Web3 Growth Depends on Crypto Wallets and How We Choose to Use Them

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It is impossible to talk about the future of blockchain-based applications without thinking about the role of crypto wallets as a gateway to that future.

Will the popularity of wallets lead users to a Web3 world, or will current web applications move faster in this direction by first incorporating built-in wallet functionality?

Not only is this a chicken and egg situation, but neither approach is without its problems.

On the one hand, the standalone crypto wallet aspires to be that bridge to the blockchain, just as the browser was to the web, but most wallet user experiences are less than ideal for mainstream consumers. On the other hand, today’s web/mobile apps also face a steep adoption curve because so few integrate wallets.

The portfolio strategy first is complicated because most of them are too geeky and require a certain technical mastery, a barrier to adoption.

Although there are hundreds of crypto wallets to choose from today, the growth rate of this segment has not been impressive, growing from 40 million users worldwide in 2019 to around 80 million at the end of 2022. By comparison, TikTok fell from 381 million to 1.6 billion. users over the same period. At the current rate, and with only 6 million daily active users, it will take a long time to reach a tipping point in large-scale adoption by potentially billions.

Another hurdle is the small number of application cases for these crypto wallets outside of decentralized finance and a few decentralized apps. These standalone wallets shine at moving money, but once you start connecting them to other apps or websites, they start to fall short due to another hurdle: the back and forth between the app and wallet exacerbate an already poor user experience. And the dropout rate increases when you add them to new apps that haven’t yet demonstrated their viability in the market.

One of the benefits of the app-first strategy is that before a user discovers a wallet feature, they are already familiar with the app. In these circumstances, the wallet is often a built-in feature that extends a given use case with cryptocurrency, but too few apps add leverage for crypto or tokens.

The wallet-first approach is represented by the wide range of wallet-browser extensions available, such as those from MetaMask, Phantom and Wallet Connect. The user then logs into a given website or app, and navigates back and forth in a disconnected fashion, hoping nothing breaks in the process. There is also the case of branded wallets of crypto exchanges. They offer tight integration with trading of course, and with some Web3 applications, but these are exceptions.

The popular NBA Top Shot app is an example of a first-first situation where users are initially presented with attractive options for purchasing NFT collections. Later, the wallet appears in the background as a vault for these digital assets.

Proponents of the wallet-first approach are adamant that it is the browser clone. Their logic is to believe that these wallets will be the conduit to the new wave of apps. Undoubtedly, the wallet is a strong contender for bringing the mainstream into the blockchain, just as the popularity of the browser has led to the rise of the web.

However, the wallet still does not have the same status as the browser. Wallet and blockchain markets are too fragmented. Unfortunately, the blockchain industry is constrained by a dearth of interoperability standards and riddled with incompatible chains all vying to be the primary entry point. Until this is fixed, crypto users are effectively advised to use different browsers for different sites, a problem the Mosaic browser has elegantly solved by harmonizing their web experience.

Standards drive adoption.

Think of the wallet as a passport. Because it is a globally recognized standard, a passport is accepted everywhere. But without airports, a passport would sit in a largely underutilized drawer. And without enough apps that integrate wallets, they will also sit idle in browser extensions or apps.

Although both paths described require further growth and development, I believe both will triumph as they are not mutually incompatible. To transfer digital assets and navigate decentralized apps, we can use standalone wallets, and for in-app interactions, we can engage with in-app wallets.

Having two parallel directions for the evolution of wallets in the future of our digital assets is not such a bad thing and predicts a bright future for Web3.

William Mougayar has four decades of experience in the technology industry and is the author of The Business Blockchain. The opinions expressed in Fortune.com comments are solely the opinions of their authors and do not necessarily reflect the opinions and beliefs of Fortune.

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