A crypto wallet is any private medium that allows you to store and manage your cryptocurrency tokens. They are usually accessible via mobile and web devices, providing all the features that are necessary for safe and secure transfers and exchanges of funds between different parties.
Put simply, your wallet enables storage and secure transactions of your crypto assets which must be cryptographically signed by you for authentication.
A very limiting consequence of building and interacting with projects today in the crypto space is how we have been accustomed to looking at certain things from a single transactional perspective and use case; including our very own crypto wallets. This results in skewed thinking about every innovation within the space from a monetary ideal. This, I believe, hampers the true financial promise of crypto.
Today, we think of wallets only as a means to store crypto assets. If we truly want the decentralized web (Web 3) to reach its stated goal, our wallets have to evolve beyond just being a medium to store financial assets; they should evolve to become our gateway into the new and exciting online world of Web3.
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It will be the key that unlocks everything about you: your finances, health, property, interests, preferences, contacts, inventory, access, permissions and your status. And you alone will control it.
No more walled gardens owned by centralized monopolies. You will own all your stuff and take it all with you as you hop around online.
The history of crypto wallets
In the bitcoin years and early days, a wallet simply meant the means by which to store your bitcoin and other crypto assets. This was enough at the time, especially since most interest in crypto then was more on the resell value than its underlying technology.
This view of crypto wallets also results in a very skewed perception of what they ARE. The truth is, crypto wallets don’t really have any of your tokens in them. Right from the bitcoin days, they never have. Your coins are on the blockchain; your wallet contains only your keys.
This is why calling these things a “wallet” is such a limited definition of what they are. So if you think about it this way, although each implementation is slightly different from the other, they all fundamentally house the same data: Public and private key pairs.
How to drive wallet adoption in Web3
User experience will be improved greatly when we get to the point where wallets are essentially our sole gateway to the blockchain world.
With brilliant UX on wallets, the broader potential can be reached, more than in the early years of just crypto and “bitcoin mania”. Wallets are the personal gateways to the expansive Web3 ecosystem and will be the main way to “unlock” our keys to access the products and services.
So much so that when you “connect wallet” to use your favourite DApps, you will see all your assets on the different chains; the dApp displays your assets in the wallet according to what the keys in it are able to unlock.
The metadata is all there will be, with it in your full control. There are hundreds if not thousands of crypto wallets giving you access to the thousands of blockchains that exist in the crypto space. This way, the keys in your wallet are placed on the blockchain, to meet with predefined conditions necessary to allow the blockchain to grant access to your valuable assets.
A decentralized data world, driven by authenticating on-chain data through dApps. In short, anything can be a dApp. In the same way, most software is now a fintech (through embedded finance). We finally, truly “own” our data. Let us explore some examples.
As more and more data becomes tied to blockchains, then more and more dApps can be built to facilitate access to that data and do interesting things with it. This can be the true way to get a fair share of data used by protocols and dApss.
Once the pattern reaches a certain level of adoption, nearly all online products and services will be forced to accommodate it and many legacy systems will as well.
Simply use cases with wallet identity
Healthcare data can be tokenized data on a chain that can only be read when I can grant access to my data to different doctors and healthcare providers as needed. This way, the healthcare service app is essentially a DApp.
Real estate can essentially be “tokenized” as an NFT, and listed on exchanges. I can then bid for, and purchase the title to the real estate via a smart contract and my ownership is essentially tokenized through access to my personal data granted in my wallet. This way, the wallet is not only a means of purchase but also a means of validating a legal claim to an asset.
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I can get qualified for financial products by simply authorizing the credit rating agency to read certain information about my finances on a chain, or through oracle data.
Web3 can create a future when I cast my vote in elections by using my wallet by giving a DApp permission to verify my identity, location and party affiliation, and to facilitate the secure submission of my votes for the appropriate races. After a voting day, votes are synced up on a chain and the DApp returns the results.
The one true means of “signing up”
Owning multiple accounts on different apps and platforms requires creating and managing endless profiles and passwords, which is a dire security risk. How about instead of signing up via my email, I can just connect my wallet, my identity is verified and I can instantly be granted access?
Wallet Security Considerations
A major problem of such a single entry point and source of truth will be the proliferation of malicious dApps that try to exploit the Web3 data system, especially data-rich systems with all kinds of valuable information. Passwords and two-factor auth are easily circumvented when all you have to do is connect and grant them unfettered access voluntarily by signing a malicious contract.
With all this, there must be some kind of knowledge graph attached to the wallet, as a security measure. Some data will be highly sensitive like identity, health and finances. Some will be moderately sensitive, like a contact list or a list of blocked addresses. And some will be public, like an ENS domain or avatar.
It is very important for a seamless user experience for users to have a view of the types of data they are willing to share when connecting to each and every DApp. Matter of fact, we may go further to say that every DApp should have, depending on context and industry, a list of permissions the user should agree to or refuse to assent to.
Being able to easily revoke access to your data is a very important feature in Web3 and we see it today in wallets like Metamask. Wallets should make this feature more prominent and UX easy, and should preferably have a setting to automatically revoke access after a predetermined amount of time.
Another interesting proposition will be to protect users by building powerful permissions and preferences systems in wallets, and since different blockchains have varying architectures this will mean different systems for different chains. Obviously, this is way more difficult than we can imagine, yet a small price to pay for a truly decentralized, permissionless internet. From the UX perspective, it is critical that this process is obfuscated as much as possible.
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Achieving the promise of Web 3 with Wallets
When we fully materialize the promise of Web3, the implications of a decentralized technology’s ability to challenge the power of big internet middlemen like Facebook, Google, and Twitter are profound.
Skeptics have pointed out the fact that the current paucity of user experience and network effect prevalent in Web 3 applications means it will never rival, let alone disrupt Web 2’s big tech companies. However, here’s a picture of Netscape in the early days of the internet.
The early days are the days of experimentation, testing, repeated mistakes and then exponential growth. The decoupling of the different components of Web2, and devising new ways of harnessing the potential of these parts are what make the future of Web 3 so exciting.
Data portability, for example, is an afterthought in Web2, but will be an essential part of Web 3. There’s nearly no end-user friction involved in porting your data from one service to another in Web3. We shouldn’t underestimate the impact of improved data portability – users’ aversion to friction influences most of our online actions today, so changing the friction involved in switching services or trying new ones.
Web3 is creating new incentive structures on the web, with new user behaviours towards newer incentive pools that will directly challenge the advantages incumbents have long enjoyed in the internet monopoly. What will be the new “creator economy”? Well, much better than the current dispensation in Web 2.
When users can seamlessly port data from one service to another service in real-time and in a permissionless manner, companies will need to radically rethink how much value they extract from users without offering comparable incentives to that user. By making data portability seamless, Web3 has provided the foundation to break down the moats many large internet incumbents rely on today to subdue competitors. We are likely to see many changes to user behaviour to privacy and control change as web 3 advances; especially if they can control it in one place (wallets).
There are no moats in Web3 due to the transparency of data on its technical architecture; the blockchain. Anyone can track interaction data at any time of user base and activity on the publicly available ledgers in Web3.
So-called Vampire attacks, like the one with Opensea and Looksrare can only happen because there is competitive intelligence on every pseudonymous user of OpenSea and their usage data.
As users cruise the internet and use applications, the data from those interactions no longer solely lives on that single application’s server. It’s recorded on a shared and publicly accessible ledger. Incumbents will not have the first mover advantage their counterparts in Web2 have.
Conclusion: Perspectives on the Future
Web3 can truly work if all participants rethink their basic assumptions and understanding of the concept; builders, investors, users, regulators, and other stakeholders. We must also reorient our thinking about wallets if we want to realize their true potential; every app and project must inculcate this “bring what you have, and nothing more than what you want to give” fabric at the base of user onboarding and interaction. This allows for one single point of truth, entirely controlled by the user, akin to a passport to navigate the vastness of the internet.
To make Web3 work, users will need to reorient their thinking, from creating a new account for every app to a “bring-you-own-account” structure and one wallet, or passport, for navigating the web. This is frictionless, seamless, truly decentralized and permissionless and does not need things like storing passwords with a central authority and hoping the access is not abused or hacked.
When we can combine identity and utility, users become truly the part owners of Web3 and not just passive sources of revenue.