“A new financial world has emerged with Web3. Could it replace the existing central banking system?
"Banking is necessary, but banks are not." This sentence has been attributed to Microsoft founder Bill Gates since the 1990s, and it is often quoted when it comes to predicting the demise of the banking world – even if Gates presumably never actually said it. Back then, it was the rise of direct banks that gave rise to this sentiment; today, it's neobrokers – or the world of cryptocurrencies.
Nevertheless, banks still exist, and the concerns that arose in 2023 in the wake of the collapse of Credit Suisse and the hectic activity surrounding its resolution showed that banks are not only still around, but also important and therefore powerful. Yet, something has changed. "In parts of the market, there are more intermediaries," says Sebastian Omlor, a law professor in Marburg specializing in the law of digitalization. He is also involved in the "Tokenization and Financial Market" project group of the Research and Competence Network Center for Responsible Digitalization (Zevedi), which bundles the expertise of Hessian universities to analyze and shape the digital transformation. "But even if there are more intermediaries, the market hasn't become more decentralized as a result."
This is due, not least, to the fact that many of the new market participants are not banks as defined, for example, by the German Banking Act. Private credit funds, for instance, grant corporate loans and are sometimes referred to as "shadow banks," like other financial market participants, but they are not banks. PayPal offers transfer services, but is only an "e-money institution." Trade Republic, on the other hand, is a bank, even if it doesn't conduct traditional lending business. The position of banks has not been broken despite the new market participants. Rather, these have integrated themselves into the existing monetary system, which is based on the interplay of central banks and commercial banks and a legal tender issued and controlled by a central bank.
It's also possible without a central bank
However, with Web3, the new generation of the internet, a new financial world has emerged in recent years.
In Web3, the digital means of payment, the token, is a constitutive principle.
Because the content there is not owned by large platform companies, but by the users themselves, they can market this content themselves and exchange it using these tokens.
"In contrast to the platform economy of Web2, Web3 thus enables a bilateral token economy," says Andreas Kerkemeyer, Professor of Legal Policy for the Digital Financial Sector at TU Darmstadt. It is therefore fundamentally different in principle and based on new principles. Can this decentralized token economy, which is not controlled by a central bank, then also replace the conventional monetary system?
Even if it seems difficult to imagine: Today's conventional monetary system with a state-regulated central banking system is not the only possible form of a monetary and banking system. According to some economists, it is not even the best. Critics advocate instead a so-called free banking system that does without a central bank. The best known of these theories is probably the one first outlined by Friedrich von Hayek in his book "The Denationalization of Money," which proposes competing private currencies without control by a central bank. The basic idea is that in a monopolistic central banking system, politically motivated expansions of the money supply and thus inflation are hardly avoidable. A free market for money would eliminate this incentive, and competition would ensure the stability of the value of money. This is possible because worthless money is just as uncompetitive as illiquid money. The competitive mechanism then ensures that a functional monetary system develops.
The central difference between a state-regulated central banking system and a free banking system is that money is fundamentally public in the former and fundamentally private in the latter.
In the first case, the monetary base is controlled by a privileged central bank. Central bank money is de jure the sole legal tender, while money created by commercial banks is de jure only a claim on it, but de facto also a means of payment that the central bank attempts to control through monetary policy.
In the so-called free banking system, competition replaces monetary policy.
Free banking systems are not merely a theoretical construct. In a number of countries, there have been periods—primarily in the 19th century—in which the banking systems at least resembled this model. However, it is debated how closely they approximated the ideal and how sound and stable the system and the value of money actually were.
Protocols instead of regulations
The world of crypto finance goes even further than historical free banking systems and also beyond Hayek's idea, which is based on the functioning of competition and therefore also depends on the quality of competition policy. Currencies in historical free banking systems were always organized by central authorities and politically regulated, so some authors only speak of weakly regulated and not of free banking systems.
Crypto, on the other hand, is based on protocols that set rules for the development of the quantity of coins, be it an absolute quantity limit for Bitcoin, the inflation mechanism of Solana [1], or the root function of Ether [2], which are initially unchangeable. This theoretically makes control of the quantity of coins through laws or authorities superfluous. However, these mechanisms are still designed by humans and can be flawed or favor specific interests. Furthermore, ERC-20 tokens [3] issued on the Ethereum chain, for example, can be increased arbitrarily, provided that the "smart contract" embedded in the algorithm allows for this. In this respect, the concept of competition, as in Hayek's design, remains of central importance.
Structurally, the crypto world thus seems suitable to be an alternative to the central bank-centered monetary system. Whether it can fulfill this claim ultimately depends on the details, on the extent to which it can succeed in ensuring a stable supply of money and credit, and therefore whether such a system is actually more efficient and better suited to limiting the power of banks and bank-like institutions.
Finally, the question arises as to whether such a revolution in monetary affairs is realistic. Hayek himself later called his idea "politically completely utopian." "All we can do is introduce something in some clever, indirect way that they cannot stop." Whether crypto is that way remains to be seen.
The research for this text is partly based on the author's stay as a Mercator Journalist in Residence at Zevedi.” [4]
1. Solana's inflation mechanism is designed to reward validators for securing the network through a declining annual inflation rate, which started at 8% and is decreasing by 15% each year until it reaches a stable 1.5%. This process uses newly minted SOL tokens as staking rewards for validators who are responsible for confirming transactions. However, Solana's tokenomics also include a deflationary component where a portion of transaction fees are burned, which can help offset the inflation.
Inflation mechanics
Initial rate: The annual inflation rate began at 8%.
Decreasing rate: The rate declines by 15% each year, meaning the amount of new SOL issued decreases over time.
Target rate: The inflation rate is designed to stabilize at a long-term fixed rate of 1.5% annually.
Distribution: New SOL tokens are distributed to validators and delegators as rewards for staking their tokens [4], which helps secure the network.
How it works with staking
Incentive for security: The inflation mechanism is a key incentive for users to stake their SOL and participate in network validation, as it provides a source of passive income.
Reward based on stake: Rewards are distributed proportionally to a validator's stake-weighted vote credits, meaning those who participate more consistently receive a larger share of the rewards.
Staking>> rewards: Validators and their delegators earn newly minted SOL tokens for helping to maintain the network's security and consensus.
Deflationary counter-mechanisms
Fee burning>>: A portion of each transaction fee is burned (destroyed), which reduces the total supply of SOL.
Balancing the model: The fee burning mechanism works as a counter-balance to the inflation, creating a more stable token supply and potentially increasing scarcity over time.
2. The "root function" of Ether (ETH) is to act as the native cryptocurrency and "gas" of the Ethereum blockchain, providing the fundamental value to power transactions and smart contracts. It secures the network through staking, and also functions as a general-purpose cryptocurrency for payments, trading, and investing.
As the "gas" for Ethereum
Ether is used to pay for the computation and transaction fees required to execute applications and make transactions on the Ethereum network, a function often referred to as "gas".
This payment system ensures that the network's resources are used efficiently.
As a native cryptocurrency
Unit of account and medium of exchange: Like other cryptocurrencies, Ether can be used to pay for goods and services both on and off the Ethereum network.
Store of value: Ether is used as a store of value, similar to Bitcoin, although with a different design purpose.
Trading and speculation: It is widely traded on cryptocurrency exchanges, and investors use it for strategies like buying and holding, day trading, and more.
As a security mechanism
Ether is essential for the security of the Ethereum network through its staking mechanism.
Users who hold and "stake" their ETH can help validate transactions and secure the network, earning rewards in return.
As the base for applications
Ether is the native asset used to power applications built on Ethereum, including DeFi and NFTs.
It serves as the foundational settlement layer for the entire Ethereum ecosystem.
3. ERC-20 is a technical standard for creating fungible tokens on the Ethereum blockchain. This standard provides a common set of rules that ensures tokens are compatible with Ethereum's ecosystem, including wallets, exchanges, and smart contracts. Key functions include transferring tokens, checking balances, and approving third-party spending. Popular examples of ERC-20 tokens include stablecoins like USDT and USDC, and DeFi tokens like UNI.
How it works
Token standard: ERC-20 is a set of guidelines for smart contracts that defines how tokens are created and interact on the Ethereum network.
Fungibility: ERC-20 tokens are fungible, meaning each token is identical and interchangeable with any other token of the same type. This is unlike Non-Fungible Tokens (NFTs), which are unique.
Functionality: The standard includes functions for managing tokens, such as:
totalSupply(): Gets the total number of tokens in existence.
balanceOf(): Checks the number of tokens a specific address holds.
transfer(): Sends tokens from one address to another.
Gas fees: All transactions on the Ethereum network, including those involving ERC-20 tokens, require gas fees to be paid in Ether (ETH).
Examples of ERC-20 tokens
USDT and USDC: Stablecoins pegged to the U.S. dollar.
UNI: The governance token for the Uniswap decentralized exchange.
SHIB: A popular meme coin.
LINK: The token for the Chainlink network.
4. Krypto - Alternative zum Bankensystem. Frankfurter Allgemeine Zeitung; Frankfurt. 11 Sep 2025: 25. Von Martin Hock, Frankfurt
5. Staking tokens involves locking up cryptocurrency to support a blockchain's network security and operation, typically on Proof-of-Stake (PoS) blockchains. In return, you earn rewards, usually in the form of more tokens, for helping to validate transactions. To stake, you can use a staking wallet or a third-party platform, lock your tokens for a set period, and get rewarded for your contribution, which is a way to earn rewards without selling your crypto.
What staking is
A way to earn rewards: Staking allows you to earn rewards on your crypto holdings by putting them to work, often represented by an annual percentage yield (APY).
Network support: When you stake, your tokens are used to validate transactions and secure the blockchain. This is essential for the functioning of Proof-of-Stake blockchains like Ethereum and Solana.
A consensus mechanism: Staking is a core component of the Proof-of-Stake consensus mechanism, where token holders who stake their assets are chosen to verify transactions and add new blocks to the chain.
How to stake tokens
Choose a cryptocurrency: Select a cryptocurrency that supports staking.
Find a platform: You can stake directly through the blockchain network's validator software, use a dedicated staking wallet, or use a third-party platform like an exchange or DeFi service.
Lock your tokens: Send your tokens to the staking wallet or platform. Your tokens will be locked for a specified period, making them unavailable for trading.
Earn rewards: The network will randomly select a validator to process a block. You earn rewards in the form of new coins and transaction fees for your commitment.
Unlock your tokens: Once the staking period is over, the wallet or platform returns your original tokens along with the earned rewards.
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