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Can the "hosted" model solve the connection problem between Web2 and Web3?

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For users who have never used cryptocurrency to enter Web3, the initial experience may have to be hosted.

Original title: "The Missing Link Between Web2 and Web3: Custody"

Original author: Mahesh Vellanki

Original compilation: Demo, DAOctor, DAOrayaki

Cryptocurrencies face a major hurdle in mainstream adoption: the user journey is complex and not yet established, for someone new to cryptocurrencies , to do the simplest thing - to fully control one's digital assets, is not an easy or intuitive thing.

Of course, users are not required to have full control over their assets to invest in cryptocurrencies. Centralized exchanges like Coinbase have demonstrated the efficacy of the “custodial” model in cryptocurrency trading, where people deposit their assets with custodians, who secure and track them. The key advantage of this model is convenience. Anyone can relatively easily buy cryptocurrencies using the Coinbase app or other trading platforms without having to write down a "seed phrase," the string of words that makes up the "private key" that controls access to assets. In this way, users can buy and sell various cryptocurrencies, exchange them for other cryptocurrencies, use assets to make purchases and payments, and soon buy NFTs.

However, venturing further into the broader picture of fully decentralized interoperable applications and networks The web3 ecosystem—not just trading platforms, but games, tokenized social networks, fan engagement communities, and other rich user experiences—is largely inaccessible through custodians. This web3 experience requires sending their cryptocurrency to a non-custodial wallet, where no one but the user holds the private keys, and there are no restrictions on the types of transactions that can be completed.

In fact, this is the most exciting part of cryptocurrencies, and it’s why we see so many first-time users give up The place. Web3 products cannot expect users to immediately step into deep decentralization from a familiar centralized experience. The future of the mass-market cryptocurrency experience lies in apps that provide a familiar custodial experience, with the ability to upgrade to a non-custodial experience.

This article outlines some ways developers can consider while leveraging some familiar Web2 structures Simultaneously educating users about the cryptocurrency user journey and helping those users understand the potential of web3 before handing them the keys to their assets - ultimately leading to greater adoption of their product.

Framework to help users complete their journey

Token and NFT are already unfamiliar to many people, and there is a theoretical limit to the extent to which ordinary people are willing to explore new experiences. In a purely non-custodial environment, most people would glance at a screen that prompts them to write down a 24 word "seed phrase" (the randomly generated phrase that makes up their "private key" or password) and make "It's not worth it" decision.

If the goal is to get first-time crypto users on board, the experience must be hosted—at least in That's how it started.

This graph shows the path to wider adoption of the full web3 experience - and how people are comfortable moving from hosting Simplified user journey required for system migration to unmanaged systems.

We will go into more detail below Each of these steps is presented in detail, why they are important, and how they reinforce each other to foster confidence and excitement about the emerging web3 activity.

Step 1: Make your first Seamless access for users using cryptocurrencies. Many web3 applications that exist today invite users to log in by connecting their wallets.

This may become the default option for many apps in the future - wallet login is very convenient and secure. However, first-time cryptocurrency users can be confused, overwhelmed, and even skeptical if they don't recognize what they're looking at. For many first-time cryptocurrency users without a wallet, the traditional login method is the only option they are willing to use when trying out a new app.

For creators who are increasingly looking to use web3 technologies to create new forms of fan engagement, This is an especially important step in the user journey. Fans who support an artist early in their career may receive benefits in the form of creator access, recognition, and stipends. (The design space here is virtually limitless, and the wave of innovation and experimentation is just beginning).

However, most fans will not be native to cryptocurrencies requiring them to acquire hardware wallets and create secure systems The requirements are too high. Fans should be able to sign up, pull out their credit card, buy tokens from their favorite creators, and see it in their account - it has to be intuitive, it has to mirror the familiar web2 experience to see the user's the whole trip. No cryptocurrency wallets, key management, "gas" (transaction) fees, congested transactions, or any other foreign user experience.

In this way, creators can build a shared digital economy with fans, and they can Places to use, but join in in a way that doesn't scare or bother fans.

Step 2: Provide options to get users started with the product in a simple, fully managed experience. Managing private keys or seed phrases is part of everyday life for experienced cryptocurrency users, but most first-time cryptocurrency users give up immediately when they see such information. "These 12 words are the only way to recover your account. Keep them in a safe and secret place: exhaust turtle silly pretty fog midnight enact throw journey nephew animal reward. Write this down."

Rather than greet users with this Set up a familiar experience, then offer users an unmanaged option further down the journey. Their initial signup flow should be more like: sign up, create username/password, agree to terms, start buying crypto. Then once they're in the app and transacting, they should have the option to self-host and tap into the wider web3 ecosystem.

Some projects have tried other solutions such as embeddable iFrames to store user's seed phrase. It's an enticing solution - super easy for users to write down their seed phrase. But the crypto community was quick to point out that this created dangerous user habits, didn't adequately educate users about the risks they faced, and made their Google accounts a target for hackers. Instead of doing things halfway, let your users have a clean experience: start with the hosting experience they're used to, then help them upgrade to full self-hosting when they're ready.

Step 3: Educate users outside of the product and platform. This is especially important when it comes to security - most users aren't even using current best practices (e.g. password managers, 2FA, etc.) in Web2 applications and products. Introducing new experiences requires more education. Metamask does a great job of providing their users with the content they need to stay safe.

As the wallet is created more With multiple "first-time crypto users" features, expect to see wallets incorporate this kind of education and content directly into the product.

Step 4: Create a path to your web3 wallet. Once users who were previously unfamiliar with cryptocurrencies are hired, web3 products can manage to move them down the path of self-hosting. An accessible web3 product must ensure that users are able to exit the system, for example by converting their assets into other forms of currency, or by taking them out of a particular ecosystem and into the wider web3 world.

As users become more familiar, it should be easier for them to seamlessly participate in the creator economy instead of being constrained on a specific platform. For example, Coinbase enables users to simply transfer their assets to a non-custodial wallet. This means they can sign up, try to buy cryptocurrencies, then send their assets to a web3 wallet and interact with the entire ecosystem of applications.

In my co-founded Social Token Community Rally, users can freely convert the creator Token into the community's native Token RLY, and then they can transfer it to an ERC-20 (Ethereum compatible) wallet, enabling them to convert it into any cryptocurrency or exchange it with other Community interaction (although the creator social token itself is now fully managed, the era of token transfer is coming).

Education is not crypto-native The key for users is to create an experience that makes it easy for fans to get started and participate in a high-functioning product experience around social tokens, but still retain the flexibility to trade assets, monetize, and extract value as needed.

Of course, different consumer products require different approaches. For Rally, we're already building on sidechains, so it made sense to go custodial from the start. Much like the progressive decentralization we envision for the RLY ecosystem, the best approach for Rally is to start with a familiar experience for end users and build the ability to scale mainnet and self-host over time . But other products will make different decisions; for example, decentralized exchanges, daily fantasy sports, or hardcore games that cater to high-spending users may be better suited to adopting a non-custodial experience from the beginning. The complexity of these user bases and the increased need for distrust justify having a non-custodial user journey right from the start.

Hosting experience means infrastructure requirements

Of course, building applications for managed assets has its own hurdles and challenges. Namely, compliance and security. Allowing users to move from custodial to non-custodial wallets means Know Your Customer (KYC) and Anti-Money Laundering (AML) checks will be inevitable. Also, by hosting assets, you also take on the associated risk of keeping those assets safe on behalf of your users against some very sophisticated attackers.

Right now, cryptocurrency companies are largely doing it on their own. You either build and manage the infrastructure yourself, or find one of the few trusted partners. It's no small task for Rally -- it's doable, but not straightforward or cheap. The simple truth is that there really is no prescriptive advice when it comes to compliance, as many factors determine a cryptocurrency project's compliance strategy: What stage of growth is the company in? In which jurisdictions does it operate? What is the leadership's risk tolerance level?

A good example of how two different approaches can work is Coinbase and FTX. Coinbase has always been based in the United States and has taken a cautious approach to regulation, investing heavily in compliance. FTX, on the other hand, mitigates risk by launching outside of the US first and growing the company internationally. Both methods have proven successful among users.

In fact, we are currently seeing a new wave of cryptocurrency adoption coming from emerging markets that were previously ruled by web2 Companies ignore that they cannot profitably advertise in these regions. The unmanaged experience makes emerging markets really easy to enter because the application is not responsible for compliance. Hosted experiences, on the other hand, involve a thoughtful approach to enabling these users across unique payment providers. For example, credit cards are often declined in these regions, yet there are often "non-traditional" tracks, such as buying cryptocurrencies with cash at 7/11 stores. Even how and where you set up your company can affect what kind of hosting experience you can provide.

But as big web2 social and financial platforms like Facebook, Twitter, Square and PayPal start to push cryptocurrency further, And more services are required, the ecosystem will grow rapidly, and finding reliable and affordable partners will become easier.

Increasing demand for Web3 access

We are closer to this evolution to web3 than many realize. Arguably, within five years, more than half of the large web2 platforms will have initiated initiatives to embrace web3 in some way, likely taking into account many of the UX principles described above.

There is no doubt that there is a pent-up need that will only increase. When Robinhood announced that it would immediately launch its cryptocurrency wallet at Messari’s Mainnet conference in September, everyone expected a big reaction. After all, a standalone cryptocurrency wallet is one of the company's most requested features. This will allow Robinhood users to send their tokens from the company's platform to any address they wish.

However, even the most cryptocurrency bulls may not have anticipated just how big users’ wallets are on Robinhood enthusiasm. The company's co-founder Vlad Tenev (Vlad Tenev) said at the CNBC conference that there are well over a million names on the waiting list, and that's for an upcoming release sometime next quarter. item function.

The huge interest in Robinhood Wallet hints at other things in the cryptocurrency portfolio. After all, users already have a smooth, fun, and secure environment for trading coins in the Robinhood app. Why are so many people eager to have a wallet so they can send tokens around? It's clear that people want to move their cryptocurrencies, participate in other cryptocurrency protocols, and store their assets differently.

As more apps strive to meet users' needs and guide them into new experiences, encryption As monetary infrastructure becomes cheaper and easier for projects to use, the path to the next iteration of the internet will become clearer.