Why is consumer-grade encryption considered the last blue ocean in the industry?

Author: Luca Netz

Compiled by: Deep Tide TechFlow

In this article, I want to explore my understanding of consumer-grade encryption, why we have not yet achieved its widespread adoption, and why I believe consumer-grade encryption is the last blue ocean in this industry.

What is Consumer-Grade Encryption?

I define consumer-grade encryption as blockchain-driven applications used by billions of people in their daily lives. However, this definition is somewhat broad, and to be more specific, I believe the adoption of consumer-grade encryption will go through three stages. I categorize each stage based on consumption habits:

• Stage 1: Discretionary Consumption

• Stage 2: Necessary Consumption

• Stage 3: Basic Consumption

The following diagram illustrates the relationship between each stage and user growth:

Discretionary Consumption - The First 50 Million Users

The initial phase of the consumer-grade encryption revolution will focus on discretionary consumption—specifically, consumer-oriented businesses built around non-essential or leisure spending, in other words, applications that occupy people's leisure time. These applications will be the first to achieve breakthroughs because they are easier to spread virally, easier to market to consumers, and can solve problems that Web2 applications cannot address on the blockchain.

Businesses focused on discretionary consumption typically center around "fun." However, in the consumer market, "fun" often faces significant barriers to entry, such as payment processing issues, geographic restrictions, and regulations that hinder the expansion and development of internet businesses. To illustrate this, we can look at the challenges faced by some current consumer-oriented Web2 businesses:

• Fees: The fees charged by conventional payment processors are too high and give too much control to merchants. Typically, merchants have to pay transaction fees ranging from 2.9% to 10%. The higher the risk (which is common in entertainment applications), the higher the fees.

• Geographic Restrictions: Operating in one's home country is relatively straightforward, but achieving global expansion poses significant challenges, especially when complying with different regional regulations. Most applications cannot expand beyond their current jurisdiction. While "fun" is universally appealing, unfortunately, the infrastructure of Web2 is not.

• Refund Risks: Current Web2 applications are limited in scale. Restrictions set by processors prevent businesses from fully tapping into the potential of their core users, as these restrictions hinder users from spending as they wish.

• Censorship Risks: Businesses may face censorship from service providers, which can hinder their ability to actively expand or realize their full potential.

Building consumer applications around discretionary consumption is the most accessible opportunity in the consumer encryption ecosystem and will be the first stage to achieve widespread adoption, as entrepreneurs will find it easier to develop engaging products on the blockchain. To clarify, I believe the following categories of discretionary consumption are most suitable for disruption:

• Gaming

• Social (creator platforms)

• Trading

• Casinos

• Betting

• Digital collectibles

• Tokenized culture: transforming intangible assets into tangible, tradable, exchangeable, and permanent assets.

I believe these categories have the potential to drive the adoption of consumer encryption applications, reaching the first 50 million active users. To support this point, here are some of the most significant consumer encryption applications we currently see. Notably, they all belong to business types aimed at capturing discretionary consumption market share:

• OpenSea - Digital collectibles

• Topshot - Digital collectibles

• Polymarket - Betting

• pump.fun - Social and tokenized culture

• Uniswap - Trading

• Rollbit - Casino

• Pudgy Penguins - Digital collectibles

• Friendtech - Social

• StepN - Social

• Axie - Gaming

Necessary Consumption - The Path to 250 Million Users

Once we break through the first 50 million users, the focus will shift to capturing market share in necessary consumption, integrating cryptocurrency into more aspects of life beyond just leisure time. Applications in this stage include the following categories:

• DeFi

• DePin

• SaaS

• Digital media

• Digital commerce

• Payments

Basic Consumption - The On-Chain World

After overcoming the barriers of necessary consumption, we will see the widespread adoption of basic consumption. This means consumer applications will be built around basic needs, allowing users to accomplish everything on-chain that they can do off-chain. Examples include:

• Online banking

• Credit

• Tokenization (RWAs)

• Insurance

• Data

• Internet of Things

• Identity

• Voting

Now that the path to success is clear, why have we not achieved large-scale adoption? How can we achieve this?

The Question: Why Haven't We Achieved Breakthrough User Adoption?

Over the past decade, the responsibility for driving consumer adoption has fallen on blockchain projects that have raised billions of dollars. Unfortunately, only a few projects have succeeded in this process. I believe the reason lies in the concepts they built. Many blockchain companies adopt a "one-size-fits-all" strategy, ambitiously aiming to become the infrastructure for the next generation of the internet economy. Below is a diagram illustrating how general-purpose blockchains grow and prioritize.

General-Purpose Blockchain:

The general model showcases a classic case of fragmentation, and unfortunately, mass market penetration and fragmentation do not complement each other. While the general approach is ambitious, the effort required to achieve it is enormous. Therefore, teams lacking the necessary talent or resources are likely to face bankruptcy earlier in pursuing this approach, ultimately wasting time, energy, and resources that could have been used to achieve large-scale adoption.

The Solution: Focusing on Key Areas is Key to Achieving Large-Scale Adoption

I believe that blockchains are like cities; like all cities, their demand is driven by the attractions and activities they offer. Therefore, I believe that the breakthrough in consumer adoption will come from teams focusing on creating top attractions within their "city." Once you have an attraction that can draw people into your ecosystem, you can build an entire city around it.

Consumer-Specific Blockchain:

Based on the above context, my assessment is that we have not achieved large-scale adoption not due to a lack of capability, but because we have not focused on the right approach. General-purpose blockchains and consumer-centric blockchains are not interchangeable. Building a "consumer chain" is not just an appealing slogan but a fundamental goal and concept that has yet to be fully embraced. Recognizing this gap, we discovered a unique opportunity in the blockchain space, which led Igloo to acquire the Frame team to help build Abstract.

Our team is dedicated to creating a top destination on-chain, designed to be the most interesting place on the internet—I call it the "digital amusement park of crypto" or the "Disneyland of the internet." The following illustration highlights our firm commitment to providing an exceptional 0-1 consumer experience, undistracted by other factors. Over time, by introducing new products that cover various aspects of people's lives, we can gradually evolve into a general chain after establishing a loyal user base. For us, this is a highly concentrated strategy: achieving concrete success first and then expanding, which is more advantageous compared to the fragmented approach of general chains.

The Path to Success for Abstract:

Consumer Encryption is the Last Important Frontier for Cryptocurrency

Today's cryptocurrency market is reminiscent of the internet boom of the early 2000s. In the first decade of that era, innovative infrastructure companies emerged, but only a few were widely accepted. Over time, only those that achieved breakthrough adoption survived and thrived. Today, cryptocurrency is at a similar critical moment. After a decade of infrastructure building, the industry needs to move towards the mainstream.

However, the public perception surrounding cryptocurrency is very fragile. Currently, this field faces the danger of being viewed as a haven for gambling and high-risk financial behavior. As more people suffer losses, the impression of cryptocurrency as a scam targeting fallen gamblers is gradually forming in public consciousness. While this may be a joke to seasoned cryptocurrency users, it is a very real concern for the general public, and unfortunately, this is the current mainstream view of cryptocurrency. I worry that if we cannot achieve large-scale adoption in a meaningful way in the near future, the potential of the entire industry may be limited. Therefore, I believe consumer encryption is the most critical and final frontier in the lifecycle of cryptocurrency.

Community Questions

To conclude this article, I asked my X community if they had any questions about consumer encryption. Here are some of the questions they raised along with my answers.

Question 1

Nejmo @ExpensiveJPEG: What untapped niche markets are worth exploring in the consumer encryption market?

Answer: Tangibility.

One major breakthrough of tokenization is the ability to make intangible things tangible. A huge potential innovation in cryptocurrency may lie in influencing and extracting value from culture through tokenization. Let me explain: historically, investors have always linked their investment ratios to actual value, price-to-earnings ratios, or future forecasts. Until the advent of cryptocurrency, symbolic value was a new concept, but I have yet to hear anyone describe it this way. To me, a new asset class has been unlocked, marking a paradigm shift where the intangible aspects of culture can now become tangible. I believe the biggest opportunity in tokenization lies in tokenizing influence and ultimately making influence tangible. In the past, we have seen some products, such as bitclout, friendtech, etc., attempt to crack this puzzle. However, I believe none of them have truly succeeded. In my view, combining pump.fun with Bitclout, Polymarket, and Instagram-like products could become one of the most valuable companies in the cryptocurrency space.

Question 2:

Fifi @fifilechien: Is creating entirely new products really more efficient than improving existing ones?

Answer: Don't reinvent new technologies just yet.

Developers in the crypto industry often try too hard to reinvent foundational technologies. Today, there are some groundbreaking consumer products that could scale tenfold if they leverage the infrastructure and incentive mechanisms of cryptocurrency. Instead of trying to create an entirely new model, it is better to crypto-enable existing models. I believe there are still many consumer encryption applications yet to be developed, and their Web2 versions are waiting to unleash tremendous growth potential through cryptocurrency technology.