Wallet Strategy Part 2: Unusual Dynamics & the Role of Wallets
Squaring Traditional Instincts with Decentralized Networks
Previously in the Wallet Strategy Series:
Series Preface: For context around the topics and terminology discussed in this series, as well as a bit about me and why I write about them.
In Part 1 of this series we established that we share a vision for the rising tide which lifts all boats in decentralized IDtech — your product and organization included. We were also warned of the Three-Wallet Problem, and in Part 3 we’ll explore it in detail, clearly demonstrating why it threatens to prevent the rising tide. And we were introduced to the Wallet-Moat Paradox, which we’ll revisit in Part 6, to understand how it encapsulates both the problem and the solution.
Now, in Part 2, let's lay a foundation of understanding, to fully appreciate the gravity of the Three-Wallet Problem and the importance of its solution (coming in Part 5).
We’ll start by reviewing our conventional playbook, and then explore the dynamics of decentralized networks — which have become almost invisible to us, after decades of building products for the Internet. Then, we’ll establish wallets as pivotal for the eventual rising tide of decentralized IDtech. And finally, we’ll remind ourselves that our experience and skills in conventional product strategy are still crucial to success in this space.
The Conventional Product-Strategy Playbook
After years of studying the craft of product management, building products, and growing businesses, we have a lot of experience to lean on. We have theory and frameworks. We have advice from academics and industry titans. We’ve found things that work and learned from what didn’t.
Whether we're crafting solutions for fintech SaaS platforms, e-commerce mobile apps, or a box-office system for live events, our approach to addressing product gaps or new challenges has often been clear-cut. Once we understand the shape of a problem or opportunity, solution options typically include “buying”, “borrowing”, or building. We can overlay our corporate strategy and various analytical frameworks to help evaluate these options. And we can lean on intuition, data, and iterative learning to reach our goals.
Our strategic goals often include controlling the end-to-end user experience, so we can differentiate every aspect of our user journey — and create a defensible moat around our business as a result. There’s nothing better than a highly-defensible moat, right?
Typically, yes, of course. And why would decentralized identity wallets be any different?
Well, since decentralized IDtech’s rising tide depends on building a network that reaches beyond your own product and user base, we’re tackling a unique challenge. The playbook needs to adapt to these unconventional dynamics — specifically in the realm of wallets, where a moat serves only to keep users out, rather than defending against competitors.
And speaking of unconventional, I have a “great” idea!
My Own Horrible Idea vs. Decentralized Dynamics
Succeeding in decentralized IDtech is not just about creating a solution; it's about contributing to and benefiting from a burgeoning, global ecosystem. We need to understand the technology at our disposal and the complex interplay of incentives, human behavior, and market dynamics. Historical examples like the World Wide Web, Email, Bitcoin, and others highlight the critical importance of interoperability and open standards over siloed, proprietary platforms.
Oh, and by the way, I’m planning to move my writing to a new website which will require you to use the Dan Browser to access it. And since the Dan Browser doesn’t support most Web standards, you can pretty much only use it to access my blog.
This new bundle strategy will afford many strategic benefits for my blog:
A delightfully simple user experience, without most of the capabilities browsers typically offer — which aren’t even useful while reading my writing. So streamlined!
No risk of readers bouncing off my site to follow links or search the Web, so users will only read my writing while browsing. What a moat!
The app icon and Back button of the Dan Browser can perfectly match my blog’s look and feel. Oh, the branding!
I honestly don’t know why all publications aren’t already making their own single-purpose browsers as well. Interested in my new browser-and-website product offering?
If you’re brutally honest, you’ll explain to me that this plan is an obviously horrible idea! What I’m describing involves neither an actual website, nor an actual browser. This plan would move my writing off of the giant, global, interoperable network that is the Web, and it would make discovery and user adoption radically more difficult.
This horrible plan of mine would be crushed by the massive network effects of the Web. My attempt to create a moat for my blog would only serve to ensure that virtually no users ever read my writing.
The Wallet-Moat Paradox by Analogy
It’s tongue-in-cheek, but this hypothetical “plan” serves as a relatable analogy to better understand the Wallet-Moat Paradox we introduced in Part 1. In decentralized IDtech, we need to think beyond creating a standalone network. The real power lies in integrating your own product’s atomic network(s) into a larger, interoperable and global network — to both contribute to and ride the rising tide of decentralized IDtech. Failure to do so causes isolation, forcing you to convince each new user to first adopt your wallet, almost like a “website” that forces users to adopt a single-purpose “browser” in order to access it. You’ll benefit from none of the network effects of the broader ecosystem’s growth and will find new users are less and less willing to adopt your stand-alone wallet over time, making it progressively harder to acquire new users for your core product.
In mature networks, like the Web and Email, it can be hard to recognize these unconventional dynamics. In these mature networks, the dynamics of decentralization are now so profound that they’ve become part of the water we’re swimming in.
Would you ever consider creating a new email service which can’t exchange messages with Gmail and Outlook users? Hopefully not, because your “email” service would be crushed by the network effects of interoperable email systems — which together form a single, global network of users. Any user foolish enough to adopt your siloed “email” service would be cut off from virtually everyone else, unable to benefit from the giant network. It’s such an obvious non-starter, that it would probably never even cross our minds.
Over the last 20+ years, we’ve never considered trying to fight these dynamics of decentralization. So they’re rarely, if ever, made explicit in our product strategy. But these dynamics are as real in decentralized IDtech as they are in mature networks. By trying to row against the current of these dynamics, we’ll eventually be crushed by the massive network effects of the broader decentralized IDtech ecosystem.
Because of these dynamics, the wallets landscape will dictate the long-term success of your product and organization. And we’ll continue to wrestle with the Wallet-Moat Paradox in Part 6, because the rising tide is at stake.
Wallets and the Rising Tide
We must deeply appreciate why the Three-Wallet Problem (to be outlined in Part 3) is so high-stakes for every person, product, and organization invested in DIDs and VCs. So, let’s discuss the space as a whole and the role of wallets, highlighting why decentralized identity wallets are pivotal for the rising tide.
The Inevitability and Path-Dependence of Decentralized IDtech
I’ve become convinced that concepts and patterns underpinning decentralized IDtech standards are fundamentally well modeled — optimal for serving individuals and civilization. And on John Siracusa’s "infinite time scale", I suspect that their widespread adoption and ubiquity may be inevitable.
But reaching that point is path-dependent.
Decisions and actions we take today will constrain what is possible in the years to come. As we’ll explore together in Part 5, the rising tide will require the gradual bootstrapping of atomic networks and the joining of them into a single network — one that is global and crosses industries, governments, and cultures.
Once our community finds and follows the right path, Metcalfe's Law will quickly create a tipping point, where joining the network is so obviously valuable for each individual and organization that adoption will drive itself.
This is the rising tide of decentralized IDtech.
This is the path to wild success for your product or organization, as well as for other pioneers in this space. This rising tide will lift all boats. But when?
This tipping point may arrive in 3 years — or perhaps it will take 300 years. My sense of desperation for the former has inspired this series, because the wallets landscape will prove pivotal.
The Pivotal Role of Wallets
How soon this tide begins to rise is up to us. And it will depend largely on how we, as a community, think about wallets. This is the critical factor I’ve so often seen hand-waved or entirely ignored in discussions of usability, user adoption, and product-growth strategy.
The wallets landscape in decentralized IDtech will act like a valve, either holding back or unleashing the rising tide.
In concept, decentralized IDtech is not just a new field of technology. Not just an industry vertical. It’s not like fintech, EdTech, or even DeFi. To be transformational, decentralized IDtech must be one ecosystem — a single global network, on a scale which dwarfs that of any built in the last two decades.
The history of Uber, Paypal, Etsy, Tinder, and the like have left for us a playbook of sorts, for building centralized networks in specific industries and niches. But this playbook is only a part of the theory we must understand to build a global, international, interjurisdictional, cross-industry, use case-agnostic network for decentralized IDtech.
Where traditional theory for network-based business models falls short is in the stitching together of atomic networks. In centralized business models, this happens quite naturally and almost automatically. A user who first adopted the Uber app in 2011 to order a “black car” in NYC can now share a “shuttle” with other riders to get to the Toronto airport — or even to rent a car to drive while visiting Seattle. As Uber creates each new atomic network (i.e. critical mass of riders and drivers in a city), Uber’s global network naturally grows. And the value available to each user of the Uber app naturally grows too, along with the global network.
Same user profile, same credentials, same app — and each atomic network Uber builds is automatically connected with every other. Each user can participate in any of Uber’s atomic networks, as a large and unified network of drivers, vehicles, and riders on Uber’s centralized, global platform.
But connecting atomic networks in decentralized IDtech will not be automatic. The landscape of wallets will determine the size and shape of decentralized IDtech’s global network.
When will the tide rise? Will your product and organization ride that tide, or be sunk by it? Answers to those questions will depend on your wallet strategy.
Realigning Incentives
Some product leaders and executives in the community are already somewhat aligned with the wallets strategy I’ll propose in this series — like some interviewed for Identity Woman in Business's “Wallet Wars or Collaborative Wallet Ecosystems?” (referred to simply as the IWIB wallets report later on in this series). However, my observation leads me to believe that most do not understand the unusual dynamics in this space, because their chosen tactics imply a self-destructive wallet strategy.
I’ve seen too many organizations bringing decentralized IDtech products to market and inadvertently setting themselves up for failure. Their strategies, albeit well-intentioned, overlook a fundamental aspect of decentralized IDtech — the role of wallets to serve as a bridge that lets users adopt a product and join the global network, rather than as a moat to keep out competition. This is a critical misstep in harnessing the power of the emerging network.
Quoting from Part 1, I’d like to reiterate a key aspect of this series for emphasis:
Your long-term success hinges on getting this right, and I’ve aimed here to articulate rationale that centers your product or company’s self-serving interests, not just the success of the broader community and society as a whole.
As you hopefully understood from Part 1, this series will outline a novel problem and paradoxical business dynamic. The typical playbook for product strategy and growth will backfire, if you try to apply it to wallets. No matter the role that wallets play for your decentralized-IDtech product, service, or business model — nor where you are in your wallet journey — I trust you’ll find relevant and actionable insight by the end of this series, to shape a winning wallet strategy for your own product or organization.
While it’s in each company’s best interests to adopt the unconventional strategy I’ll advocate for, I don’t believe there has yet been a sufficient framework and vocabulary to articulate why. I’ll provide exactly that throughout this series.
But let’s not sell ourselves short. Our experiences and expertise are still crucial assets on this journey.
Traditional Instincts: Necessary but Not Sufficient
Are traditional product and business instincts still valuable in decentralized IDtech? Yes, absolutely! You still need to bootstrap an atomic network(s) by serving a niche use case well and drive adoption on each side of the network (i.e. issuers, holders, and verifiers) to make it viable and self-sustaining.
And beyond that, your traditional instincts and product-strategy playbook will help you to build a moat around your core product and your business as a whole, through many of the usual means.
Your years of experience and hard-won instincts for product strategy and execution will serve you well in many aspects of decentralized IDtech. But you will need to find ways to differentiate outside of your users’ wallet experience — rather than attempting to develop, market, and require a bespoke, single-purpose wallet that users must adopt along with your core product.
Before we move on to Part 3, does any part of your current wallet strategy sound eerily similar to my own horrible idea?
If so, you’re not alone, and this series can help. We find ourselves in an unusual moment, where what we know to work well will simply not work. It’s not obvious, but it’s critical to recognize. The seemingly inevitable rising tide is path-dependent, and we must chart the right course to get there. Wallets will prove pivotal, as the valve that unleashes the rising tide.
Up Next in Part 3
The next installment of the Wallet Strategy Series will be our turning point — as we explore the Three-Wallet Problem and all its implications. Uncover the biggest problem in decentralized IDtech, and learn why the rising tide is never gonna happen:
Alice & Bob Learn the Ugly Truth: We’ll follow Alice’s journey (along with Bob’s) as she learns that data breaches and forgotten passwords may not be the most frustrating problems IDtech can create.
Decentralized Silos: We’ll learn how to use decentralized technology standards to build traditional, siloed products — just like we could have built a decade ago. Except needlessly more complicated.
Preventing the Rising Tide: We’ll discover just how easy it is to stop the rising tide of decentralized IDtech — simply by continuing what we’re already doing.
Join me in Part 3, as we confront the brutal facts, in order to chart a new course, for your product and organization to succeed in the end. I hope you’ll subscribe, reach out with feedback, and share the series to invite more community members to the discussion!
Next in the Wallet Strategy Series:
