Op Ed: The Adoption Fallacy of Decentralized Applications
It’s no secret that DApps have struggled to achieve adoption; in fact, according to stateofthedapps.com, the most popular DApp currently has just 1,811 daily active users (DAUs). In our opinion, the poor adoption rates of DApps can be attributed to the high adoption costs of using DApps, such as the time required to sign up, monetary cost or the fear of loss. These adoption costs are particularly high relative to the perceived value gained, especially when compared to Web 2.0 platforms that are designed with much lower adoption costs.
Crypto Kitties (which is currently the third most popular DApp with 530 DAUs) is a perfect illustration of the high barrier to entry faced by users. Before users can start to build up their Kitty collection, they are required to have a desktop or laptop, own some Ether and have a Metamask account. Assuming a user has all three, they must also make sure that they don’t lose their password or seed words, as recovering these is simply not possible (a fear of loss that most users are not accustomed to).
When comparing this signup process to that of Web 2.0 platforms, for the pragmatic user, these requirements are too cumbersome. Web 2.0 apps have invested considerable effort in streamlining the time and mental effort required to interact with their platforms, with companies such as Apple taking a “two taps away” approach. And so, unsurprisingly, the user experience of Web 2.0 is still years ahead of current DApps.
Such high adoption costs at the initial stages of an innovation are nothing new. History is littered with examples of innovative products, including mobile phones, computer and mobile operating systems and the internet, that initially were not accessible to the majority of users due to the complexity and costs of using them. However, as the technology improved and costs dropped, adoption grew.
In his 1991 book Crossing the Chasm, Geoffrey Moore argued that the key to achieving breakthrough adoption for high-tech innovations was overcoming the “chasm” in order to reach the “early majority” (the pragmatists). He describes this chasm as the massive gap that lies between the early adopters (tech enthusiasts and visionaries) and the early majority, which exists when a new product has the potential to be highly disruptive and thus require behavioral changes.
Thus far, when it comes to DApps, the pragmatists are not willing to put up with what can be seen as a bad user experience compared to the UX offered by Web 2.0 platforms (i.e. they are not willing to change their behaviors). Current DApps have not yet been able to cross over this chasm and are, instead, only managing to reach the “early adopters.”
Source: (Moore, 1991; Nesmith, 2018)
The question is, then, how can DApps successfully achieve this crossing?
We believe that crossing the chasm will come with a DApp that is centralized, with decentralized functionality i.e. a hybrid, quasi-centralized approach.
Now, before the pitchforks are raised, we first ask you to hear us out. A hybrid approach would allow the “early majority” to use DApps with the low barrier to entry that they are accustomed to with Web 2.0 apps. This low-friction approach would expose and inform the early majority of the value offered by Web 3.0 functionality and, in doing so, cross the chasm. In other words, this approach would whet the appetite of the early majority for Web 3.0 and leave them wanting more. And so, as time goes on and more adoption occurs, DApps will incorporate more Web 3.0 and less Web 2.0 functionality, before finally reaching full Web 3.0.
In the past, hybrid solutions were not possible; that is, one could not experience the magic of a mobile phone (it is magic) without, well, having a mobile phone: The landline system couldn’t expose the user to mobile phone functionality.
In crypto, this is different; we have the Web 2.0 world (with its low adoption cost), and we can use this low cost to our advantage while decentralized infrastructures are being built out. After all, the main thing that decentralization enables is trust (well, strictly operating without it).
We believe that this can be adopted as a philosophy by the early majority before the technology has caught up to enable it. As an example, let’s go back to Crypto Kitties and apply this philosophy. The in-game rarity of the cats would still be guaranteed by Web 3.0 functionality; however, the sign-up process would incorporate more Web 2.0 functionality, such as allowing mobile users (possibly through an app) and allowing the use of USD on the platform. Such changes would make the Crypto Kitties platform far more accessible to the early majority.
We bet you’re saying, “Wait, but Bitcoin couldn’t be quasi-centralized, so this approach is obviously wrong.” Yes, you are right, a quasi-centralized, censorship-resistant digital currency (cash or gold) wouldn’t work.
This, however, does not mean that such a quasi-centralized approach is wrong. Rather, it is use-case and sector specific. In fact, if one investigates Bitcoin further, many users interact with it through centralized businesses. For example, users on exchanges like Coinbase or wallets like Jaxx interact with Bitcoin in a quasi-centralized manner. Users do this because the centralized businesses reduce friction for users. The key aspects of Bitcoin (inflation rate, consensus) are decentralized, but many of the user-facing aspects (storage, sale, transfer, etc.) use centralized Web 2.0 functionality.
It would, therefore, seem that, even when wealth is at stake, users are comfortable with centralized solutions and are unwilling to overcome the current high adoption cost of true decentralization. Another example is the gaming industry, which we believe is a perfect target market for quasi-centralized DApps to experience a breakout success.
Why is gaming primed for this type of breakout? Three main reasons: 1) Gamers, as a whole, are accustomed to high adoption costs of learning and then grinding on a new game. 2) Gamers enjoy trying new ideas and concepts, such as a new scarce currency. 3) Gamers already assign a lot of value to digital goods. The amount of money Fortnite makes on skins is frightening, but it’s also a good indication of the value gamers assign to being able to express themselves digitally. Actually owning the digital asset is the natural progression within many games.
An example of a quasi-centralized game is the augmented reality mobile game, Augmentors. Here, players can purchase a package using fiat currency from the in-app store. Each package contains several elements including, but not limited to, creatures, consumables and Emeralds. Databits is the standard crypto-asset and Emeralds is an off-chain asset that is pegged to Databits at a set ratio. But, critically, from the perspective of the early majority, Augmentors is just a normal mobile game. They don’t need to know that it is a crypto-backed game that aims to be the first mobile game to guarantee in-game asset rarity. All they know is that players can train and customize their creature and thus increase its rarity and can legally sell it for real money, outside of the game. The technology behind it disappears for the majority of users.
In summary, we believe that the first breakout successes of Web 3.0 will be DApps that harness Web 2.0 to build themselves initially — and that’s okay. Also, we acknowledge that such a hybrid solution will eventually be deemed unacceptable to users in the long term, but a compromise in the short term is ultimately needed in order to achieve long-term success by breaking through to the early majority. Such a quasi-centralized approach and a breakout success will expose the early majority users to the value that can only be offered by Web 3.0 functionality. Nudging us closer to a future Web 3.0 world.
Disclosure: This is a guest post by James Kilroe and Seamus Hennessy of Newtown Partners. Newtown Partners is an investor in Augmentors and holds Databits. View expressed are theirs alone and do not necessarily reflect those of Bitcoin Magazine or BTC Inc.