Its impossible to talk about the future of blockchain-based applications without pondering the role of crypto wallets as the gateway to that future.

Will the popularity of wallets lead users to a Web3 world, or will current web apps move more quickly in that direction by first incorporating built-in wallet functionality?

Not only is this a chicken-and-egg situation, neither approach is without its problems.

On the one hand, the standalone crypto wallet aspires to be that bridge to the blockchain, just as the browser was to the web, but most wallet user experiences are far from ideal for mainstream consumers. On the other hand, todays web/mobile applications also face a steep adoption curve because so few are incorporating wallets.

The wallet-first strategy is complicated because most of them are too geekythey demand a certain amount of technical proficiency, a barrier to adoption.

Despite having around a hundred crypto wallets to select from today, that segments growth rate has not been impressive, increasing from 40 million users globally in 2019 to about 80 million at the end of 2022. By comparison, TikTok grew from 381 million to 1.6 billion users over the same period. At the current pace, and with only 6 million daily active users, well be waiting a long time to reach a tipping point in large-scale adoption by, potentially, billions.

The small number of application cases for these crypto wallets outside of decentralized finance and a few decentralized apps is another obstacle. These standalone wallets shine for moving money around, but once you start connecting them to other apps or websites, they start to fall short due to another barrier: switching back and forth between the app and the wallet exacerbates an already subpar user experience. And the abandonment rate increases when you add them to fresh apps that havent yet demonstrated market viability.

One benefit of the app-first strategy is that, before a user learns about any wallet functionality, theyre already familiar with the app. In these circumstances, the wallet is often a tuck-in feature that extends a given use case with cryptocurrency, but too few apps are adding levers for crypto or tokens.

The wallet-first approach is represented by the wide range of wallet-browser extensions available, such as those from MetaMask, Phantom, and Wallet Connect. The user then links to a given website or app, and navigates back and forth in a disconnected fashion, hoping that nothing breaks in the process. There is also the case of branded wallets from crypto exchanges. They offer a tight integration with trading of course, and to some Web3 apps, but these are the exceptions.

The popular NBA Top Shot app is an example of an app-first situation in which users are initially presented with exciting options for purchasing NFT collections. Later, the wallet appears in the background as a safe deposit box for these digital assets.

Advocates of the wallet-first approach are adamant that it is the browsers clone. Their logic is in believing that these wallets will be the conduit to the new wave of apps. Undoubtedly, the wallet is a strong contender to draw the general public into the blockchain, much as the popularity of the browser led to the rise of the web.

The wallet is still not at the same status as the browser, though. Markets for wallets and blockchains are too fragmented. Regrettably, the blockchain industry is constrained by a shortage of interoperability standards and riddled with incompatible chains all vying to be the primary entrance point. Until thats resolved, crypto users effectively are being asked to use different browsers for different sitesa problem the Mosaic browser elegantly solved in harmonizing ones web experience.

Standards drive adoption.

Think of the wallet as a passport. Because its a recognized worldwide standard, a passport is accepted everywhere. But without airports, a passport would sit in a drawer, vastly underutilized. And without enough apps that incorporate wallets, theyll similarly lie dormant in browser extensions or apps.

Although the two paths outlined require further growth and development, I believe both will triumph because theyre not mutually incompatible. For transferring digital assets and navigating decentralized apps, we can use standalone wallets, and for in-app interactions, we can engage with built-in app wallets.

Having two parallel directions for the evolution of wallets in our digital assets future is not such a bad thing, and foretells a bright future for Web3.

William Mougayar has four decades of tech industry experience and is the author of The Business Blockchain. The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.


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