The answer lies right in front of us, but we refuse to see it. Both relativity and quantum theory, the two pillars of fundamental physics, are modified in this paper to make them also explain the physical phenomena they describe. With this explanation, all current inconsistencies between the two vanish. The modifications relate to the presence of a medium, which is in fact potential energy, in three-dimensional space. This medium acts as a reference system, in accordance with Mach’s principle. The speed of light, therefore, is not absolute but relative to the medium and thus to the observer. It is also dependent on medium density. Quantum waves are real scalar waves occurring in the potential energy medium, not probabilities of particles being present. Real scalar quantum waves in three-dimensional space make up the whole of physics representing manifest energy. Particles therefore do not exist; they are local manifestations of real scalar quantum waves. As a result, the Doppler effect and wave interference play a central role in physics. Moreover, the dependence of quantum wave velocity (speed of light) on medium density provides the energy exchange mechanism that is central to physics because all physical phenomena, including observation, concern energy exchange, or interaction. The conceptual simplicity of the model of physics proposed in this paper is shown to clarify a series of paradoxes and ill-understood phenomena at the fundamental level of physics such as wave-particle duality, the twins paradox, and the double slit experiment. As to entanglement, superposition, and nonlocality, the model implies that only weak versions of these properties exist.