I'd expect there would be no fallback password as it completely undermines this security method. Fallback password gets phished...
Consider how Apple implemented the conversion to 2FA. No chance of resetting password with email or security questions once 2FA is in effect.
I think adoption will be faster and more widespread than some folks think. I'd expect that once the banks/credit card companies are on board they'll begin requiring that e-commerce logins be secured in this manner. That will pull a lot of other sites along.
I have to read more about this. I'm not at all sure about the "lost all electronic devices" scenario. What must you do to regain access to Keychain when you don't have access to your personal key? Currently, when you can't validate a sign-in to iCloud Keychain (can't provide the passcode for a previous device) the entire keychain has to be wiped before enabling iCloud Keychain again.