Six main reasons why Web3 has not yet been adopted by the mainstream

Compilation of the original text: The Way of DeFi

Compilation of the original text: The Way of DeFi

Web3 represents a fundamental evolution of the internet as we know it today, replacing centralized gatekeepers and intermediaries with decentralized protocols and community-retained ownership. The inherent nature of Web3 holds great appeal for natives who live in encrypted environments. However, we must also admit that:Web3 is still a niche industry that has yet to see mainstream adoption.

While limitations around blockchain scalability are most often cited as a reason for the lack of adoption of Web3 - often a reminder that we are still in our infancy - I believe this is just one of many reasons why the average consumer is not considering Web3.

This article will analyze six main reasons why Web3 has not yet seen mainstream adoption, and what can be done to realize the true benefits of this technology to society.

01 Techno-Babble

Web3 can be a difficult concept to explain to novices, especially since there isn't a universal definition. Each has its own interpretation of its most valuable properties. This inevitably leads to questions such as: "Why should I care about Web3?" and "How can Web3 benefit me in my daily life?".

Various properties of Web3 are commonly mentioned — decentralization, censorship resistance, immutability, transparency, etc. These explanations often include an overly technical breakdown of the Web3 infrastructure, filled with industry jargon and technobabble (technical terms that are difficult for ordinary people to understand).

While such an explanation helps to understand the core values ​​of Web3 and its underlying technical implementation details, they are only a means to an end.

The question that really must be answered is: How do these esoteric concepts and intangible values ​​ultimately translate into Web3 applications that the average consumer can understand and be interested in participating in?

Of course, to answer a question like this one must be able to point to a clear real-world use case.

02 Circular economy driven by speculation

The first major Web3 application is the creation of digital tokens (such as Bitcoin) with predefined monetary policies and built-in peer-to-peer payment capabilities—all without the need for a centralized middleman.

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DeFi vs TradFi, DeFi removes the middleman of value transfer

The value proposition of minting and transferring tokens alone is not enough if there are no obvious systemic failures in the traditional financial system. This realization eventually led to the next clear use case for Web3: Decentralized Finance (DeFi). DeFi expands the use of digital tokens beyond simple transfer of value and uses them for financial primitives that consumers are already accustomed to, such as lending, borrowing, swapping, and hedging.

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An example of speculation-driven “yield farming” in the DeFi circular economy (source)

Tokenized assets to the rescue?

This is not to say that all DeFi today is inherently circular.

A stablecoin, a token whose value is pegged to another asset, such as fiat currency, could create a so-called "programmable dollar" that can be traded globally and settled in seconds. Today, digital currencies are even more relevant to the average consumer, as their lives already revolve around acquiring, saving, and spending this currency.

Currently, $140 billion worth of stablecoins can be used in DeFi applications, making the DeFi ecosystem more useful and relevant for consumers, such as by creating on-chain savings accounts. The "why" of Web3 becomes even more self-evident when the value attributes of Web3 are applied to assets that consumers already use today.

Beyond stablecoins, I believe this general approach to on-chain financial skeuomorphism—simulating and reimplementing existing real-world financial primitives on-chain—provides a clear path to bring Web3 applications to Introduced to the general population in a way that is practically relevant to everyday life.

In particular, tokenized real-world assets (RWAs), of which stablecoins are a subset, present an opportunity to shorten the circular speculation that exists in DeFi. They can include real estate, corporate/government bonds, revenue sharing agreements, commodities, and any other asset in the traditional financial economy. Still, tokenized RWA does not come without costs, especially in terms of decentralization and trust minimization.

However, Web3 applications that support RWAs can increase the value ratio of Web3 by an order of magnitude.

03 Hyper-Financialization

While DeFi, stablecoins, and RWAs present a huge opportunity to expand Web3 into the mainstream, it needs to be considered that the average consumer doesn’t really care about finance. They may not use many financial services, nor care about the technical details of how financial products are settled on the back end. At the end of the day, they just want to do business, like buy some groceries with a credit card. If the main hype of Web3 is based on hyperfinancialization, a large part of the entire addressable market will be completely missed.

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Web1 vs Web2 vs Web3

Web3 is about defining how producers and consumers of content interact, so where are these Web3 content platforms?

Non-financial use cases for Web3 are still in their infancy, but some clear use cases are emerging. For example, a Web3 implementation of a social media platform could take the form of a decentralized protocol where users can truly own their own online profile, including all the content they produce and their social graph of followers/followers. Their profiles can then be ported to various frontends with different content moderation policies.

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Decentralized social graph protocol allows independent interfaces to be built on top of it (source)

Decentralized social media may or may not be the ultimate killer non-financial Web3 app. Instead, it could be a creator economy, a game, a metaverse, a DAO, or any other use case. What is clear, however, is that we must expand our industry beyond pure hyperfinancialization.

04 Landmines of user experience

In theory, Web3 offers a user experience (UX) far superior to the status quo of the Internet. Instead of managing plethora of unique usernames and passwords for each website, or delegating to a centralized service provider, Web3 enables users to authenticate themselves with a single private key that can be used in any Web3-enabled application commonly used. Not only does this greatly simplify the user experience, but users can truly own their data and access applications directly without the approval of a centralized intermediary.

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Differences in login experience between versions of the web (source)

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Another standard will solve the Web3 authentication problem (source)

mnemonic? Chain IDs? Gas price? Token Approval? Revert transaction? Final confirmation? These are fairly esoteric and highly technical concepts that Web3 native users need to understand if they want to interact with on-chain Web3 applications today.

Even with a good understanding of these concepts, interacting with a Web3 application can often feel like walking on eggshells, hoping for an interaction flow (hardware wallet -> Web3 extension -> frontend website -> RPC node -> blockchain) Something in doesn't break.

Just as users don't need to understand the underlying architecture of Web2, they shouldn't need to understand the technical nuances underlying Web3

Currently, the poor user experience of Web3 is not the fault of any particular project or protocol. There are many ongoing efforts to unify experience. However, it is undeniable that the user experience of Web3 today is not ideal. Secure private key management is also a serious responsibility, and in the Web2 world, consumers have little analogue. Unfortunately, if your seed phrase is lost, there is no corresponding option to "reset password".

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"Connect Wallet" is a rabbit hole itself, good luck

Overcoming this user experience (UX) hurdle requires a first-principles approach that minimizes technical details and risks to users. I believe this will eventually lead to the creation of Web3 "super applications" that abstract away the various complexities inherent in Web3 infrastructure and present users with only what they need to see in order to interact in the Web3 world . Coinbase and Robinhood are two examples of consumers using their experience to create frictionless Web3 wallets.

In particular, Coinbase built a Web3 browser directly into its main mobile app. Browsers use secure multi-party computation (MPC), which enables private key generation in a distributed fashion. The result is a "semi-custodial" wallet system in which a user's private key is split into three entities, and any two parts are required to sign off on a transaction. The user and Coinbase each hold a portion of the key, and a third portion can be used as a cold storage solution, or kept in a trusted third party. If a user loses access to their device (and thus their key portion), a recovery mechanism can be used to regain access to the wallet.

While not as trust-minimized as a pure self-custody solution, this type of compromise significantly improves the user experience and may be a more secure solution for many users who are prone to accidentally losing their keys. Other solutions, such as social recovery, also provide a viable path to create the type of UX that users have become accustomed to in the Web2 world.

05 The dial-up era of Web3 throughput

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The Blockchain Trilemma Shows the Trade-offs Traditional Blockchain Designs Have to Make

As Vitalik Buterin once said, "The Internet of Money shouldn't cost 5 cents per transaction." This is a bit ironic, given the gas costs of using Ethereum over the past few years, but most people generally agree that this is a valid statement. Even with clear real-world use cases and an improved user experience, the next billion users cannot join Web3 if transactions take a long time to complete and cost a lot.

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A comparison of different scaling techniques from Matter Labs at ZkSync

06 The obvious

When discussing the hurdles facing Web3, the obvious must also be addressed: the lack of a clear legal framework and guidance around cryptoassets, decentralized applications, and decentralized organizations limits Web3's ability to reach global scale. As with any new technology that fundamentally disrupts an existing industry, growing pains are inevitable, but not everything can be fixed with technological means alone.

Without a clear legal framework or policy guidelines, traditional institutions and organizations do not have the clarity they are used to and crave to confidently participate in and deploy resources into the Web3 ecosystem. Once such frameworks and guidelines are in place – through industry collaboration to avoid stifling innovation – it is more likely that institutions and organizations will actually start dabbling in Web3, either as service providers or Web3 gateways to their existing customer base.

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looking to the future

looking to the future

Web3 represents a paradigm shift in the trust properties of applications, shifting power from centralized intermediaries to deterministic and transparent software.

But as with any innovative new technology, various hurdles must first be overcome before global adoption can be achieved.

While there are far more bottlenecks to mass adoption of Web3 than can be illustrated in this article, by addressing the aforementioned challenges head-on, Web3 will be better positioned than ever to extend its benefits to all aspects of society.