 Data Space
5. Why Businesses Need W3DS
6. Why Will Platforms Drive the Launch of Web 3.0 Data Space?
7. The Story Of Registers
8. How Security will become a Service Booster (Completing Europe's eIDAS Revolution)
9. One Key to Rule All the Services
10. Sovereign Identifiers: A Systemic Perspective
11. Wish List Fulfillment: The Inside-Out Internet Effect
12. The Backbone of Future Society: eReputation
13. Do I Actually Own My Data in POD/eVault?
14. Intellectual Property Rights Control in Web 3.0 Data Space
15. Why Your Brain Outpaces Databases: Time to Rethink Information Storage
16. The Internet Frontier

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