The modern version of software in Web2, Software-as-a-service, is broadly divided in two audiences: consumers and businesses. Of course this is a spectrum and not binary, since you have business software for solo entrepreneurs and S&P 500 companies, and you have prosumer products for specialist consumers.

I was not active when the internet emerged in the 1990’s, but I don’t think the line between consumer and business was a thing. Everyone was an "internet investor, VCs had internet funds, and so on. As adoption grew and the industry matured, specialization emerged.

I bet we’re likely to see a similar specialization trend among Web3. I believe so. Let me explain what I think may happen, the underlying reasoning as well as some of the implications.

Today, there are two main ways people ape into Web3: NFTs and Defi. If we compare the adoption of crypto today against the adoption of the internet, we’re currently in 1997-1998. 🤯

If you think about what needs to happen for the next billion people to onboard to Web3 and become active users, history can provide some hints. The internet started out clunky, slow, confusing, expensive and inefficient. Users had to learn the basic usage patterns (How to go online? How to send or receive email?). There was not a lot of bloggers and content compared to today’s internet. The start of mobile internet was still 10 years into the future.

Overall the internet really took off around and past the 1B user mark. One explanation is that the the space was probably too small for meaningful network effects to take hold.

As we know now, the usability of the internet saw steady progress since the early days. Successive waves of innovation unlocked new use cases: cable connection and bandwidth increase gave us streaming. Mobile gave us location-enabled use cases (Google Maps, Uber), photos (Instagram) and much more. Given that we are in the last 90s in Web3 land, then what improvements from the user’s perspective needs to happen to get from around 20M Metamask users to 1B+?

A way to answer this is to breakdown some of the experience hurdles into buckets and chip away at them like Web 2 did with speed, convenience, content quality and quantity, and training users with new concepts and behaviours.

The web3 experience hurdles:

• Self-custody and security of wallets, including private keys and device management.
• Scaling the transaction capacity beyond centralized equivalents. Today Web3 could not handle the same activity as, say Twitter, but that will likely change in the future as the adoption goes up (social media really only took off past the 1B users).
• Getting started: Interfacing of fiat and crypto with on-ramps. Today users need to open and funding an account with central exchanges and perform KYC process, the modern day equivalent to opening a bank account.
• Learning the next concepts and patterns:
  • Understanding the fundamental primitives and patterns of Defi. How yield is generated, how vaults work, how to borrow against collateral, and much more.
  • The dynamics of NFT assets; what these are, what they can do, why there are valuable (or not).

These complexity buckets need to be mitigated. Now there are two ways to deal with this: abstract (remove) the complexity from the user to make the experience easier and more familiar. Train users to understand the important concepts for them to be comfortable using the product.

I believe that security, scalability and moving money around needs to be a LOT simpler for Web3 to cross the chasm from early adopters to mass demand. These are areas where I see long term marginal improvements happening, similar to the the usability of the internet today vs. 20 years ago.

The mental hurdle of learning basic Web3 concept, whether Defi, NFTs or DAOs, is harder to abstract, and maybe not desirable to begin with. Maybe irreversible transactions should be high friction after all. Information is power, and it might make sense to try and help users level up to a point where they have enough knowledge to know how to use Web3. Projects like rabbithole.gg focus on making the learning curve less steep - definitely a good thing. But educating people - changing them and their behaviour - is a long journey. While necessary, it will take time and there might not be a clear inflection point here.

Given how they capture people’s imagination and are generally fun, NFTs are likely to be the one thing that the next 1B people want to interact with first. For regular people, Defi is more confusing; dealing with money can be a source of stress for many. NFT is more of a “killer app”. NFTs help breed communities, and at the end of the day what makes us human is our desire to collaborate, coordinate, connect and belong. Consumer brands are already jumping on this bandwagon en-masse by trying to create memorable experiences. Increasingly NFTs can be bought using a credit card, bypassing a lot of the steps for someone to get started.

Defi on the other end represents a massive innovation for financial services. I am ready to bet we’ll end up with the now-famous Defi mullet, with fintech in the front and crypto in the back. Users of banking apps won’t know when they are using a blockchain payment rail vs. a legacy banking rail.

Based on the explanation above, I am ready to bet that NFTs will increasingly look like consumer crypto (B2C), while Defi will evolve towards business-to-business protocols (B2B). We’ll see a corresponding increase in area of specialization from builders and investors.