Welcome to this week’s deep-dive. We’re going to talk about how early we are in web3, and what needs to change as we move up the adoption curve.
We’re still very early
There are ~190m unique Ethereum addresses as of 25 March 2022. These aren’t unique users because many users have more than 1 address. Equally, and though a much smaller proportion, some users may only have addresses on other blockchains like Solana.
Either way, it works as a crude estimate of web3’s market size. Comparing this to the number of internet users (5 billion):
Technology adoption is normally distributed as shown in the graph below. At best, we are in the Early Adopters phase. Some may even argue that we are still in the Innovators phase.
Built for the early adopters
Innovators and early adopters tend to take more risks. The user experience in web3 caters to this group today. Let’s dig into this by considering how a new user who has never interacted with web3 onboards into the space.
Imagine a user who wants to buy their first NFT. The steps they need to go through are:
- Choose a blockchain: Ethereum, Solana etc
- Select a wallet: MetaMask, Coinbase Wallet
- Back up their seed phrase
- Choose an NFT
- Pay for the NFT and incur gas fees
For innovators and early adopters, this is do-able. But it isn’t for mainstream users. In many ways, we are going to have to cross the chasm of the adoption curve as Moore imagined it. And as we do so, it’s vital that we design the experience for the right target market. This is also why companies like Stripe are betting on allowing users to pay with fiat.
Decentralisation is a spectrum
Decentralisation is a spectrum. Some users will choose to delegate some part of the experience to third parties. Given wallets are the first entry point for Web3, let’s use custodial and non-custodial wallets as a way to demonstrate this point.
Custodial wallets, like Coinbase, are managed by a third party. The third party controls your private key. Non-custodial wallets like MetaMask or Ledger give the user full control over their assets. Non-custodial wallets are harder to seize because the user has full control. This article has a detailed breakdown of the two types of wallets, if you are interested.
Private keys held by a third party
Like a bank
Private keys held by the user
The famous saying in web3 is:
The recent seizure of Bitcoin in Canada showed us that self-custody is a critical consideration. But as we move up the adoption curve, some users are likely to delegate the management of their private keys to third parties. The risk of losing funds from bad key management will be higher than the probability of a central authority seizing assets for certain users.
Web3 is still a massive unlock because it makes custody a right. Historically, you couldn’t retain custody of $1 billion because of physical constraints (where would you store the money or the gold?). Today, if you really wanted to, you could store a $1 billion dollars of cryptocurrency using a non-custodial wallet.
Web3 is the future, we just need to adapt
The above should not be read as an argument against Web3. It’s quite the opposite. Web3 can and will change the way users interact with software. I’m merely point to builders having to be cognisant of where we are in the adoption curve, and how to tailor the experience of their products accordingly.
Users choose products for one of the following reasons:
- Receive better value via lower costs or higher revenue
- Because of a superior user experience
- To save time
Web3 can deliver on some or all of the above. Building on the blockchain gives us a public, shared database. This reduces switching costs, increases competition and improves the user experience. Smart contracts allow us to interact without or with a fewer third parties. This means lower take rates for platforms, and more money for users or creators. Sending crypto - in many cases - is faster than the traditional banking system.
But let’s not forget that the users of today are not the users of tomorrow, and we’re building for the future, not the past.