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 people 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 did not become an active user of Web3, which is not for no reason. Blockchain capacity expansion bottleneck 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
For those who have just entered Web3, it is difficult to explain the concept of Web3 at once, especially because the current industry lacks a unified definition. Everyone has their own understanding of the value of Web3. So in the final analysis, we must answer the following questions: "What does Web3 have to do with 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 resistance, transparency, etc. Many people will deconstruct Web3 from the perspective of pure technology, and the explanation is mixed with various industry terms and technical terms that are difficult to understand.
Although explaining Web3 from this perspective can let listeners understand its core values and technical details, in fact, all our communications are ultimately for the same purpose, that is, to explain 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 connect 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 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, digital token is more volatile than traditional currency, and few merchants are willing to accept it.
Unless there are major systemic loopholes in the traditional financial system, casting and transferring tokens alone will not be attractive enough. Therefore, the second main application scenario of Web3 came into being, which is Decentralized Finance (DeFi). DeFi expands the functions of digital token, not only limited to value transfer, but also used in financial scenarios familiar to users, such as lending, trading and hedging risks.
However, as many DeFi applications still focus on token, a circular economy has been created, in which the value of token comes partly from market speculation. In fact, this is not surprising, because Web3 aborigines who already hold the token have well proved that DeFi has initially achieved a certain degree of product market fit. But for those who do not hold crypto certificates, DeFi looks more like a casino than an emerging financial system.
Solve the problem by using token assets?
Having said that, it cannot be said that all DeFi projects today are essentially internal circulation. The stable currency is a token to anchor legal currency and other assets, which has promoted the rise of "programmable dollar". This token can be traded globally and settled within a few seconds. Digital dollars are closer to the lives of ordinary people today. People have begun to receive, spend and save such currencies in their daily lives.
Today, a stable currency worth 140 billion dollars can be used in 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 for implementation) will well promote the Web3 application to the public and have a real impact on their daily life.
For example, we can break the speculative inner cycle of the DeFi industry today with the help of the real world assets (RWA) (note: stable currency is a subset of RWA). RWAs include real estate, corporate/government bonds, income distribution agreements, bulk commodities and other assets in the traditional financial system. Of course, the token RWA also has shortcomings, especially in decentralization and trust minimization. However, Web3 applications supporting RWA can greatly enhance the value proposition of Web3.
Reason 3: Super financialization
Although DeFi, stable currency and RWA can provide a great opportunity for Web3 to enter the mainstream, there is another problem that we must consider, that is, ordinary people do not care about finance. Ordinary people may not have used financial services, nor do they care about how financial products are settled in the background. In the final analysis, they only want to carry out commercial activities, such as using credit cards to buy things in supermarkets. If Web3's main value proposition is based on super financialization, it will miss huge market opportunities.
This is also where many people have doubts about Web3. If Web3 is a "decentralized Internet", why is there no typical Internet use case that 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 the interaction mode between content producers and consumers. 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, Web3's social media platform can adopt decentralized protocols. Users can really own their online profile, including all the content generated on the platform and the entire social graph. Their personal data can be transferred to other front-end social interfaces, and the content review policies 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 graph can be transferred across various applications. Having your own social identity is a very powerful value proposition of Web3, which directly solves the problems of the current Web2 social platform, including content filtering algorithms and the practice of forcibly deleting accounts.
Decentralized social media may become a killer non-financial Web3 application. However, killer applications may also appear in the creator economy, games, metauniverse or DAO tracks. 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: user experience is full of pits
In theory, the user experience of Web3 should be far more than the current Internet. Web3 users do not need to create a unique user name and password on each website, nor trust a centralized service provider. Instead, they can authenticate by themselves through a unique private key, which can be used in all Web3 applications. This not only greatly simplifies the user experience, but also allows users to really own their own data and access applications directly without going through a centralized intermediary.
If these functions work properly, the experience will be really good.
However, the premise is "if it can run normally". In reality, users often have to face various incompatible authentication standards, manually process private keys and mnemonics, download new browser plug-ins or mobile wallets and learn how to use them, and debug blockchains of different standards. All this has led to a very poor user experience.
Mnemonics? ChainID？ Gas fee? Pass approval? Withdraw transaction? The end? These are very obscure technical concepts. If Web3 users want to use Web3 applications, they must first understand the meaning of these words. Even though users have struggled to understand, they still feel like walking on thin ice when using Web3 applications, and they are afraid that some link in the process will go wrong (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 protocol. Many people are trying to unify the user experience of Web3. However, it is undeniable that the user experience of Web3 is really poor today. Secure private key management is also a very important responsibility, which is incomparable to Web2. Unfortunately, once Web3 users lose their mnemonics, they will never be able to retrieve their accounts.
There are many interfaces similar to those below in the Web3 field, which is no wonder that the turnover rate of new customers is so high.
"Connecting the wallet" finally becomes a "rabbit hole", and after connecting, you can only hope for more.
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 Web3 "super applications", lower the technical threshold 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 experience for users.
Coinbase directly integrates Web3 browser in its main mobile applications. This browser uses secure multi-party computing (MPC) to generate private keys in a distributed manner. Coinbase created a "semi managed" wallet system in this way. The user's private key is scattered in three entities, and the private keys of any two entities can be put together to sign a transaction. The user and Coinbase each take one third of the private key, and the other third is placed in the cold storage solution as a backup, or held by a trusted third party. If the user loses his/her own key, he/she 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 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.
Cause 5: Web3 throughput problem
The most critical aspect of Web3 today is the expansion and delay of the mainstream public chain. I mentioned in a previous article on the blockchain trust model that many people believe that capacity expansion is to improve transaction throughput. However, a more comprehensive understanding should be that the expansion of the blockchain not only needs to improve transaction throughput, but also needs to maintain a low cost of blockchain ledger verification. Although the throughput of some blockchains is relatively high, there is still an upper limit, and these blockchains often have to make trade-offs in decentralization, security and reliability.
Vitalik Buterin once said: "The new currency Internet should not cost 5 cents for every transaction. Even with clearer application scenarios and more optimized user experience, if the problem of transaction confirmation time and cost is not solved, it will still fail to attract billions of new users.
Because this is a more obvious reason why Web3 cannot achieve large-scale applications, many blockchains attach great importance to the problem of expansion, and achieve blockchain expansion through parallel computing, modular roll up, side chain and other solutions. Many of these solutions are still in the early stages of development, but I am very confident that the scalability problem will be solved in the next few years. In contrast, what will this highly scalable Web3 ecosystem look like? This is difficult to predict. Will the future Web3 become a multi chain world composed of multiple independent L1/side chains? Or will it become a multi rollup world composed of L2 expansion plans? 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 the Web3 ecosystem and invest resources in it. Once we can establish a legal framework and policy guidance while protecting innovation through industry cooperation, institutions and organizations are more likely to really devote themselves to the cause of Web3, become service providers or introduce existing customer groups into Web3.
I want to make a point here. I am not supporting any specific legal framework or policy guidance, but I want to say 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. Of course, we don't want to curb the innovation of Web3 ecology, but if Web3 has been in a state of unregulation similar to the "wild west", it is not a long-term solution.
Looking forward to the future
Web3 has reshaped the trust model of applications, transferring power from centralized mediation to deterministic and transparent software. However, like any innovative technology, Web3 faces many obstacles, which must be overcome before large-scale application can be realized. Although Web3 still needs to overcome many other challenges to achieve large-scale application, as long as the above problems can be solved first, it can achieve greater social value in many aspects.
(The author Fei Lianpu is the person in charge of Chainlink China)
