Yes People Want Crypto Apps

Many of the early adopters of crypto, and more specifically Bitcoin and Ethereum, were drawn to a set of core tenets, including maximal decentralization, ensuring personal privacy, non-sovereign currency, and self-custodied assets. These principles promised a future where reliance on centralized entities was minimized, personal data remained private, and individuals had full control over their assets and online identities. Some theories that exemplified this thinking:

• A decentralized social network was obviously superior to the nefarious centralized ones that are always changing the rules and harvesting user data.

• A decentralized global computer was better than AWS because you could now no longer be censored for hosting a website that the corporate bodies disagreed with.

• Banks can’t be trusted and the government is headed for fiscal implosion so we should have an independent monetary system since one day they will come for your gold and guns.

• Anonymity is a right as much as free speech and we should be able to live online without exposing our personal data and protecting our personal privacy as private citizens.

Behind these ideals lies some valid thinking. I largely agree that if we could roll back the clock and rebuild many aspects of the internet today, a decentralized, blockchain-based approach would have prevailed. This could have resulted in a more vibrant and broadly owned internet than we have now. Similarly, we can see how Wall Street is starting to notice the opportunities to remake their backend through blockchain applications, with Goldman as the latest big bank to announce their movement towards tokenized security products.

But the reality is the internet as we know it is now roughly 30 years old and people’s habits and rituals are entrenched. You can’t simply change the behavior of individuals based on ideals. A decentralized X/Twitter may be superior to the existing one in every respect, but all of your friends post to Instagram and Google has the best maps, so even if they are tracking your every move, the 99% of people in society default to what’s easy and, well, the default.

Most people don't prioritize privacy and security enough to avoid using convenient services like Google or Facebook, despite the data these companies collect. They continue to store passwords in plaintext, use major tech platforms daily, and share personal information freely to enhance their user experiences.

Think about how many people use Google Maps for navigation. Even though it tracks their location, most users prefer the convenience it offers over privacy concerns. Similarly, people use social media platforms like Facebook and Instagram daily, sharing personal details despite knowing these companies collect their data. It's a frequent joke that someone bought a product off their feed because “Instagram heard me talking about how I needed new kitchen tongs,” accepting a creepy assumed breach of trust and then not being turned off but instead rewarding it!

This inertia highlights a critical issue: people are more likely to stick with default apps on their phones and social networks, even though there are objectively superior alternatives, simply because it's easier to use what's already there and that’s where their networks exist.

Long Term Vision Achieved Through Near Term Wins

With the growing demand and openness to blockchain-based solutions, demonstrated by institutional examples like PayPal, Visa, Stripe, Puma, and Adidas, and many others, we can see a real market for companies to scale on crypto rails and value propositions. To succeed at the necessary scale for major outcomes beyond the cryptosphere, we need to focus on building businesses that compound utility and gain adoption through small wins, rather than presenting a fully developed crypto solution from day one. The best articulation of this strategy I have seen is Chris Dixon's blog post from 2010 entitled "The 'thin edge of the wedge' strategy."

While Chris is primarily know today as the founder and head of a16z Crypto, perhaps the most prominent investors in the crypto markets, he was previously an exceptionally successful generalist investor and founder. I think about this post often, as Chris lays out a playbook for product success, articulating a method used by startups to establish initial relationships with users by focusing on a small, often overlooked feature and then expanding. Once a wedge is established with a core value proposition, teams quickly iterate to build enduringly useful products. While critics often mistake wedge features for final products, successful startups plan for long-term value and the best founders recognize that this thin edge of the wedge is almost a trojan horse play to gain early adoption and earn your way into deeper relationships with users.

In crypto markets, I find this strategy to be often overlooked - or at best played in reverse. Many founders I speak to view the thin edge of the wedge to be crypto users. They identify problems faced by crypto teams and users, thinking that they'll demonstrate traction with this user base and then try to expand to traditional user markets. But this means architecting a product based on a set of users that barely resemble the users you'll seek to acquire in the real world.

The right approach may be instead to think about small wins that they can demonstrate by applying crypto and blockchain as solutions to small but acute problems faced by traditional users and then leveraging those relationships to broaden the utility that can be created with this captive, onboarded user base.

I have recently written about the opportunity in Zero-Knowledge (ZK) identity and on-chain personal data to facilitate online transactions. I am excited to see a number of companies working on this, but from what I have seen thus far, most seem focused either the crypto-native priorities of privacy and security, allowing users to do things while hiding their identity because they believe in the right to privacy versus the ability to accomplish something more easily through this technology. Guided by the thinking that individuals shouldn’t have to provide corporations with their personal information if avoidable they often target applications like AML and KYC for DeFi or crypto financial services, where existing solutions are already well established and hard to displace.

What might a wedge strategy for these services look like? Let's consider a practical application of this solution in one of the most innovative industries in the world: Pornography.

Porn has historically been among the most early adopting industry of any, going back to VHS and then later proving to be one of the first clear disruptors of the internet era.

But recent laws in 16 U.S. states now require age verification for adult content websites. These states mandate websites to verify users are at least 18, affecting sites with 33.33% or more content deemed "harmful to minors." Non-compliance can lead to fines and lawsuits. Websites face complex legal requirements to verify users' ages, often needing government IDs or digital driver's license apps, raising privacy and security concerns.

You can bet that porn consumers have zero interest in sharing their personal information with porn sites, risking being outed as users. But as discussed in Rethinking Data Ownership, really clear and excellent solutions to this problem are being created.

Enter on-chain identity storage and Zero-Knowledge (ZK) Know Your Customer (KYC) solutions.

ZK KYC allows users to input their KYC data into a secure system, verified by oracles, where they own and control it. The data is verified through an independent protocol and is not stored in a way that is accessible to the outside world. You now have a KYC record that can be used by any service, such as a porn site, to prove you’re 18 and allow them to comply with regulations. Costs are a fraction of traditional methods, and the user experience for both sides would be greatly improved.

Additionally, this ZK KYC provider can leverage its user base into more types of KYC solutions for various industries over time. This approach is far more interesting than proposing a way for people to gain access to KYC derivatives on-chain for 10,000 crypto users. I have no idea the real practicalities of this solution, but I use it as an example that recently caught my attention to help articulate the theory here. Companies like ZK.ME and the original, Civic, might be working on this or it might be that this is just a feature in iOS mobile Drivers Licenses. But to date, the focus has seemed to be these crypto-first wedges.

When you understand that people will not change their habits unless they encounter solutions that are ten times better than what they currently use, we should be seeking out these opportunities to demonstrate this innovation whenever possible in situations like this.

In conclusion, for blockchain to achieve mainstream adoption, founders must shift their focus from ideological purity to practical applications that address real-world needs. This involves understanding and catering to the spectrum of utility that each core tenet of blockchain offers. By focusing on solutions that enhance user experiences in meaningful ways, the industry can move beyond its current stagnation and realize its full potential.

I see this in the recent founders we’re backing. They largely come from outside of Web3 and understand how to build businesses with real consumers in mind, leveraging the benefits of this new technology for the masses rather than the crypto-twitter echo chamber.

As we apply secure, user-friendly mechanisms for managing personal data or create innovative financial products that seamlessly integrate with everyday life, the industry can rapidly drive adoption. Solving real-world problems like reducing transaction fees, enhancing privacy without compromising usability, and offering tangible benefits over traditional systems will make blockchain technology more appealing to the masses.

Ultimately, the future of blockchain depends on its ability to adapt and evolve beyond its ideological origins. By prioritizing the practical needs and values of end users, the industry can create a sustainable path to widespread adoption and unlock the transformative potential of blockchain technology.