Wallets are an essential part of daily life, and no I don’t mean the physical-fiat holding wallets. I’m talking about crypto wallets. Wallets which store digital currencies, NFTs (though you probably want to hide the worthless ones), and digital identities.
Most crypto owners would barely give a thought about their wallets (other than the value of it) but ultimately, these wallets are the backbone of the industry. Without them, performing transactions would be rather difficult. Wallets are expected to hold an even greater importance in the near future, with them being used as a gateway to crypto. This can range from using them for trustless logins (to web3 applications), a way to purchase crypto for the first time, and even representing one's digital identity.
Funds and innovative minds have seen the potential wallets hold, with many new wallets mushrooming up and raising large amounts of funds from investors.
State of Wallets Currently
As it stands, crypto wallets have come a long way from just being used to store tokens and do the occasional transfer. Lately, with the surge in popularity of Decentralized Finance (DeFi) and Non-Fungible Tokens (NFT), most wallets have had to introduce new features to support interactions with these protocols. Hardware wallets and web wallets also work quite well together now, and both are able to interact with each other rather seamlessly.
However with this convenience and ease of connecting, signing, and executing transactions, a lot of users have overlooked the underlying protocols they interact with. This has led to some users interacting with malicious protocols which have led to the loss of user funds. There have been incidents whereby an individual signs a transaction on a protocol, and their tokens in the wallet are drained to a different address. However, in such a fast paced industry, such mishaps are bound to happen and a couple of bad apples shouldn’t represent the entire industry.
On top of that, with the increase in activity on various blockchains, some crypto wallets have had a hard time keeping up. Thus, this has led to certain wallets lagging or being slow to load. However, with better infrastructure down the line, this should be an issue of the past.
Aside from being able to interact with a multitude of protocols, more wallets are starting to add a swap feature. How this usually works is by integrating with a liquidity aggregator, and the wallet acts as a UI in which to facilitate the swap. This allows users to swap between different tokens (as long as there’s liquidity) through the wallet itself. However, the only caveat is that swap fees tend to be higher than that of a centralized exchange.
What Can Wallets Be in the Future?
Everyday Digital Wallet
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Fiat digital wallets have gained traction over the past decade, with the likes of CashApp and Venmo popular in North America, Alipay and WeChat in China, M-pesa in Africa, and Grab in South East Asia. These wallets allow users to store fiat currency in them, and are widely accepted by merchants across their respective markets. This has negated the need to carry around large amounts of cash and credit / debit cards. Instead, small amounts of cash can be kept in digital wallets on their mobile devices.
With acceptance of cryptocurrencies by merchants on the rise, users will need a wallet where they can carry out crypto transactions securely and easily on a daily basis. This is where mobile cryptocurrency wallets may come into play, whereby users store small amounts of their crypto holdings on their mobile phones. Just like how digital wallets have slowly replaced the use of cash, crypto wallets could offer consumers an alternative way to transact. Trust Wallet has tried to differentiate themselves from the rest of the crypto wallets by being mobile-first, though other popular wallets such as Metamask and Phantom have also subsequently deployed mobile apps.
Investments / Savings Hub
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These days, there are various savings and investment apps out there, each offering a different asset class to cater to different risk tolerance. Some are robo-advisors, while others allow you to purchase stocks or funds or other investment products at the tip of your fingers.
While crypto exchange apps are available, these don’t allow you to hold your own private keys. Therefore, if the exchange were to get hacked, it is likely that you would lose your holdings. Meanwhile, with a digital wallet, you’re in control of your funds and security. Down the line, wallets may offer users the ability to interact with multiple investment offerings through the wallet itself. Examples of such offerings include DeFi protocols like Index Coop which offers various crypto indexes or money markets like Aave. Alternatively, these wallets may partner with centralized yield aggregators like BlockFi, and Celsius.
Digital Identity
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Similar to how having a Google profile allows users to access a variety of services and applications without having to create multiple accounts, crypto wallets could have similar functionality in web3. We’re already seeing this happen whereby crypto wallet users are able to simply connect to decentralized protocols and begin using them. There’s no need to submit personal information, or create a new password.
As more traditional companies enter the crypto space, we can expect to see them adopt such login features. The wallet could also act as an access tool down the line. For example, holding a certain NFT grants you access to a private Telegram group, or to a holder's event. Certain music artists have been experimenting with NFT concert passes for example, which can also be held and displayed in your wallet.
Perhaps even, these wallets could contain personal information such as driving licenses, or passports.
Web3 Social Network
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With NFTs taking the world by storm, we’ve seen many owners proudly display their purchases on social media and use them as profile pictures. We’ve yet to see a wallet which allows users to display their NFTs (apart from using an NFT marketplace) similar to someone's Instagram profile.
In addition, with a digital identity attached to these wallets, there is potential for them to evolve to become social networks such as Facebook, and Twitter. Users can therefore interact with each other, and share content on their profiles. Imagine being able to perform crypto transactions, and “shitpost” all from the same platform. Twitter has integrated tipping with crypto into its platform, but such a product on a crypto wallet is yet to be seen.
Multichain Support
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Without a doubt, the crypto world is expanding with new chains popping up every now and then. However, the majority of wallets out there at the moment don’t support all chains. Some support certain ecosystems, while others support Ethereum and Ethereum Virtual Machine (EVM) chains. In the future, it is likely that there will be multiple options which can act as one stop hub for all the different blockchains out there. The popular Phantom Wallet for Solana already aims to do so, and is developing its wallet to expand to chains outside of Solana.
Bridge to a Multichain World
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In order to get to different chains, one has to use a bridge to transfer funds from one chain to the other. While bridging applications already exist out there, being able to do so from the comfort of your wallet will make the experience that much easier. One wallet working on this is XDEFI, which is working to integrate the THORCHAIN protocol into their wallet. Once their product is live, users will be able to swap any assets from one ecosystem to another, without the hassle of manually bridging from chain to chain.
User-friendly Features
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As aforementioned, there are many malicious protocols out there which have cost people millions of dollars in losses. However, this could be circumvented at least partially if crypto wallets put out warnings for specific protocols which have been known to be dubious. This would be especially helpful for individuals who are new to the crypto space and may accidentally connect to any protocol without knowing the implications.
At the same time, current wallets aren’t very informative when it comes to displaying gas prices. It would be very helpful, especially for new users if such information was shown. Even information such as: times of the day where gas tends to be cheaper historically, or warn users if gas prices are higher than usual.
Finally, there is potential for wallets to be the app store or dApp indexing engine for crypto. There are many many new dApps and protocols being launched out there, and wallets can help users discover new ones as they go through their crypto journey, either through thoughtful curation, or just through surfacing new dApps to try. This could be a very powerful role as wallets would have a set of captive user base for dApps to tap.
Multisig Support
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Crypto wallets are currently only able to support one profile per seed (multiple accounts can be created, but they’re all accessed via one seed). In order to create another profile, users will have to create a new browser profile, followed by setting up a new wallet.
This is an issue when it comes to creating an account for a company or organization, but don’t want it to mix with your personal wallet. On top of that, multisig is usually added for such wallets, but users must use a different service to do so. Integrating a multisig service into wallets would make it that much easier for users to create such accounts.
Closing Thoughts
Crypto wallets are vital in driving the industry forward, as they are typically one of the first things a new user interacts with when they want to interact with crypto. Even long-time degens still rely on their trusted wallets to interact with many protocols, and as the number of users increase, their needs increase too. These crypto wallets will likely be the foundation of mass adoption, and relevant features need to be continuously built out to support the many varied crypto users out there..
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Shaun is a Research Analyst at CoinGecko, who has lived and breathed crypto since 2017. Previously a community manager for Synthetix and RedFOX, he dived down the crypto rabbit hole to grasp a better understanding of the industry. He now spends copious amounts of time on Crypto Twitter and Telegram, searching for the next idea for CoinGecko Research. Follow the author on Twitter @ShaunPaulLee
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