Problems with Web3 Preventing Widespread Adoption

Until recently, I accepted without examination the critiques against blockchain technologies. It wasn’t until the same arguments were lobbed against the burgeoning field of generative AI, which I readily accepted, did I start to question whether I had been wrong about cryptocurrency and NFT’s.

As an author, I’m always on the lookout for new ideas, new monetization streams for my writing. Serialization has been increasing in popularity, and had been consuming various books, social media groups, and podcasts on the topic. In one such podcast, the host casually mentioned “web3” as an avenue that subscriptions for fiction serials were starting to move into, but that it was still controversial.

From there, I learned just enough to make myself dangerous - to myself - before diving in. I opened an account with Coinbase, not yet realizing the difference between crypto investing and crypto wallets for collecting NFT’s.

It’s been about a month, and I’ve made several mistakes, that have cost me roughly half of the money I’ve put into crypto. I’ve learned several lessons, which I decided to describe here to help others from making the same errors. But while writing this, I realized that the issue was also with the state of technology itself. Some of this is similar to the mainstream criticisms, but I’d like to point out that I’m making these arguments from a place of wanting to improve web3 instead of tearing it down.

Web3 gets confusing really fast

Sometimes people will claim that we are in the “wild west” of blockchain and web3. This gets misused to mean lawlessness, although the old west wasn’t as lawless as it gets made out at. After all, that’s where the water rights system used by a third of the US originated.

But where we really are at is the early adopter phase in the diffusion of innovations theory. The diffusion of innovations theory is a framework developed by Everett Rogers that explains how new ideas, products, or technologies spread through a social system over time. This theory posits that the adoption of an innovation follows a specific pattern, with different groups of people adopting the innovation at different stages.

The five groups in the Diffusion of Innovations theory are: innovators, early adopters, early majority, late majority, and laggards. Innovators are the first to adopt an innovation, and they are typically risk-takers who are eager to try new things. Early adopters are opinion leaders who are respected in their communities and are willing to take a chance on a new idea. The early majority are more skeptical and tend to adopt an innovation after it has been proven successful by others. The late majority are even more skeptical and only adopt an innovation when it is necessary. Laggards are the last to adopt an innovation or may never adopt it at all.

Each group has different needs and goals. Innovators and early adopters are looking for new ideas and products that can give them a competitive advantage. The early majority is interested in innovations that can improve efficiency or reduce costs. The late majority is looking for proven solutions that are reliable and have a track record of success. Laggards may be resistant to change and have a preference for the status quo. Understanding these different groups and their needs can help innovators and marketers develop strategies for introducing new ideas and products to the market.

Early adopters are often the first to explore and experiment with new technologies and are driven by a passion for innovation and a desire to create new solutions to existing problems. They are often technologically savvy and have a deep understanding of the potential benefits and limitations of new technologies. The adoption of web3 technology has so far been limited to a relatively small group but vocal group who are passionate about the potential of the technology

Web3 is complex, and a lot of the concepts are still in the process of being fleshed out. What makes it even harder is that, unlike fiat currency or stock markets, there is no centralized government entity that sets the rules. This lack of structure can be disorienting, and makes it hard to trust the system.

Newcomers are often overwhelmed by the sheer number of crypto tokens and have difficulty keeping up with the constant changes. The learning curve is steep, and the terminology is enough to make the most experienced technologists’ head spin. Many of the terms used are not only unfamiliar but also seem to be completely made up. Additionally, the concepts of “mining”, “staking”, and “gas” can be downright paralyzing. Couple this with the language barrier, and users are discouraged from taking the leap.

Interoperability is always an issue during the early adopter phase of technological diffusion. It wasn’t until VHS won out in the VCR wars of the 70s, or Blu Ray in the same fight with DVD’s in the early 2000’s did those technologies start to become ubiquitous before ultimately being replaced by the next advancement. There were at least half a dozen mobile operating systems before the market came to be dominated by Android and iOS. And you used to be forced to choose between competing but incompatible WiFi standards of 802.11a and 802.b

Eventually, either standards bodies evolve or markets coalesce around one or two standards. The markets largely were responsible for this in the first two examples, but a standards body was created for WiFi.

This, along with tackling fees, desperately needs to happen with cryptocurrency order for a web3 to advance to mainstream adoption. Unfortunately, this is going to be a hard sell for a community for whom decentralization is the main draw.

There are multiple cryptocurrencies available on multiple networks

Every NFT marketplace uses different tokens

The first thing I did when I got started with crypto and NFT's was buy some Ethereum. Then I went to buy my first NFT and that marketplace only accepted Polygon.

Every site uses a different token. Readl takes Polygon. Soltype obviously will only accept Solana. Tezos is popular with poetry NFT's. OpenSea let's creators choose between 7 different chains.

Over the last decade, the number of actively traded cryptocurrencies has exploded from 7 to nearly 9000. More than 22,000 have been created overall. But it gets worse than that.

How I bought currency on the wrong exchange by mistake

Once I realized that Coinbase itself was not a wallet, and the wallet inside the Coinbase app was not the same as Coinbase Wallet, I finally had my Ethereum in a place I could spend it. Only to discover I needed Polygon to buy a book on Readl.

So I bought some Polygon.

But Readl still didn't see any MATIC in my connected wallet.

Because I had apparently bought Polygon on the Ethereum (i.e. default for my wallet) network. And I could only use Polygon bought on the Polygon network.

Imagine, if you will, traveling to Paris from the US. You know you are going to need Euros, so you go to the bank and exchange some of your savings to that currency. You get off the plane and take a taxi to your hotel. You got to pay taxi driver but they don't accept the Euros that you have. You see, you got those from a US bank. You had to exchange your currency at a EU-based bank. That is basically what happens with Ethereum-based cryptocurrencies.

So now I'm stuck with about six dollars worth of MATIC that I can't use and would cost more to swap (exchange from one currency to another in a network) to Ethereum or bridge (move a currency from one network to another) to the Polygon network than I have in unusable currency. It's literally cheaper to write it off than to use it, because gas fees on Ethereum are so high. More on that in a bit.

The next item I collected was a .eth domain, and then a piece published on Mirror. ENS requires regular Ethereum, but here, we need ETH on the Optimism network.

Adventures in Optimism

Coinbase has a few different incentives to get you interested in different currencies with the offer of free money. Coinbase Wallet gave me 2 OP for buying some Ethereum on Optimism and swapping it for the stablecoin USDC, pegged to the US Dollar (well, until Signature Bank collapsed and Coinbase had to pause trades of it).

Since Ethereum is so expensive, most transactions are in tiny fractions of the currency. And there's always rounding that occurs. So I found myself with some ETH, some USDC, and some OP, all on Optimism.

I swapped my OP and my USDC for ETH, still on Optimism. For some reason, my wallet then decided to hide it from my asset list, although the balance still showed up on other sites that my wallet was connected to. After doing some reading, I tried to bridge it to the Ethereum network. I needed it there to pay for my ashroberts.eth domain rather than having my 64-character wallet address as my account name on Mirror.

The official Optimism bridge will tell you to use a third party service as it is apparently cheaper and faster (minutes instead of days) than what they can on their own. I tried every single bridge that they listed, all of them claimed to have worked, nothing ever happened. After a week of trying, I thought I was going to have to write that $10 off, like my Ethereum-based MATIC. I gave up and bought some ETH (on the right network).

The domain cost about $5. The gas cost another $8.

Moving on, I went to collect a Mirror article (to gain access to the Write3 discord). The price was advertised in ETH. I clicked the collect button, and was told that I didn't have a sufficient balance, with a button to allow me to bridge my ETH to Optimism.

After a week of trying to bridge my Ethereum from optimism, I discovered that I had to bridge it to Optimism instead. The link took me to the official Optimism bridge. Using it to bridge away from their network apparently takes 7 days, but you can bridge to their network in just 20 minutes.

Gas fees - a tax on transactions that benefits speculators

Gas fees are imposed by the blockchain network and miners that process transactions on the network. The best analogy would be the swipe fee credit card processors charge for you to use your card. Except, while most retailers absorb that cost, and almost all cases, web3 wallets charge gas fees to the user. They are effectively attacks on every cryptocurrency transaction.

The amount of gas for a transaction is based on the amount of traffic on the blockchain and the amount of work required to process the transaction, and are calculated and paid for in an auction-like process. The higher the gas fee you pay for a transaction, the more likely it is for miners to pick up your transaction and process it.

In theory, this incentivizes miners to process transactions and ensure that the network remains secure and valid. In reality, speculators are quick to take advantage of the auction to push their profits up.

High gas fees make transactions too costly to be effective for small purchases, as can be higher than the actual transaction. This limits how much the technology can scale down the road.

And because gas is charged with every single transaction, whether moving crypto from your wallet to someone else's, swapping from one currency to another, making mistakes gets very costly. Nearly a quarter of the crypto that I have bought so far has gone to gas, and half of that has come from moving money around in my own wallet.

There are efforts to tame gas fees with level 2 networks. If Ethereum is the primary network on which ETH exists, other groups will buy chunks of it and use it as backing for their own currencies Optimism and Polygon are two such L2 networks.

By moving transactions off of the Ethereum blockchain, the demand isn't as high, which lowers the gas price demanded. On the flip side, this creates the issue of being able to buy multiple currencies in multiple networks that are not interoperable.

How inflated prices hurt the marketplace

False scarcity

In the world of physical goods, there are fixed costs and per-unit manufacturing costs. To sell a book, You have to pay all of the people involved in producing the manuscript, and then it costs money to print each copy. The reason ebooks have been so much cheaper, (until the big five started engaging in price fixing practices to prop up their physical sales, which is where they have their competitive advantage over self-publishing) is because, outside of the swipe fees, it doesn't cost any more to sell 500 books than it does to sell five books.

But many creators in the web3 space have embraced the idea of artificial scarcity to drive up prices. Using the law of supply and demand, if you limit how many digital copies can be sold, each copy becomes more valuable.

There have been moves toward open editions, recently, but there is a vocal segment in the web3 space that has been pushing back against the idea.

Price volatility

Meanwhile, cryptocurrency prices are extremely volatile. Ethereum has increased 46% so far this month, and more than 20% in the past two weeks. If a NFT is being offered for 0.01 ETH, you could buy it for $15 near the beginning of the month, but it would cost $18 now.

Creators are then forced to change constantly adjusting the floor price down or justify why one collector should be forced to pay 20% more.

But crypto prices also fall. When I bought my first ETH, the price was north of $1700, but then signature Bank failed, causing concerns for the future of cryptocurrency, and the price fell to $1400. If a creator needs to make $5k a month, they may make it a goal of selling 1000 editions for .03ETH on the assumption that each sale would generate roughly $5. But then the market gets jittery, and the price falls, and our hypothetical creator comes up $1,000 short on their rent.

Their cryptocurrency community expresses disdain for fiat currencies, but those are relatively stable, because that's stability is the goal. As it stands now, cryptocurrency is treated like a commodity, which makes as much sense for the creator economy as if my boss were to pay me in barrels of oil.

Conclusion

For web3 to reach mainstream adoption, community needs to coalesce around a token with a relatively stable price, seem less integration, and low gas fees that marketplaces deduct from sellers' royalties. Until then, speculators will continue to take advantage of the auction, and traders will continue to distort prices and create an unpredictable marketplace that turns off mainstream consumers.

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