A Brief Analysis of the Role of Cryptocurrency Wallets in Web3: Savings, Digital Identity, Social.

Original Author: Shaun Paul Lee

Original Title: 《Crypto Wallets \& The Role They'll Play In A Web3 Future》

Compiled by: Biscuit, Chain Catcher

Wallets are an important part of daily life, referring not to physical currency wallets, but to crypto wallets that store digital currencies, NFTs, and digital identities.

Most cryptocurrency holders only care about the value of their wallets and do not consider the performance of the wallet. Wallets are the backbone of the crypto industry. Without wallets, users would find it difficult to execute transactions. Wallets are becoming increasingly important as gateways for cryptocurrencies, including for trustless logins to web3 applications, purchasing cryptocurrencies, and even representing personal digital identities.

Savvy investors and innovative thinkers have recognized the potential value of wallets, leading to a surge of new wallets emerging and raising significant funds from investors.

Current State of Wallets

Crypto wallets have come a long way, initially used only for storing tokens and occasional transfers. Recently, with the rise of decentralized finance (DeFi) and non-fungible tokens (NFTs), most wallets have had to introduce new features to support user interactions with these protocols. At the same time, hardware wallets and wallet apps can work in tandem, both providing seamless interactions.

However, due to the convenience and ease of connecting protocols, authorizing signatures, and executing transactions, many users overlook the security of interacting with underlying protocols. When users interact with malicious protocols, it can lead to the loss of funds. There have been instances where users signed transactions on a protocol, only to have tokens in their wallets maliciously transferred to different addresses. In a rapidly evolving industry, such unfortunate events are bound to occur; however, a few malicious cases should not represent the entire industry.

Most importantly, as various blockchains accelerate in development, some crypto wallets struggle to keep up. This has led to certain wallets lagging in updates or loading slowly. As blockchain infrastructure improves, this will become a thing of the past.

In addition to enabling users to interact with multiple protocols, more wallets are beginning to add exchange functionalities. This is often achieved through liquidity aggregators, with wallets merely serving as a UI to facilitate exchanges. This allows users to swap different tokens directly through their wallets (as long as there is liquidity). The only caveat is that fees are often higher than those of centralized exchanges.

What Will Future Wallets Look Like?

Everyday Digital Wallets

Fiat currency digital wallets have gained widespread attention over the past decade, such as CashApp and Venmo in North America, Alipay and WeChat in China, M-Pesa in Africa, and Grab in Southeast Asia. These wallets allow users to store fiat currency and are widely accepted by merchants in their respective markets. This means people no longer need to carry large amounts of cash or credit/debit cards. Instead, a small amount of cash can meet daily needs, while other funds are stored in the digital wallet on their mobile devices.

As more merchants begin to accept cryptocurrencies, users will only need one wallet to conduct crypto transactions safely and easily. This is where mobile cryptocurrency wallets come into play, allowing users to store cryptocurrencies on their phones just like fiat currency digital wallets. Crypto wallets can provide consumers with an alternative way to transact. Trust Wallet attempts to differentiate itself from other crypto wallets by prioritizing mobile apps, followed by other popular wallets like Metamask and Phantom also deploying mobile applications.

Investment/Savings Hub

Today, there are many savings and investment apps on the market, each offering different asset classes to cater to users with varying risk tolerances. Some are robo-advisory solutions, while others allow users to operate and purchase investment products like stocks or funds.

While users can trade using centralized exchanges, these apps do not allow users to hold the private keys to their crypto assets. Therefore, if an exchange is hacked, users are likely to lose their assets. In contrast, using a crypto digital wallet allows users to control their funds and security. Additionally, wallets provide users with services to interact with various investment products, including various DeFi protocols, such as Index Coop offering various crypto indices or money markets, Aave providing lending services, and centralized yield aggregators like BlockFi and Celsius.

Digital Identity

Similar to how Google allows users to access various applications without creating multiple accounts, crypto wallets can also have similar functionalities in web3. This is already happening, as crypto wallet users can connect to decentralized protocols and start using them without submitting personal information or registering accounts.

As more traditional companies enter the crypto space, we can expect to see this login functionality widely adopted. Wallets can also serve as authentication tools. For example, holding a specific NFT may grant access to a private Telegram group or a specific event. Some musicians have been experimenting with using NFTs as concert tickets, which users can store in their wallets or display.

These wallets could even contain personal information, such as driver's licenses or passports.

Web3 Social

As NFTs sweep the globe, many NFT holders showcase their NFTs on social media and use them as profile pictures. Currently, there are no crypto wallets that allow users to use their held NFTs as profiles.

Moreover, as these wallets incorporate digital identities, they have the potential to evolve into social networks like Facebook and Twitter. This would allow users to interact on-chain and share content on their profiles. Imagine users being able to conduct crypto transactions and express opinions from the same platform. Twitter has integrated a feature for tipping with cryptocurrencies into its platform, but such products on crypto wallets remain to be seen.

Multi-Chain Support

There is no doubt that the crypto world is rapidly evolving, with new public chains emerging continuously. However, most wallets currently do not support all public chains. It is likely that a one-stop hub for different public chains will emerge in the future. Phantom wallet has already done this and is developing versions for other public chains beyond Solana.

Cross-Chain Bridges

To allow funds to circulate across different public chains, users must use cross-chain bridges to transfer funds from one chain to another. While some cross-chain bridge applications already exist, enabling users to complete cross-chain transactions within their wallets would create a much smoother experience. A representative example is the XDEFI wallet, which integrates the THORCHAIN protocol into the wallet. Once the product is launched, users will be able to swap assets from one ecosystem to another without manually completing the process in a cross-chain bridge.

User-Friendly

Many malicious protocols have caused crypto users to lose millions of dollars. If crypto wallets could warn users about known suspicious protocols, it could at least help users avoid some losses. This is particularly useful for newcomers who are unfamiliar with the crypto world.

At the same time, the current wallets display very little Gas information. If wallets could show more such information, it would be very helpful for users, especially new ones. For example: periods when Gas prices were historically low, or notifications for users when Gas prices exceed the average.

Finally, wallets have the potential to become an app store for crypto or a Dapp search engine. New Dapps and protocols will be launched there. Wallets can serve as tools for users to explore the crypto world, which is a very powerful role, as wallets will have a large potential user base for numerous Dapps.

Multi-Signature

Currently, the mnemonic phrases of crypto wallets only support one profile (multiple accounts can be created, but they are accessed through one mnemonic phrase). To create another profile, users must create a new profile to set up a new wallet.

This poses challenges for companies or organizations when creating accounts, as administrators do not want to mix company wallets with personal wallets. Most importantly, such wallets are often added with multi-signature capabilities, but users must use other tools to complete multi-signatures. Integrating multi-signature services into wallets would make it easier for users to create such accounts.

Conclusion

Crypto wallets are crucial for driving industry development, as wallets are often the first application for new users to engage in crypto interactions. Even degens still need to use trusted wallets to interact with many protocols. As the number of users increases, the demand for wallets is also rising. These crypto wallets may become universal software and need to continuously build relevant features to support a multitude of crypto users.