“Embracing multichain self-custody solutions for a secure decentralized future.”

Opinion by Zhen Yu Yong, CEO of Web3Auth

As the cryptocurrency landscape continues to evolve, it has become increasingly evident that there is a pressing need for a more cohesive and user-friendly ecosystem. In this article, we will explore the fragmentation problem in Web3, its implications on user experience, and a potential solution for unifying crypto.

The Back-and-Forth Between Saylor and Buterin

In a recent exchange on X (formerly Twitter), Ethereum founder Vitalik Buterin engaged with MicroStrategy executive chairman Michael Saylor on the topic of self-custody. Saylor argued that moving Bitcoin to regulated institutions provides an added layer of security and legitimacy, which self-custody may not offer.

Buterin countered by stating that relying on third-party custodians centralizes risk, weakens network security, and limits the development of advanced cryptographic features. However, there is a middle ground emerging between Saylor’s views and Buterin’s seemingly bipolar stance.

The Trouble with Self-Custody

While self-custody offers absolute control over one’s assets, it often comes with a significant challenge: managing private keys can be overwhelming for many users, especially those new to Web3. Saylor is correct that managing multiple wallets is daunting, but advancements have been made to improve the user experience.

Users can now create wallets by simply using their social accounts or even with Passkeys, removing the complexity associated with self-custodial solutions. However, these improvements only apply to each chain individually, and users must still use multiple custodial and non-custodial wallets to transact on different chains.

The Fragmentation Problem in Web3

The proliferation of new layer 1s has led to a fragmentation issue across Web3. With over 70 new layer 1s created in the first half of 2024 alone, users struggle to navigate and manage their assets. On average, a user has between three and 10 wallets, depending on their experience with crypto.

This complexity heightens the risk of human error, such as sending funds to the wrong address or forgetting private keys. Around 20% of all Bitcoin lost is estimated to be due to user errors.

The Consequences of Fragmentation

Fragmentation in Web3 ecosystems affects liquidity and interoperability. Users might have assets spread across different wallets and blockchains, making it difficult to use them efficiently. For example, assets on one chain cannot be used as collateral in a lending protocol on another.

Consider that navigating the different currencies accepted by various stores at a shopping mall is the reality of Web3 today. Fragmentation hampers the seamless transfer of assets and affects the overall user experience.

Addressing the Issues

To create a more usable and cohesive Web3 ecosystem, addressing these issues is crucial. Wallet abstraction and chain abstraction are two potential solutions for unifying crypto.

Wallet Abstraction

Wallet abstraction refers to creating a unified interface that allows users to view all their assets and balances across different chains and spend crypto as if it were a single unified account.

Imagine interacting with the blockchain through a seamless interface, where you can easily select your preferred credit card or wallet for transactions. This streamlined approach will function similarly to Apple Pay.

Chain Abstraction

Chain abstraction refers to creating a unified interface that allows users to view all their assets and balances across different chains.

This approach will enable users to interact with the blockchain through a single interface, regardless of the underlying chain. In this way, users can easily manage their assets and balances across different chains.

A Unified Ecosystem

While we cannot undo the past, it is clear that a unified ecosystem is the future of Web3. Multichain self-custody will make everyone willing and able to use self-custodial mechanisms. By unifying crypto and trusting in self-custodial systems, we can create a more user-friendly, functional, and interoperable ecosystem.

Conclusion

The fragmentation problem in Web3 is real, but it also presents an opportunity for growth and innovation. By exploring new solutions such as wallet abstraction and chain abstraction, we can create a more cohesive and user-friendly ecosystem that benefits everyone.

As the CEO of Web3Auth, I believe that a unified ecosystem is not only possible but also necessary for the continued growth of crypto. With the right approach, we can make Web3 more accessible and functional for all users.

About the Author

Zhen Yu Yong is the CEO of Web3Auth, a leading provider of wallet solutions for Binance.US, Trustpilot, and numerous Fortune 500 companies. Previously, Zhen worked at the Eth Foundation and Visa.

This article is for general information purposes only and should not be taken as investment or legal advice. The views expressed here are the author’s alone and do not necessarily reflect those of Cointelegraph.