Web3 has completely upgraded the traditional Internet, replacing the centralized “gatekeepers” and intermediaries with decentralized protocols and community ownership. The underlying logic of Web3 is very attractive to those who believe in encryption technology. However, we must also recognize that:
Web3 is still a niche industry and has not yet achieved large-scale application.
Although the underlying technology of Web3 is very excellent, your grandmother has not become an active user of Web3 for this reason. The bottleneck of blockchain expansion is the most frequently mentioned reason, and every time we add a sentence “our industry is still in the early stage of development”. But I personally think this is just one of the reasons why Web3 has not entered the daily life of ordinary people.
This article will share with you six reasons why I think Web3 has not yet achieved large-scale application, and how to make blockchain technology truly realize value for society.
Reason 1: technical terms are obscure and difficult to understand
For those who have just entered Web3, it is difficult to clarify the concept of Web3 at once, especially because there is no unified definition in the industry at present. Everyone has their own understanding of the value of Web3. So in the final analysis, we must answer the following questions: “What is the relationship between Web3 and me?” and “How does Web3 help me in my daily life?”
Web3 has many features that are often mentioned, such as decentralization, anti-manipulation, tamper-proof, transparency, etc. Many people will deconstruct Web3 from a purely technical perspective, and the explanation is mixed with various industry terms and technical terms that are difficult to understand.
Although explaining Web3 from this perspective can help listeners understand its core values and technical details, in fact, all of our communication is ultimately for the purpose of explaining clearly: What is the relationship between these obscure concepts and abstract values of Web3 and the topics that ordinary people care about?
To answer this question, it is natural to link use cases in the real world.
Reason 2: speculators revel in themselves
The first application of Web3 is to create digital tokens such as Bitcoin. The tokens have predefined monetary policies, built-in point-to-point payment functions, and completely eliminate centralized intermediaries. Although the digital token has attracted many people’s attention, if the token can only be transferred from one party to the other, its function will be very limited. Moreover, compared with traditional currencies, digital tokens are more volatile, and there are few merchants willing to accept them.
Unless there are major systemic loopholes in the traditional financial system, it is not attractive to cast and transfer certificates alone. Therefore, the second major application scenario of Web3 emerged at a historic moment, that is, decentralized finance (DeFi). Defi has expanded the functions of digital tokens, not only limited to value transfer but also used in financial scenarios familiar to users, such as lending, trading, and hedging risks.
However, since many DeFi applications are still focused on tokens, a circular economy has been created, in which the value of tokens partly comes from market speculation. This is not surprising, because the Web3 aborigines who already hold the pass have well proved that DeFi has initially achieved a certain product-market fit. But for those who do not hold an encryption passes, DeFi looks more like a casino than an emerging financial system.
How to solve the problem with the assets of general certification?
Having said that, it cannot be said that all DeFi projects today are essentially internal circulation. The stable currency is a token that anchors assets such as legal currency and promotes the rise of the “programmable dollar”, which can be traded globally and settled in a few seconds. The digital dollar is closer to the life of ordinary people today. People have begun to receive, spend and save this kind of currency in their daily life.
Now there is 140 billion dollars worth of stable currency available for the DeFi agreement, so the DeFi ecosystem can generate greater value for users, such as creating an online savings account. If the unique advantages of Web3 can be attached to traditional assets, its value is self-evident.
In addition to the stable currency, I think this mechanism of financial mapping on the chain (note: this means copying the financial model in the real world to the chain) will well promote Web3 applications to the public and have a practical impact on their daily life.
For example, we can break the speculative inner circle of the DeFi industry today with the help of the real-world assets (RWA) of tokens (note: stable currency is a subset of RWA). RWAs include real estate, corporate/government bonds, income distribution agreements, commodities, and other assets in the traditional financial system. Of course, the generic RWA also has its disadvantages, especially in terms of decentralization and trust minimization. However, Web3 applications that support RWA can greatly enhance the value proposition of Web3.
Reason 3: Super-financialization
Although DeFi, stable currency, and RWA can provide great opportunities for Web3 to enter the mainstream, there is another problem that we must consider: ordinary people do not care about finance. Ordinary people may not have used financial services much, nor care how financial products are settled in the background. In the final analysis, they only want to carry out business activities, such as shopping in supermarkets with credit cards. If Web3’s main value proposition is based on the realization of super-financialization, it will miss a huge market opportunity.
This is also where many people have doubts about Web3. If Web3 is a “decentralized Internet”, why is there no typical Internet use case we are familiar with? Such as messaging, social media, online video, e-commerce, and the blog you are reading now.
If the core value of Web3 is to define how content producers and consumers interact. So where are these Web3 content platforms?
Non-financial Web3 use cases are still in the early stage of development, but there has been some obvious momentum. For example, the social media platform Web3 can adopt decentralized protocols. Users can really own their online personal data, including all content generated on the platform and the entire social map. Their personal data can be transferred to other front-end social interfaces, and the content review policy of these social interfaces will be different.
Aave’s Lens Protocol is a decentralized social protocol developed for this purpose. All interactions are stored on the PoS blockchain of Polygon. The user’s social map can be transferred across various applications. Being able to have their own social identity is a very powerful value proposition of Web3, which directly solves the problems of the current Web2 social platform, including the content filtering algorithm and the practice of forced account deletion.
Decentralized social media may become a killer non-financial Web3 application. However, killer applications may also appear in the tracks of creator economy, game, metauniverse, or DAO. No matter which track wins in the end, it is obvious that we must look for development opportunities in areas other than super-financialization.
Reason 4: The user experience is full of pits
In theory, the user experience of Web3 should far exceed the current Internet. Web3 users do not need to create unique user names and passwords on each website, nor do they need to trust a centralized service provider. Instead, they can authenticate themselves with a unique private key, which can be used in all Web3 applications. This can not only greatly simplify the user experience, but also enable users to really own their own data and directly access the application without going through a centralized intermediary.
If these functions can work properly, the experience will be really good.
However, this premise is “if it can function properly”. In reality, users often face incompatible authentication standards, manual handling of private keys and mnemonics, downloading new browser plugins or mobile wallets and learning how to use them, and debugging different standard blockchains. This all leads to a very poor user experience.
Mnemonics? ChainID？ Gas fee? Pass approval? Withdraw the transaction? The end? These are very obscure technical concepts. If Web3 users want to use Web3 applications, they have to understand the meaning of these words first. Even if users have struggled to understand it, they still feel like walking on thin ice when using Web3 applications, and they are afraid that there will be a problem in some link of the process (hardware wallet ->Web3 browser plug-in ->front-end website ->RPC node ->blockchain).
At present, the user experience of Web3 is generally poor, which is not the fault of a project or agreement. There are also many people who are trying to unify the user experience of Web3. But it is undeniable that the user experience of Web3 is really not good today. Secure private key management is also a very important responsibility, which is incomparable with Web2. Unfortunately, once Web3 users lose their mnemonics, they will never be able to retrieve their accounts.
In the field of Web3, there are many interfaces similar to those below, which is no wonder that the loss rate of new customers is so high.
The “Connect Wallet” finally turned into a “rabbit hole”. After connecting, you can only seek more blessings for yourself.
To solve the problem of user experience, we need to start from the first principle and reduce the technical threshold and risk for users to the greatest extent. I believe that this will eventually lead to the emergence of Web3 “super applications”, reduce the various technical barriers of Web3 infrastructure, and only show users the information they need to enter the Web3 world on the interface. Coinbase and Robin Hood are two examples. Both enterprises have developed Web3 wallets with smooth experiences for users.
Coinbase directly integrates the Web3 browser in its main mobile applications. This browser uses secure multi-party computing (MPC) to generate private keys in a distributed way. Coinbase has created a “semi-hosted” wallet system in this way. The user’s private key is divided into three entities. The private keys of any two entities can be combined to sign a transaction. The user and Coinbase each hold one-third of the private key, and the other one-third is stored in the cold storage solution as backup, or held by a trusted third party. If users lose their keys, they can activate the backup mechanism and regain access to the wallet.
Although this mode is not as high as the pure self-hosting solution in terms of trust minimization, it can greatly improve the user experience and also provide a more secure solution for many users who are prone to accidentally losing their keys. In addition, there are solutions such as social recovery, which can also create a user experience similar to Web2.
Reason 5: Web3 throughput problem
Today, the most critical part of Web3 is the expansion and delay of the mainstream public chain. As I mentioned in a previous article on the blockchain trust model, many people believe that capacity expansion is to improve transaction throughput. However, a more comprehensive understanding should be that blockchain expansion not only needs to improve transaction throughput but also needs to maintain a lower cost of blockchain ledger verification. Although the throughput of some blockchains is relatively high, there are still upper limits, and these blockchains often have to make trade-offs between decentralization, security, and reliability.
Vitalik Buterin once said: “The new currency internet should not cost 5 cents per transaction.” Since the cost of gas in Ethereum has been high in the past few years, his statement may be ironic, but this view is still approved by most people. Even with a clearer application scenario and a more optimized user experience, if the problem of transaction confirmation time and cost cannot be solved, it will still be unable to attract billions of new users.
Because this is a more obvious reason why Web3 cannot achieve large-scale application, many blockchains attach great importance to the expansion problem and realize the expansion of blockchain through parallel computing, modular rollup, and side chain. Many of these solutions are still in the early stage of development, but I am very confident that the scalability problem will be solved in the next few years. In contrast, what will the highly scalable Web3 ecosystem become? This is difficult to predict. Will Web3 become a multi-chain world composed of multiple independent L1/side chains in the future? Or will it become a multi-roll-up world composed of L2 expansion solutions? Or will it become a high-throughput L1 blockchain? Or will these three situations coexist?
Reason 6: The elephant in the room
When discussing the obstacles faced by the development of Web3, we cannot ignore an important problem, that is, the lack of clear legal framework and policy guidance for encryption assets, decentralized applications, and decentralized organizations, which limits the expansion of Web3 in the world. Like any new technology that completely subverts the existing industry, the pain of growth is inevitable. But not all problems can be solved by technical means.
Without a clear legal framework and policy guidance, traditional institutions and organizations cannot follow a clear path, nor are they willing to participate in and invest resources in the Web3 ecosystem. Once we can establish a legal framework and policy guidance while protecting innovation through industry cooperation, institutions and organizations are more likely to truly devote themselves to the cause of Web3, become service providers, or import existing customer groups into Web3.
I want to state here that I am not supporting any specific legal framework or policy guidance, but that whether Web3 can achieve large-scale application depends on whether there is clear and reasonable policy guidance. What kind of regulatory policy should be established depends on a series of variables. We certainly don’t want to curb the innovation of the Web3 ecosystem, but Web3 is not a long-term solution if it has been in an unregulated state similar to the “Wild West”.
Looking ahead
Web3 has reshaped the trust model of applications, transferring power from centralized intermediaries to deterministic and transparent software. However, like any innovative technology, Web3 faces many obstacles, which must be overcome before the large-scale applications can be realized. Although Web3 needs to overcome many other challenges in order to realize large-scale applications, as long as the above problems can be solved first, it can achieve greater social value in many aspects.
