A brief analysis of the role of crypto wallets in Web3 in the future: savings, digital identity and social interaction

By Shaun Paul Lee

Original title: " Crypto Wallets & The Role They'll Play In A Web3 Future "

Compiled by: Cookie, Chain Catcher

Wallets are an important part of daily life. This does not refer to wallets that hold physical fiat currency, but encrypted wallets that store digital currency, NFTs and digital identities.

Most cryptocurrency holders only care about the value of their wallets, not the performance of their wallets. Wallets are the backbone of the crypto industry. Without wallets, it will be difficult for users to perform transactions. Wallets are becoming increasingly important and are used as a gateway to cryptocurrencies, including for trustless logins to web3 applications, purchasing cryptocurrencies, and even representing personal digital identities.

Sensitive funds and innovative thinkers have seen the potential value of wallets, and new wallets have sprung up like mushrooms and raised a lot of money from investors.

Wallet status

Crypto wallets have come a long way, starting with just storing tokens and occasionally transferring money. Recently, with the growth of decentralized finance (DeFi) and non-fungible tokens (NFTs), most wallets have had to introduce new features to support users interacting with these protocols. At the same time, hardware wallets and wallet apps can also work together, and both are able to provide seamless interaction.

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

On top of that, as the various blockchains accelerate, some crypto wallets have a hard time keeping up. As a result, this causes some wallets to lag behind in updates or load slowly. As blockchain infrastructure improves, this will become a problem of the past.

In addition to enabling users to interact with multiple protocols, more wallets are beginning to add exchange functionality. This is often done through liquidity aggregators, with the wallet simply acting as a UI to facilitate the exchange. This allows users to exchange different tokens (as long as there is liquidity) through the wallet. The only thing to note is that the fees are often higher than those of centralized exchanges.

What will wallets of the future look like?

Everyday digital wallet

Digital wallets for fiat currencies have gained widespread attention over the past decade, with CashApp and Venmo being popular in North America, Alipay and WeChat in China, M-pesa in Africa, and Grab in Southeast Asia. These wallets allow users to store fiat currencies in them and are widely accepted by merchants in their respective markets. This saves people from having to carry large amounts of cash or credit/debit cards. Instead, a small amount of cash can be used to meet daily needs, and the rest of the funds are kept in digital wallets on mobile devices.

As more and more merchants accept cryptocurrencies, users only need a 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 another way to transact. Trust Wallet tried to differentiate itself from other crypto wallets by giving priority to mobile apps, and other popular wallets such as Metamask and Phantom subsequently deployed mobile applications.

Investment/Savings Center

There are many savings and investment apps on the market today, each offering different asset classes to suit users with different risk tolerances. Some are robo-financial management solutions, while others allow users to buy investment products such as stocks or funds.

While users can use centralized exchanges to trade, these applications do not allow users to hold the private keys to their crypto assets. Therefore, if the exchange is hacked, users are likely to lose their assets. With a crypto digital wallet, users can control their funds and security. In addition, the wallet also provides users with services to interact with a variety of investment products, including various DeFi protocols, such as Index Coop, which can provide various crypto indexes or currency markets, Aave, which provides lending services, and centralized yield aggregators such as BlockFi and Celsius.

Digital identity

Similar to how Google allows users to access various applications without having to create multiple accounts, crypto wallets can also have similar functionality in web3. This is already happening, with crypto wallet users being able to connect to decentralized protocols at any time and start using them without having to submit personal information or register an account.

As more traditional companies enter the crypto space, we can expect to see this login feature gain mass adoption. Wallets can also serve as identity verification tools. For example, holding a certain NFT is required to join a private Telegram group or a specific event. For example, some musicians have been experimenting with using NFTs as concert tickets, which users can keep in their wallets or display.

Even these wallets can contain personal information, such as a driver's license or passport.

Web3 Social

As NFTs sweep the world, many NFT holders display their NFTs on social media and use them as profile pictures. Currently, no crypto wallet allows users to use their NFTs as profile pictures.

Furthermore, since these wallets have digital identities attached to them, they have the potential to evolve into social networks like Facebook and Twitter. Thus, users can interact on-chain and share content on their profiles. Imagine users being able to perform crypto transactions and post opinions from the same platform. Twitter has already integrated the ability to tip cryptocurrencies into its platform, but such products on crypto wallets remain to be seen.

Support multiple chains

There is no doubt that the crypto world is developing rapidly and new public chains are constantly emerging. However, most wallets currently do not support all public chains. It is very likely that a one-stop center for different public chains will appear in the future. Phantom Wallet has already done this and is developing versions for other public chains besides Solana.

Cross-chain bridge

In order to circulate funds between different public chains, users must use a cross-chain bridge to transfer funds from one chain to another. Although some cross-chain bridge applications already exist, users will be able to complete the cross-chain in the wallet to make the experience more smooth. One of the representatives is the XDEFI wallet, which integrates the THORCHAIN ​​protocol into the wallet. Once the product is launched, users will be able to exchange assets from one ecosystem to another without having to manually complete it in the cross-chain bridge.

User-Friendliness

Many malicious protocols have caused crypto users to lose millions of dollars. If crypto wallets warn users about known suspicious protocols, it can at least allow users to avoid some of the losses. This is especially useful for newcomers who are not familiar with the crypto world.

At the same time, the current wallet displays very little information about Gas. If the wallet can display more of this information, it will be very helpful to users, especially for new users. For example: sending notifications to users when the Gas price is historically low, or when the Gas price is higher than the average price.

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

Multi-Signature

Currently, the mnemonic of the crypto wallet can only support one profile (multiple accounts can be created, but all are accessed through one mnemonic). In order to create another profile, the user must create a new profile to set up a new wallet.

This makes it difficult for companies or organizations to create accounts, as administrators do not want to mix company wallets with personal wallets. On top of that, such wallets are usually multi-signature, but users must use other tools to complete multi-signature. Wallet integration with multi-signature services will make it easier for users to create such accounts.

Conclusion

Crypto wallets are critical to driving the industry forward, as wallets are often the first application new users interact with crypto. Even degens still need to use a trusted wallet to interact with many protocols. As the number of users increases, the demand for wallets also increases. These crypto wallets may become general-purpose software and will need to continuously build relevant features to support a large number of crypto users.