Web2.5, The Bridge for Crypto Adoption
Blockchain technology has had a volatile journey from 2009 to present day. As with all new technological innovations, it has evolved, matured, and grown with the diversity of applications. The history has been well documented in various publications, but in the last few years, a new term has gained popularity to label blockchain and crypto: Web3.
Web3 seeks to define blockchain technology as a successor in the continuum from Web1 and Web2. Unlike the original Bitcoin community, which defines itself as a successor to the traditional banking system, Web3 presents a solution to the often exploitative approach to users and data demonstrated by traditional internet companies. Web3 positions itself as better for users, better for innovation, and better for the future of the financial system.
Here’s the issue though — the average user doesn’t care (yet). They care about functionality. They don’t care about how the technology works and whether the underlying philosophy is better. For example, Spotify and Apple Music offer the simplest ways to listen to music. They have the most complete music catalogs and make it extremely easy to find the music that you want. Spotify users don’t care if data sits on Google Cloud and uses codebases like Python and Java. They just want it to work.
That’s why Web2.5 has become such an important bridge to Web3, essentially making the Web3 components as invisible as possible while still introducing Web2 users to the benefits of Web3.
What is Web2.5?
Chris Dixon of Andreessen Horowitz (SuperLayer investor) is often quoted when it comes to defining Web3.
Ownership of digital property is the core innovation that blockchain brings. Any technology or project that involves ownership on the Internet verified through blockchain became web3 In common parlance. In reality, there is no hard line between the iterations of the web. Moreover, each new stage of the Internet evolution is building on top of the previous.
For many, Web3 became an antithesis of Web2, where the users are left powerless in the face of platforms that own all the data and content and thus hold all the power. Ownership of data and content, decentralized storage, decentralized governance, monetization models that are not based on exploiting users’ data and are empowering users through ownership and custody, — there are some of the elements that make the project “more Web3.” Ability of the platform to collect users’ data, remove and censor users, freeze or take hold of users property — are some of the features that are often viewed as “Web2.”
The distinction between Web2 and Web3 is more of a spectrum. On one side of the spectrum is the Internet where the almighty platforms controlling and monitoring every individual’s step and on the other side is the future of the Internet that is fully decentralized and self-custodial, an Internet owned by the users and builders, orchestrated with tokens, according to Packy McCormick (another SuperLayer investor!). We are currently somewhere in-between, in the land of Web2.5 where the elements of Web3 are built into and on top of or are surrounded by Web2 technologies.
How do users enter Web2.5?
Every Web3 journey begins with a wallet. Many crypto natives have had the onboarding talk with friends and family about, “Not your keys…” and the rest of the spiel. It is hard not to lose someone’s attention after taking 5 minutes to explain. Web2.5 has come up with a response- semi-custodial wallets. They replace seed phrases with intuitive one-click logins, making onboarding into Web3 seamless. Moreover, each allows for white-label solutions so that wallet creation can be integrated with the environment and doesn’t distract from the user experience. Many Web2 businesses entering the space already use those kinds of integrations.
Many of these solutions are built on Ethereum where the wallet issue has long been recognized in the community. In an unusually sudden manner, Ethereum developers announced the deployment of the ERC-4337 standard at ETHDenver’s WalletCon event on March 1st. The update facilitates “account abstraction,” which permits wallets to function as programmable smart contracts. This empowers users to program their wallet recovery options in advance, mitigating the risk of losing access to their private keys in the future. This is an interesting example of Ethereum developers clearly making a step to reach out to the consumer. As a very new development, it is yet to be seen if this native Web3 protocol will take over Web3Auth and Magic’s businesses or if they will integrate it, using it to make Web2.5 closer to Web3.
Continuing with the onboarding scenario, the next step after setting up a wallet is usually, “So, what can I do with this?” At this early stage, to avoid overloading someone, there may be discussion of crypto by drawing on analogies. Terms intended to provide a sense of familiarity include “digital gold,” “digital silver,” “digital merch,” “digital real estate,” and “digital cash.”
A lot of the use cases and applications are skeuomorphic at this stage, meaning they mimic their real-world counterparts. When we talk about NFTs, we say that they are either “digital collectibles” or “access tokens,” “keys” or “tickets.” One of the most popular applications, POAP — has been compared to collecting ticket stubs or magnets for your fridge.
Unfortunately, analogies can lead to a limited understanding of the possibilities of new technology and rushed attempts at applying it. The list of large brands entering Web3 with unsuccessful launches is constantly growing, from Pepsi and Porsche onwards…
Despite the failures of some of these early experiments, businesses see the opportunity, and some are ready to take bigger bets. Polygon’s Layer 2 chain has become the destination for legacy brands building out their first Web3 applications, which are often Web2.5.
Starbucks Odyssey, while minting NFTs (stamps) on Polygon, allows storing them in a custodial white-label wallet through the Nifty Gateway marketplace. It even accepted credit card payments during the most recent mint of its first profile picture collection, which sold out in minutes and even held the price after the reveal. Starbucks seems to be taking the most gradual and determined approach to its entrance into the space, and it is paying off.
Why does Web2.5 matter?
Decentralization purists object to Web2.5, claiming that trying to make the tech more accessible is ruining the core of the value add. Despite these objections, Web2.5 is making its way into the market because it works and it is easy.
One of the biggest obstacles to the mass adoption of the trustless future is, ironically, the lack of trust. Banks and fintech companies have spent significant money and time on growing brand recognition so that when the moment comes for the customer to make a purchase, the person feels comfortable and safe doing so. Most of the Web3 brands don’t have such power. The crypto space has the reputation of a volatile Wild West at best and, at worst, as a hotbed of Ponzi schemers and grifters. Discord, the home of many NFT communities, had to back away from a web3 integration under pressure from its user base. Web2.5 helps mitigate these reputational risks by concealing the plumbing of crypto. It brings powerful brands into the space, helping more people to get introduced to Web3 concepts in a familiar context.
Reddit is an example of Web2.5. Reddit wrapped its NFT program into a safe-looking game. It called them Digital Collectibles and weaved them with the popular reputation system already existing on the platform. Some of the rarest tokens were given to Reddit users with the highest amounts of “Karma.” For a moment, several Reddit collections ranked within the top 10 projects on OpenSea. Digital Collectibles reached heights of 175 ETH for individual sales. And it was not a fly-by-night project. The total number of Reddit NFT holders keeps growing and has now reached 5.6 million wallets. And while the pure financial win may be almost negligible, the platform continues the experimentation in building user loyalty and innovative marketing through giving avatar holders “more ways to express and own their digital identity on and off Reddit.”
Most users don’t want to and are not equipped to deal with self-custodial wallets and other perils of the decentralized web. They don’t want to know anything about the technology they are using. This is universal across every generation of technology and the Internet. This needs to be addressed if Web3 wants to achieve mainstream adoption.
Where is it going?
Web3 emerged as a response to the weaknesses of Web2. Namely, it addresses the imbalance of power between the users and the platforms by giving people ownership and custody of their digital presence. Currently, platforms hold all the cards, including the user data, the account itself, the content, all followers, and the algorithm managing visibility. Web2 platforms have been extracting value from the work of contributors without sharing any of the gains. This is not to say that people didn’t benefit at all. The distribution and reach from social media platforms birthed a whole generation of creative entrepreneurs. They realized their own power by garnering massive followings, and then they realized their powerlessness of depending on platform algorithms and corporate owners.
Web3 offered a number of ways for creatives to monetize their work and their following in direct ways without waiting for the platforms to share. But with that came their own challenges. The deregulated nature of the space opened the doors to unsavory promotional tactics and bred a whole new type of influencer. As much as people keep repeating NFA (not financial advice) and DYOR (do your own research), a few voices in the space have gained significant power and become points of centralization, aka failure.
The biggest successes of web3 were built on top of existing web2 followings and relied heavily on web2 platforms, namely Twitter and Discord, for distribution and coordination.
Both web2 and web3 are facing significant headwinds. Web3 still needs to work on some of the basics of infrastructure and reputational challenges. Web2 is dealing with reputational challenges of its own while trying to adapt its business model to the demands of the creator economy.
Considering the challenges of both ecosystems, the bridge of web2.5 connects the ecosystems philosophy of web3 and the UX-oriented thinking of web2, and currently has the most to offer for the users and hence has the highest chances of success.
