Wallet of the Future
For people in the U.S. and major Western European countries, Crypto and web3 will not hit mainstream until we get a wallet that is safe and integrates with our mobile phones. This is the key to mass adoption in my opinion.
I’ve had several conversations recently with people about Crypto wallets, and I wanted to share my thoughts here. Crypto native people like to say, “Not your keys, not your Crypto”. The concept here is that you need to control the private key to your wallet so that no one can take your assets away from you. It’s a libertarian argument that the government, or a company forced by a government, could seize your assets if you don’t control your private key. It comes from a worry that governments can shut down your bank or brokerage account or seize your money from those. Governments can also change the rules on what can be done with different assets, and we are seeing this as the SEC tries to make everything a security.
The point is technically legit. If your money is in the traditional banking system, it is at risk of government’s messing with it. However, the reality is most people don’t worry about this. If I’m not doing anything wrong, I don’t worry much about the government. No one is coming to seize assets from law abiding citizens in the United States. Maybe this is a bigger issue in less stable countries. I don’t know, and frankly for most readers of this newsletter you probably don’t either.
Let’s come back to my first point above. Consumers want to know that their assets are safe from being stolen by bad actors, not the government. While many Americans don’t like their banks and think they charge too high fees, we generally feel that our assets are safe in banks. The Silicon Valley Bank mess a few weeks ago illustrated this point. When the bank ran into problems, people were shocked and appalled that deposit accounts with more than the FDIC insurance limit could possibly lose money. The bank regulators stepped in and covered everyone. This is the type of safety people need to feel about their assets. By the way, back in 2008 when Lehman Brothers failed the individuals who had brokerage accounts with the firm got all their stocks covered. These were held in custody and brokerage customers didn’t experience a loss. Yes, this protection comes at a cost, with banks and brokerage firms charging their customers fees, but consumers at scale are happy to pay this cost to insure the safety of their assets.
Contrast the SVB experience with what happened when FTX failed. Since FTX was not regulated in the U.S. as a brokerage firm or custodian, individuals who held assets there became general creditors of the bankrupt entity. It was a terrible result. If they were regulated like a broker, account holders would have been covered by SIPC insurance.
Another important example to consider for the future of Crypto wallets is the credit card industry. When the internet first started to hit consumer mass adoption, people were super afraid to put their credit card details into a website. Everyone thought their credit cards would get scammed and they would be hit with fraudulent charges. The credit card industry solved this problem by making it clear that consumers were not responsible for charges they did not authorize. They put the responsibility of confirming customers onto the retailers and moved the chargeback risk to them. The credit card issuers stood in the middle and covered any losses that the retailers could not. None of this risk was shifted back to the consumer, and the industry blossomed to the dominant position it is in today. And yes, again this cost consumers, but most people are happy to pay it in exchange for knowing we are not going to be stuck with fraudulent charges to pay.
What does this mean for the Crypto wallet of the future? I believe that eventually someone will roll out a wallet with safety and security at the forefront. This will likely mean some type of features in plain English that tells the user when an action will lead to an asset moving out of their wallet or being listed on an exchange for sale. This safety feature will slow down transactions, but it would stop a lot of the hacks from being successful. The current process of approving a transaction from a MetaMask wallet is a joke. Most people have no clue what they are signing. This needs to change.
The wallet provider of the future is also probably going to need to offer fraud protection to its users. This is unlikely to come from a government program like FDIC or SIPC, so it will need to be a commercial decision by the company that wants to dominate the market for Crypto wallets. They will need to clearly tell consumers that their assets are covered, and they will need to charge a transaction fee to cover this risk. I’m happy to pay it, and I’m guessing many other people are too.
To get mass adoption, we also need to have wallets that work well on our mobile phones. This means that a wallet developer is going to have to prove to Apple and Google that these wallets are safe for their customers. It might also mean that a future wallet would only be able to connect to approved and vetted apps on phones. That’s fine by me. Apple and Google do a great job vetting new apps for their stores to make sure our phones are hack free. I understand they can be overly zealous in this defense and that this can slow down new apps. I don’t care. I value safety over speed, and so do most people.
I am also OK with Apple and Google taking a transaction fee for apps that want to sell items on their platforms. For in-app digital goods or subscriptions in Crypto, they can stick with their too high 30% charge until the government busts up their duopoly. They will need to drop this fee on peer-to-peer marketplaces for NFTs to match how they handle items sold on marketplaces like eBay and Amazon. Apple and Google don’t take a 30% charge on items I buy on the eBay or Amazon stores, they can’t on OpenSea either.
Who will build this wallet of the future and make it work in a way that gets mass consumer adoption? I wrote about this over a year ago, and I still stand behind my predictions. Apple and Google have a good shot at doing this, if they want to get into this business. Apple just rolled out a bank savings product and have offered a credit card for some time, so they are showing some interest in this area. Bank giants like JP Morgan or Bank of America, or even the credit card providers Visa and Mastercard, could also be formidable players in this space if they want to get involved. MetaMask seems to be more focused on the Crypto native market, but they have raised enough money to make a pivot. Coinbase is under SEC attack on their core Crypto trading accounts, so I doubt they will work on a big wallet overhaul any time soon. It will be hard for a startup to offer the type of insurance guarantee needed to truly make this work for mass audiences, but maybe someone can team with a larger insurance entity to bring a killer solution.
I’m going to wrap this up for now. I’m sure I’ll have more to say about Crypto wallets in the future, so stay tuned.
Please follow me on LinkedIn for more frequent updates.
*Thank you for reading this post. If you would like this type of content delivered directly to your Inbox twice a week, please subscribe. I would also really appreciate if you could share this post with someone who is interested in learning about Crypto and web3.*
