Crypto wallets as the new bank account
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Crypto wallets as the new bank account
Why wallets are the key to unlocking mainstream crypto adoption
Crypto had a blockbuster year in 2021. Prices across the board hit all-time highs, ‘NFT’ was Collins Dictionary’s term of the year, and this rock JPEG sold for $600k. Despite all of this however, we remain shockingly far from mainstream adoption with Coinbase estimating only 200 million crypto users at the end of 2021. If you spend any time in the crypto community, you are guaranteed to hear someone say the magic three words - “we are early”. How early you ask? Data suggest we are today, where the internet was in 1998. So yes, pretty damn early.
It’s no longer a question, crypto is here to stay, and with time more users will flow into the ecosystem. However, in order to see mass market adoption, our industry has a long way to go. We need better systems and infrastructure, improved UI’s, simplicity, transparency, and much more, to go from 200 million to over 2 billion users. I believe crypto wallets will be key agents of this change, unifying the distributed ecosystem of Dapps through a shared user experience, while also introducing a social layer and powering web3 ownership.
The Web3 bank account
Bank accounts are a crucial part of modern society. I’d hazard a guess that the average person uses a bank account directly or indirectly at least 3+ times a day, whether buying groceries, a cup of coffee or something off Amazon, bank accounts are the glue that holds our lives together. Sadly, a large portion of the world don’t have access to traditional bank accounts (yet another reason to love Web3), however for those who do, this simple product is ubiquitous and essential.
Crypto wallets function much in the same manner, acting as the gatekeepers to our Web3 world, however with arguably even more importance than their web2 counterparts. The concept of self-sovereign identity is key to Web3 - we control our assets and carry them (in wallets) with us through this new ecosystem. Note the word assets, not money. Not only do our crypto wallets hold digital currencies, they hold all our digital assets, from art and collectibles to music, content and anything in between. Crypto wallets are your bank account, house and household safe, all-in-one. This sounds scary, but it shouldn’t deter readers as I’d argue that the security of a (scaled) blockchain should be more than up to the task. As long as you keep your keys private and don't expose your wallet to malicious activity (easier said than done), an immutable and decentralised blockchain will take care of the rest.
Wallets as social instruments
Imagine you could look into your best friend's bank account at any time of day and see every single item he has bought or sold. Now imagine you could do the same with Elon Musk. I can’t begin to fathom what sort of chaos that would bring to society. We’ve already seen developers send unauthorised tokens to addresses as a form of social proof (e.g. when Vitalik was sent 50% of SHIB tokens to boost the price), however the next instances may well be more sinister. We praise blockchains for transparency, yet haven’t really thought through what radical transparency brings and how best to manage this.
On the positive side, wallets also promise us a social feed free from ads, fake news and selective biases. A system where we can control what information we put into the ether, alongside our virtual identity and how we are perceived. Twitter thinks certified profile pictures are what we want, but the big picture is so much more exciting. Rainbow (a crypto wallet) is already teasing profiles, social feeds and Robinhood-esque tools, yet the true potential for wallets is more akin to unlocking scenes from Ready Player One through portability, composability and decentralisation.
Choosing the best wallet available
Many of us in the industry arrived at the conclusion years ago - the opportunity for wallet developers is huge! Imagine a world with >2 billion crypto users, where any flow of value utilises a wallet which charges rent for the service. These wallets may also charge you to swap tokens… maybe you use ETH and need LUNA? Your wallet will facilitate this transaction and charge you a minor fee, much the way HSBC charges on international transactions.
The size of this opportunity is staggering but also can be hard to quantify. The global payments industry is estimated at c.$2 trillion while the global banking market capitalisation is c.$8 trillion - it's not hard to imagine a wallet with significant global market share in the future rivalling the largest web2 companies we have today.
A quick look at the list on the Ethereum.org website shows 37 wallets, with varying degrees of usage and feature sets. Ledger, Coinbase, and Metamask are arguably the market leaders right now, however anyone familiar with these products knows they are far from perfect and more like Gen 1 solutions from a nascent market. Not one of the 37 wallets tick all of the selection criteria, with the majority failing to score higher than 3 out of 8 (shoutout to Argent for scoring 7).
From a mainstream consumer's perspective, the crypto wallet experience is broken - seed phrases which can never be stored on the internet, public and private keys, long complicated addresses and high value transfers where you pay ‘gas’ to some mysterious entity and need to set slippage? Try explaining this process to your grandma and see how far you get, especially when you then compare it to how seamless the traditional banking experience has become. Early adopters are willing to accept this broken process because we have learnt it along the way, or believe the opportunity exceeds the pain. However, for crypto to really become a mass-market proposition, we need to fix wallets first.
What this means for us as consumers and enterprises
It's not all doom and gloom, actually quite the opposite. We have already made huge strides in the past few years and crypto wallets are much better now than in the past. Many of the features we take for granted in traditional finance are starting to be ported across - Argent’s smart contract wallet allows for multi-signature accounts, account recovery and spending limits. Ledger recently revealed their Crypto Life Card enabling instant fiat conversions and the ability to use your crypto as collateral for fiat purchases. At the same time, growing adoption of ENS and QR codes have helped abstract away complex addresses. Consumers just need to be patient. I believe we will have our iPhone moment soon!
For wallet providers, the focus needs to be on simplicity, transparency, security and trust. We often bash Web2 businesses but we should be learning from them. We need to think deeply about consumer security and wallet visibility. Seed phrases don't feel like the end state solution and I’m not sure Argent’s Guardians (ala social recovery) are the answer either. In addition to this, current KYC / onboarding processes leave much to be desired. We need to consider how wallets can be adapted (or built) for B2B as well as B2C, and also understand the crucial elements users need in order to trust wallet providers with so much of their digital lives value. Mobile functionality needs to drastically improve, and multi-chain staking should be as easy as clicking a button. All of these things are imminently solvable and the opportunity is incredibly exciting - If we have already managed to onboard 200 million users with the current products, imagine the possibilities when we finally get it right.
Written by Joseph Pizzolato (JPizzolato.eth)
Special thanks to Mike Arpaia and Jean-Michel Pailhon for their input and time spent trading thoughts.
For any Web3 entrepreneurs reading this who are looking for funding, or just want to chat, you can find me on Twitter @JPizzolat0 or via email Joseph@felixcap.com - please do reach out!